Wall Street Journal Sports Editor, Jason Gay, posed this question to two top horse racing writers, Pia and Jim:
Question: “Last year we saw an outburst by California Chrome owner Steve Coburn after his horse lost his Triple Crown bid at Belmont—basically saying it’s an unfair scenario for a horse that has raced the Derby and Preakness to be facing fresh competitors. He felt if you’re in for one, you should be in for all three. Is that a reasonable proposal?”
Pia replies: “Coburn’s proposal will never happen, mainly because racing is so decentralized that no one can agree on anything. His horse lost and that’s too bad. Happens all the time.”
And Jim adds: “It [the triple crown][is] supposed to be hard to accomplish.”
This assertion–that it’s unfair competition for a Derby Preakness winner to face new, presumably fresh-legged, steeds in the Belmont Stakes Race, this year coming up next week–should cause us to reflect on the regulation of competition in the business world. Although a vast subject–the American Law Institute publishes a 650 page treatise entitled the “Restatement of the Law of Unfair Competition, it can essentially be boiled down to three categories: regulation of competition by governments and their approved self-governing agencies, protection of intellectual property, and prohibition of fraudulent and deceptive advertising. In each case, the law recognizes the same dilemma of the Belmont–restricting competition may have other consequences, and a balance should be struck among opposing values and interests.
- Governmental Regulation
Business owners are generally charged with the knowledge of the regulatory environment in which they operate. Amazingly, our firm occasionally represents clients who plead a total ignorance of regulations applicable to their business. Unfortunately, ignorance is rarely a defense. So, the horse owners racing in the Belmont know the rules–every business owner should be able to say the same about its business
Much of this regulation is based on the notion of leveling the competitive playing field, i.e., addressing unfair competition. For example, the Securities and Exchange Commission heavily regulates broker dealers, in part for the protection of the investing public, but also to prevent unfair competition, such as for example prohibiting political contributions in exchange for underwriting business. Anti-trust law is also grounded in leveling the playing field among competitors.
For whatever reason, the New York Racing Commission, has not seen fit to impose a regulation on the Belmont Race that requires entrants to have also competed in the prior races of the so-called Triple Crown. The reporter asserts that decentralization is the culprit, but other factors may be at work .
- Patent, Trademark and Intellectual Property
The Hawley Troxell Corporate Newsletter and our key blogs, have constantly reminded our clients to be mindful of the need to protect their intellectual property and to avoid infringement of others’ intellectual property. However, just as the Wall Street Journal Reporters, and presumably the New York State Racing Commission, find countervailing policy arguments not to restrict competition, The Restatement recognizes that enforcement of trademark infringement “may be outweighed by advantages of unrestricted imitation and dissemination as embodies in the concept of the public domain. Patent law is the noteworthy exception to the general premise of leveling the playing field. Although the bar to obtaining a patent may be high, once achieved, the benefits of it to the owner are to exclude competition.
- Fraudulent and Deceptive Practices
The Restatement sets forth the common law rule for deceptive marketing:
“One who, in connection with the marketing of good or services, makes a representation to the actor’s own goods, services or commercial activities that is likely to deceiver or mislead prospective purchasers to the commercial detriment of another… is subject to liability.”
Thus, there is a common law right to sue for damages or injunction a competitor who engages in deceptive practices. Usually, the more series threat comes from the Federal Trade Commission which can bring an action for injunction or a damages. A useful guide for business owners can be found on the FTC website: https://www.ftc.gov/tips-advice/business-center/guidance/advertising-faqs-guide-small-business
The Triple Crown illustrates the way in which regulation, or lack thereof, balances the desire for a level playing field with other values. In the case of the Triple Crown, it is to make the achievement noteworthy, even if rare–the last Triple Crown Winner was in 1978. Just so in business, where the Restatement notes that “the freedom to engage in business and to compete for the patronage of prospective customers is a fundamental premise of the free enterprise system.” Balanced against that premise are the myriad instances in which regulating competition creates parity among competitors and protects the public.