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Colorado Law Protects Companies from Unfair Competition

December 19, 2017 | 4 min read

Back in June, tech giant Amazon shocked the business world when it revealed plans to acquire natural grocer Whole Foods. For the most part, the nearly $14 billion deal elicited either cheers or tears. While most people hailed the move, hoping the Web retailer would cut prices at the high-end organic food chain, others decried it, claiming the union would quash competition and kill American jobs.

In fact, United Food and Commercial Workers International Union President, Marc Perrone, filed a complaint with the Federal Trade Commission over the merger.

“Amazon’s reach will ultimately reduce the number of grocery competitors that consumers can choose from,” Perrone wrote. “Regardless of whether Amazon has an actual Whole Foods grocery store near a competitor, their online model and size allows them to unfairly compete with every single grocery store in the nation.”

Of course, the FTC disagreed, and the merger closed by the end of August, giving Amazon a 1.3 percent market share in the grocery space, placing it near the bottom of the nation’s 13 national grocery store chains. By comparison, Walmart, the largest chain in the country, has a market share of 14 percent. So, just by looking at the numbers, it is clear the Amazon-Whole Foods merger posed very little threat to a well-established, highly competitive industry, which is why it earned regulatory approval so quickly.

Clarifying What Constitutes Unfair Competition

Amazon might be one of the world’s biggest companies, but that does not inherently make it an unfair competitor in a particular industry.  If anything, these numbers suggest that Amazon, despite its size, is a pretty small player in the grocery store market.  In fact, unfair competition is a term typically applied to dishonest or fraudulent behavior meant to harm a rival. For the most part, federal and state laws exist to encourage fair and robust competition in commerce. But just like any other competition, rules have to be followed and rule breakers should be punished. If that happens in business, the damaged competitor could have the right to sue for damages, especially if it is discovered that there was intentional interference that rises to the level of unfair competition.

Colorado courts can protect business owners from unfair competition to existing contractual relationships as well as to potential contractual relationships.  For example, Colorado courts have held that a party who intentionally and improperly interferes with another’s prospective contractual relation is subject to liability to the other for the harm resulting from loss of the benefits of the relation, whether the interference consists of: (a) inducing or otherwise causing a third person not to enter into or continue the prospective relation or (b) preventing the other from acquiring or continuing the prospective relation. This “tortious interference” with a prospective business relation requires a showing of intentional and improper interference preventing formation of a contract.  Of course, one of the sticking points of this is the interpretation of the word “improper.” Nevertheless, the law essentially declares that if one business engages in unfair conduct that deliberately attempts to harm a competitor under the guise of “competition,” that party could be liable for any damages it causes.

What Unfair Competition Looks Like

While Amazon’s purchase of Whole Foods was approved and so does not run afoul of state or federal laws governing unfair competition, we can use the merger to illustrate what actions businesses could have taken that would have been legally questionable.  As a hypothetical example:

  1. ABC Grocery Store and 123 Grocery Store are national grocery store chains and competitors. Let’s say both companies buy their coffee from Coffee Chain. Let’s also suggest that 123 Grocery Store is Coffee Chain’s single biggest customer, making up 50 percent of their wholesale business. After news of a buyout of ABC Grocery Store, executives at 123 demand that Coffee Chain stops selling to ABC, or they will pull all of their business. The 123 execs clearly hope that this move will hurt ABC’s sales. Based on these facts, ABC might be able to sue 123 for intentional interference with a contractual relationship if Coffee Chain does cut off its supply of coffee to ABC.
  2. Or, what if XYZ Food Company pursued a contract to supply a new brand of organic peanut butter to ABC Grocery Store? And a 123 Grocery Store executive met with an XYZ sales rep and hinted that ABC Grocery Store was investigated recently by the FTC for incorrectly relabeling its peanut butter. This investigation never took place, obviously, so ABC may be entitled file suit against 123 for intentional interference with a prospective business relationship.

In Colorado, one of the primary functions of business law is to shield both companies and consumers from competitors who might want to unfairly harm a rival’s business. If someone’s intentional interference has hurt your company, you could be entitled to money damages. The Colorado commercial litigation lawyers at Burg Simpson have decades of experience working through business disputes such as these. Do not wait to call us at 303-792-5595 so we can go over your case and explore what options might be available to you.