Unfair Competition Between Former Partners: Limits on Business Activity After Dissolution of the Partnership

This article analyzes the legal boundaries of business activities conducted by former partners following the dissolution of a partnership, with an emphasis on the characterization of unfair competition. The dissolution of a business partnership does not, in itself, authorize the use of privileged information, client lists, operational structures, or the former company’s know-how. Based on the principles of contractual loyalty, objective good faith, and trade secret protection, this study addresses scenarios in which a former partner’s conduct may be deemed abusive, the use of preventive contractual clauses, and the mechanisms for civil liability and enforcement against unfair competition.

The dissolution of business partnerships—particularly limited liability or closely held companies—does not always terminate all ties and disputes between former members. It is common for a former partner to establish a business in the same industry, often relying on knowledge, commercial relationships, and strategies developed while part of the former company.

Although the free exercise of economic activity is constitutionally protected, this right is not absolute, and a former partner’s actions may amount to unfair competition under Article 195 of the Industrial Property Law (LPI) when they exceed market norms and infringe on the rights of the former company.

This article seeks to define the legal limits of a former partner’s post-dissolution conduct, distinguishing between legitimate and unlawful competition, based on legal doctrine, case law, and applicable legislation.

2. Principle of Good Faith and Post-Contractual Duty of Loyalty

The partnership relationship, like any long-term contract, gives rise to post-contractual obligations that extend beyond the formal termination of the company.

Objective good faith, as set forth in Article 422 of the Civil Code, imposes duties of:

• Business loyalty

• Prohibition on misuse of confidential information

• Protection of the legitimate trust built during the partnership

“Contracting parties are bound to observe the principles of honesty and good faith during the formation and performance of the contract.”

In the corporate context, this means a former partner may not use the previous company’s clientele, strategies, internal systems, or other intangible assets to gain an unfair competitive advantage.

3. Unfair Competition: Legal Grounds and Application to Former Partners

The Industrial Property Law (Law No. 9.279/96) establishes in Article 195 the acts that constitute unfair competition, including:

Art. 195. Engaging in unfair competition includes:

[...]XI – Disclosing, exploiting, or using, without authorization, the content of confidential information used in industry, commerce, or services, accessed through a contractual or employment relationship.III – Employing fraudulent means to disrupt a competitor.

[...]

These acts may occur even in the absence of direct fraud, as long as the former partner’s conduct exceeds the normal bounds of fair competition, such as:

• Targeted solicitation of former clients using databases acquired during the partnership

• Mass recruitment of the former company’s employees

• Use of know-how, business models, or technology developed jointly

• Creating confusion among consumers regarding the identity or continuity of the former company

4. Case Law on Improper Competitive Conduct by Former Partners

“It is abusive for a former partner to establish a competing business using strategic information obtained during prior management, which characterizes unfair competition.” (STJ, REsp 1.501.091/SP, Justice Paulo de Tarso Sanseverino, judgment on 11/24/2020)

“The mere formation of a new company does not constitute unfair competition. However, using the former company’s clientele without express authorization may violate the post-contractual duty of loyalty.” (TJSP, Civil Appeal 1007743-65.2021.8.26.0100, judgment on 08/14/2023)

“Trade secret protection does not require formal registration. Unauthorized acquisition and use by a former partner entitles the injured party to compensation for losses and damages.”(TRF3, Civil Appeal 5004726-98.2020.4.03.6100, judgment on 04/27/2022)

5. Preventive Measures: Non-Compete and Confidentiality Clauses

The most effective way to prevent disputes is to include in the articles of association or a separate instrument (e.g., shareholder agreement or termination agreement) specific clauses addressing:

• Non-compete obligations for a defined period after withdrawal

• Confidentiality regarding internal and strategic information

• Contractual penalties for breaches of post-dissolution obligations

• Return of documents, databases, and electronic devices

The enforceability of these clauses depends on reasonable temporal, geographic, and functional limits, otherwise they may be deemed abusive or unenforceable.

6. Legal Remedies for Unfair Competition

If a former partner engages in unfair competition, the affected company may pursue:

• Legal action for material and moral damages

• Injunctive relief to stop the harmful conduct (e.g., prohibition on client contact, removal of websites or platforms)

• Search and seizure of documents or equipment containing confidential data

• Enforcement of penalty clauses and compensation claims, if contractually provided

Evidence may include emails, witness statements, communication records, technical reports, and digital forensic analysis.

7. Final Considerations

The end of a business partnership does not extinguish all obligations between former partners. Subsequent business activity must respect legal boundaries imposed by objective good faith, professional secrecy, and commercial loyalty.

Although entrepreneurial freedom is constitutionally guaranteed, it does not authorize conduct that results in the misappropriation of intangible assets, clientele, or structures from the former company, under penalty of civil liability and compensation for unfair competition.

Preventive contractual clauses, coupled with swift legal action in case of breach, are effective tools to protect the legitimate interests of companies in post-dissolution scenarios.