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by John H. Dresslar
The following summary of California's antitrust laws is designed to
provide attorneys with a brief and general introduction to the most
prominent many of those laws. Any practitioner facing an issue that
potentially involves California antitrust or competition law is advised
to seek experienced counsel and/or to refer to California Antitrust Law,
a 450-page, regularly supplemented book published by the Antitrust and
Trade Regulation Law Section of the State Bar of California.
The antitrust laws of the State of California have many similarities to
their federal and other state counterparts, but do have some marked
differences of note. As I've noted elsewhere, California's Cartwright
Act in many respects parallels (and is interpreted in pari materia with)
Section 1 of the Sherman Act, with some specific exceptions noted below.
However, the Cartwright Act has no direct analog to the antimonopoly
provisions of Section 2 of the Sherman Act, although many monopolistic
practices may be challenged by other antitrust statutes or more general
tort claims, such as causes of action for interference with prospective
business advantage (and of course the ever popular RICO). Further,
California's competition statutes go far beyond the limited competition
strictures of the Sherman and Clayton Acts, proscribing (for example)
the use of loss leaders and locality discrimination in ways that federal
antitrust laws do not address.
This summary is divided into the following sections:
Market Definition Issues
Unfair Practices Act
- Locality Discrimination
- Below Cost Sales
- Loss Leader Sales
- Affirmative Defenses
- Secret Rebates
- Antitrust Injury and Damages
Unfair Competition Statute Generally
Applicability of Federal and Sherman Act Case Authority to California
MARKET DEFINITION ISSUES
California antitrust law has not developed a complete body of decisions
on market definition issues, and relies largely upon federal case
authority. See Corwin v. Los Angeles Newspaper Service Bureau, Inc.
(1971) 4 Cal.3d 842, 855.
Like its federal counterpart in Sherman Act 1, California's antitrust
statute - Bus. & Prof. Code 16720 - bars any agreement among competitors
that would serve to fix prices or allocate customers or markets, albeit
by way of a more detailed list of transgressions than is set out in the
Sherman Act's general prohibitions against "restraints of trade". For
recent court interpretations of what may constitute such proscribed
horizontal agreements and arrangements, the reader is directed to the
following cases: Rosack v. Volvo Corp. of America (1982) 131 Cal.App.3d
741; Mailand v. Burckle (1978) 20 Cal.3d 367; Kolling v. Dow Jones & Co.
(1982) 137 Cal.App.3d 709.
Again like its federal counterpart in Section 3 of the Clayton Act,
California's antitrust laws - Bus. & Prof. Code 16720, 16727 - ban tying
arrangements. However, those statutes may apply to services where the
Clayton Act would not apply. Cases applying the tying laws are: Kim v.
Servosnax, Inc. (1992) 10 Cal.App.4th 842; Suburban Mobil Homes, Inc. v.
Amfac Communities, Inc. (1980) 101 Cal.App.3d 541.
General Rules Governing Pricing Restraints
A buyer who buys a product or service generally may set the price at
which it resells the product or service to others. A seller, in the
absence of an anticompetitive purpose or effect, may independently (1)
announce minimum resale prices and decide to sell or not to sell to a
dealer who has not adhered to those prices; and (2) choose those to whom
it wishes to sell and refuse to sell to any other buyer. Kolling v. Dow
Jones & Co. (1982) 137 Cal.App.3d 709, 719, 722. However, a seller of a
product may not by contract or coercion set the price at which the buyer
may resell the product. Such resale price fixing is always illegal
whether or not the price set is reasonable. Mailand v. Burckle (1978) 20
Cal.3d 367, 377.
Unlawful Termination in the Seller's Enforcement of Vertical Price
When a seller pressures customers or dealers into adhering to its
suggested resale price and then cuts off a distributor for refusing to
do so, the termination generally is assessed under the "rule of reason".
The critical question is whether the refusal is sufficiently
anticompetitive, in purpose or effect, or both, as to be an unreasonable
restraint of trade. In determining whether the seller's actions were
unreasonable, the factfinder is permitted to consider the following
factors: the terms of any contract between the seller and the reseller,
the value to the reseller of its business relations with the seller,
whether the seller has superior bargaining strength or the ability to
terminate the relationship with or without advance notice or good cause,
any other restrictions the seller imposes on resellers, such as
territorial limitations, and any direct efforts to persuade resellers to
follow suggested prices. Marin County Board of Realtors, Inc. v. Palsson
(1976) 16 Cal.3d 920, 937; Bert G. Gianelli Dist. Co. v. Beck & Co.
(1985) 172 Cal.App.3d 1020, 1042-44; Kolling, supra, at 719; R. E.
Spriggs Co. v. Adolph Coors Co. (1979) 94 Cal.App.3d 419, cert. den.
(1980) 444 U.S. 1076; cf., A.B.A., Model Jury Instructions for Antitrust
Cases at S-18-20.
Dual Dealing Distributors
Where a seller not only sells its products to distributors but also
sells products directly in competition with those distributors to many
of the same customers to whom that distributor sells or seeks to sell,
the seller takes a substantial risk if it terminates the distributor and
a substantial factor in bringing about the termination is the dealer's
refusal to abide by the seller's territorial or customer restrictions.
The most recent California appellate case authority on point states that
the termination is to be viewed under per se rules. See Guild Wineries
and Distilleries v. J. Sosnick & Son (1980) 102 Cal.App.3d 627, 636.
Note, however, that more recent federal court authority questions the
continued validity of the Guild Wineries decision and opines that the
California Supreme Court would overrule its holding and instead apply
the rule of reason to dual distribution situations. Dimidowich v. Bell &
Howell, 803 F.2d 1473, 1483 (9th Cir. 1986).
UNFAIR PRACTICES ACT
The Unfair Practices Act bans sales of products at different prices in
different locations within California with the intent to destroy or
prevent competition. See Business and Professions Code 17031; Harris v.
Capitol Records Distributing Corp. (1966) 64 Cal.2d 454.
Below Cost Sales
The Act also bans "sales below cost" by selling or offering to sell
products at prices below the seller's cost in the intent to injure the
complaining party or destroy competition. See Business and Professions
Code 17043; Western Union Financial Services, Inc. v. First Data Corp.
(1993) 20 Cal.App.4th 1530; Sandler v. Gordon (1949) 94 Cal.App.2d 254.
The evidence that may be used to determine the costs involved is set out
in the Business and Professions Code (Business and Professions Code
Sections 17071 et. seq.) varies contingent upon the types of components
that make up the seller's cost of providing the product.
Loss Leader Sales
The Act also bars "loss leader" sales, defined as sales (1) below cost,
(2) to induce, promote or encourage the purchase of other merchandise,
and (3) with the intent to injure competitors or destroy competition.
Business and Professions Code 17044.
The act contemplates various affirmative defenses to a charge of
unlawful loss leader or below cost sales or locality discrimination,
including the fact that the sale was a close-out sale or was of damaged
or perishable items. Business and Professions Code 17050.
The act also bans the payment of secret rebates or unearned discounts
where the payments are not available to all purchasers on the same terms
and conditions, where the payments have a tendency to destroy
competition. Business and Professions Code 17045. See also E&H
Wholesale, Inc. v. Glaser Bros. (1984) 158 Cal.App.3d 728, 738. An
excellent discussion of the statute is set out in the recent decision in
ABC International Traders, Inc. v. Matsushita Electric Corporation of
America (1995) 38 Cal. App. 4th 398., but that opinion has been vacated
and is not citable authority.
Antitrust Injury and Damages
The requirements of antitrust injury and damages are set out generally
in Business and Professions Code 17070, 16760(d).
UNFAIR COMPETITION STATUTE - GENERAL
California's Unfair Competition statute (Business and Professions Code
17200) is more of a consumer protection statute than an antitrust
statute, although it has been applied to some antitrust situations.
Because of the breadth of business actions that may be invoked by the
statute, the reader is directed to the California Antitrust Law treatise
referenced above for a further discussion of its scope. As a general
rule, a party injured by reason of a violation of the Unfair Competition
Act may obtain injunctive relief and restitution, but apparently not
compensatory or punitive damages. Restitution is available solely as a
form of ancillary relief in an injunctive action and may not be
recovered absent the issuance of an injunction. See Fletcher v. Security
Pacific National Bank (1979) 23 Cal.3d 442, 452-45.
APPLICABILITY OF FEDERAL AND SHERMAN ACT CASE AUTHORITY TO CALIFORNIA
Notwithstanding the oft-repeated statement that the Sherman Act and the
Cartwright Act are to be read in para materia (see Corwin v. Los Angeles
Newspaper Service Bureau, Inc. (1971) 4 Cal.3d 842), several recent
California court decisions have expressly departed from federal
precedent in interpreting California's antitrust laws. See: Cellular
Plus, Inc. v. Superior Court (1993) 14 Cal.App.4th 1224; and State ex
rel. Van de Kamp v. Texaco, Inc. (1988) 46 Cal.3d 1147.
The author is with the Law Offices of John H. Dresslar,
San Francisco, CA
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