The California Court of Appeal recently issued a decision that plaintiffs’ lawyers are sure to argue establishes near-strict liability under California law for selling a product below cost. The potential for treble damages should make all discounters of goods and services take note.
The court affirmed the San Francisco Bay Guardian newspaper’s $15.9 million jury verdict against the owners of its competitor, the San Francisco Weekly. The decision punished the SF Weekly for luring away some of the Bay Guardian’s display advertisers through below-cost discounts, even though there was no proof that the SF Weekly could recoup its losses later through higher monopoly pricing.
In the court’s opinion, California law -- unlike federal antitrust law and the law of many sister states -- does not require such proof. In fact, harm to competition may not even be necessary. Instead, the court held that Business & Professions Code section 17043 requires only proof that the “purpose” of a below-cost sales scheme was to harm another competitor. In California, according to the Court of Appeal for the First District, it doesn’t matter that consumers benefit from lower prices, even in the long run: so long as one competitor sets out to harm another, treble damages may be available.
To make matters worse for discounters, the court also ruled that evidence of harm to a competitor triggers a presumption that a defendant’s purpose was to injure competitors or destroy competition. To escape liability, a defendant must affirmatively demonstrate that it had no such purpose.
Not all California courts have come to this same conclusion, but if the opinion stands (that is, if the California Supreme Court does not grant review and reverse), it has the potential to chill aggressive price competition and promotion throughout California. And that is an unfortunate and ironic result, given that cutting prices in order to increase business is conduct the antitrust and consumer laws are supposed to promote and protect, rather than inhibit.
