A competitor is bad-mouthing me to my own clients. What should I do?

A larger rival has started putting real pressure on my business, calling up my clients and openly disparaging me in the marketplace. At what point does this become uncompetitive behaviour?

It is not unusual for rivals to compete for clients, with rivals contacting each other’s clients in an attempt to lure them away.

Unfortunately, there is generally nothing “illegal” about that, all things being equal and assuming there was nothing untoward in accessing those client details, such as theft of a client database.

However, that does not mean your competitor can say whatever it likes about you to your clients.

Depending on the circumstances and the conduct of your competitor, you may have recourse at law to protect your reputation or that of your company’s, or under the Australian Competition and Consumer Act 2010.

Open disparagement in the marketplace

Depending on what your competitor is saying about you or your business to your clients, you may have an action for defamation or injurious falsehood.

Defamation

The law of defamation is intended to protect a person’s reputation from negative comments publicly expressed about that person.

Generally, to establish a case in defamation there must be communication of a statement that directly asserts, or insinuates, something negative of or about a person to a third party.

The communication may be through spoken or written words, imagery or other forms of communication.

However, defamation can only be used to protect the reputation of people, not companies. However, there are two exceptions: one is for companies not formed for financial gain (i.e. charities), and the other is for companies with fewer than 10 full-time equivalent employees.

If you are operating through a company and the exceptions don’t apply, then an action for defamation will not be available.

In these circumstances, you may wish to consider a potential action in injurious falsehood (see below).

Injurious falsehood

Different to defamation, the law of injurious falsehood is intended to protect a business against financial loss resulting from false and malicious statements directed at damaging the business.

Generally, what is required here is that there must be the communication of a statement that has been proven to be false; the mere self-promotion by a competitor of his or her own goods to your clients will not ordinarily constitute a false statement.

The comments must have also been malicious, and this is essentially a question of state of mind, and may not be easy to prove.

Further, you must be able to prove financial loss to your business as a result of the comments made by your competitor.

Realistically, satisfying these criteria of financial loss will in many circumstances be difficult to achieve as it may be hard to quantify how the comments directly contributed to the financial loss sustained by your business.

As the legal requirements are complex and highly dependent on the facts, I suggest you see an expert who may assist you further based on your particular facts.

Uncompetitive behaviour as a breach of the Australian Competition and Consumer Act 2010

Competition between companies is regulated in Australia under the Australian Competition and Consumer Act 2010.

The Act prohibits certain types of competitive behaviour between companies, including:

• Certain types of contracts or arrangements between competitors that lessen or are likely to lessen competition.
• Price-fixing and other cartels.
• Monopolisation of the market.
• Anti-competitive mergers.
• Certain types of boycotts.
• Re-sale price maintenance.
• Exclusive dealings and other practices restraining trade.
• Misuse of market power.

From what you have said, it is difficult to determine whether your competitor may have breached the rules in the Act.

Whether there have been breaches of the Act and whether you have recourse to any legal remedy will depend heavily on your specific circumstances and facts.

If you are concerned that your rival has breached the Act, again I would suggest you see an expert to explore this further and obtain proper advice.