Whether in the ring or the courtroom, no one knows if X (formerly Twitter) and Facebook will exchange blows

Two behemoths situated in California are seemingly priming for a legal battle with far-reaching implications. Facebook, Inc., now Meta Platforms, Inc., received a letter recently from Twitter, Inc., now X Corp., concerning Facebook’s alleged unfair competition with Twitter. Twitter’s July 6, 2023, letter was sent on the eve of its rebranding to X Corp., which, apparently, Facebook already has registered for trademark/service mark protection.

Twitter’s letter contends that Facebook engaged in unfair competition by raiding its employee base and hiring employees with confidential information to build “Threads,” Facebook’s competitor to Twitter’s core service. Facebook has not formally notified Twitter that it has engaged in unfair competition by using the “X” logo in Twitter’s rebrand. It appears that both companies are waiting for the other to strike first – perhaps because both face steep legal hills to climb.

In California, Business and Professions Code section 16600 renders void “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind.” California Courts have broadly interpreted section 16600 to invalidate judicial action that has the effect of restraining an individual from practicing a trade, profession, or calling – although it appears damages may be awarded for such competition, provided they do not work a “restraint” on an employee’s ability to engage in their calling. See e.g., Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937, 945-949 (2008); The Retirement Group v. Galante, 176 Cal. App. 4th 1226, 1238 (2009).

To prevail on an unfair competition claim, a plaintiff must show that a defendant misappropriated their confidential information or trade secrets without consent. But that does not appear to be the gravamen of Twitter’s claims – which are focused on Facebook hiring Twitter’s employees to develop Threads. It is generally not unfair competition to simply hire a competitor’s employees – although there are cases, which predate the expansion of section 16600, that hold that “raiding” a competitor’s personnel is unfair competition. However, the interplay between these cases and section 16600 has never been addressed by the California Supreme Court.

Unless Twitter can show that Facebook hired employees who stole confidential information belonging to Twitter – perhaps proprietary code – and ratified those employees’ conduct by knowingly allowing them to implement the confidential information in Threads, Twitter will likely be unsuccessful in its claims under the current weight of California authority. But Twitter may be able to convince the California Courts that section 16600 does not apply to “raiding” claims, and that imposing liability, both at law and in equity, on Facebook’s ex-employees is not a “restraint” under section 16600.

Facebook’s suit against Twitter is more straightforward. But it also is unlikely to have real legs. Facebook may assert that Twitter’s use of a substantially similar servicemark – the “X” logo – would cause consumer confusion, and thus must be barred as Twitter’s use of Facebook’s mark is a form of unfair competition. The wrinkle here is that Facebook does not appear to have used its mark in commerce, so it has not established a secondary meaning in consumer’s eyes linking “X” to Facebook. Further, the “X” logo Twitter uses is a different color and font than the “X” logo Facebook registered for protection – making confusion unlikely.

In any event, Facebook’s claim of unfair competition premised on service/trademark infringement seems to be clearer given that it’s premised on a less amorphous form of unfair competition. But the claim also faces steep hills to climb in California Courts. See e.g., KGB, Inc. v. Giannoulas, 104 Cal. App. 3d 844 (1980).

At bottom, both companies’ foreseeable claims of unfair competition rely on novel interpretations of existing law. Determining whether those interpretations are correct will likely require multiple trips to each level of the California Courts.

The implications of this future legal dispute may be substantial. If Twitter can convince California Courts that various forms of unfair competition survive section 16600, then California employers will have a stronger basis in the future to sue or prevent their employees from working for competitors, if they can show that the competitor targeted the employees and lured them away. Presently, such a claim may or may not be summarily dismissed under California law. Essentially, if Twitter is successful, it will provide California employers with leverage to control their competitors’ hiring practices by allowing unfair competition claims to survive past the pleading stage.

As for Facebook’s claim, if it is successful, it will establish a precedent that a generic letter may be registered, not known by the public, and still be a basis for an unfair competition claim premised on infringement. This would expose numerous businesses who use generic letters or names to liability, further increasing the cost of doing business in California.

To avoid issues of unfair competition now and in the foreseeable future morphed by this dispute, California businesses should refrain from hiring their competitors’ employees, but especially by directly contacting them. They should also check trademark registries to ensure their business name is not substantially similar to another business’ name, even if that business is not using the mark at issue. Otherwise, once a business is successful such that a suit against it could be profitable, “intellectual property trolls” may come out of the woodwork. Businesses may suddenly find themselves facing a claim that they infringed on a trademark that was never used in commerce. They may ultimately be forced to disgorge their profit resulting from the use of the mark, which, an expert would argue, could end up being all profits made.

For now, it appears that Facebook and Twitter are both waiting for the opportune moment to bring their claims against each other. Perhaps that moment will come after Mr. Musk and Mr. Zuckerberg face off in their anticipated cage match – the loser in the physical fight can turn to the legal fight.