By: Ara Jabagchourian and David Meyer <1>
Competition: The Journal of the Antitrust and Unfair Competition Law Section of the State Bar of California
Vol. 22 No. 2 Fall 2013
There are unquestionably significant differences between federal and California law governing below cost pricing claims. These differences are primarily due to two different, but related, factors. First, unlike federal antitrust law, the California legislature has promulgated a statutory scheme, the Unfair Practices Act (“UPA”), that specifically defines what constitutes illegal, below-cost pricing. <2> The specific provisions of the UPA have provided California state courts with less freedom than the federal courts to fashion a common law of predatory pricing that is responsive to current economic doctrines. In contrast, the statutory vehicles for predatory pricing claims under federal law are general antitrust statutes, which do not specifically address below-cost pricing. <3> This has left the federal courts much more leeway to interpret the law in light of evolving views of economic efficiency. As the court noted in Fisherman’s Wharf Bay Cruise Corp. v. Superior Court, “‘changing judicial perspectives on antitrust enforcement have far less influence on the development of California predatory pricing law than on the development of the federal counterparts.'” <4>
Second, the legislative purposes underlying these specific California below-cost pricing statutes differ in some important respects from federal antitrust law’s modern focus solely on consumer welfare. As the Supreme Court has repeatedly said, the purpose of the federal antitrust law is the “protection of competition, not competitors.” <5> In contrast, the stated purpose of the Unfair Practices Act is to “safeguard the public against the creation or perpetuation of monopolies and to foster and encourage competition, by prohibiting . . . practices by which fair and honest competition is destroyed or prevents.” <6> Under the Unfair Practices Act, predatory price protections focus on the conduct of the business rather than the injury or impact on competition. The California Supreme Court also has noted that “a primary concern in the enactment of the UPA was the protection of smaller, independent retailers, especially grocers, against unfair competitive practices of the large chain stores.” <7>
These differences in structure and purpose between federal and state below-cost pricing law are reflected in various elements of a claim for below-cost pricing under federal and state law. After summarizing the most important elements, this article focuses on the intent standard under California law. As the law interpreting the UPA has developed, the question of intent is one of the most important elements in a below-cost pricing claim, and is also the element that is most subject to different (and creative) arguments on both sides of a claim. To illustrate the potential differences in approaches, we discuss the issue of intent from the perspective of both plaintiffs and defendants.
II. BRIEF SUMMARY OF PREDATORY PRICING LAW
A. Federal Law
The federal law on predatory pricing has developed over decades to its current focus on protecting consumers.