BELOW-COST PRICING: RECENT DEFENSE-FRIENDLY DECISIONS

By Ryan M. Sandrock and Stephen Chang¹

A below-cost pricing claim under California’s Unfair Practices Act (UPA) appears at first blush to be easier to plead and prove than a predatory pricing claim under the Sherman Act. The standard refrain under federal law is that discounts are generally pro-competitive and true anticompetitive predatory pricing is rare. Thus, a federal plaintiff must show that the defendant’s below-cost pricing would drive competitors out of the market allowing the defendant to later "recoup" its losses. Unlike a Sherman Act plaintiff, however, a UPA plaintiff need not show recoupment. Moreover, relevant costs under the UPA include additional costs than under federal law—seemingly making it easier to show the price is below-cost. Several recent cases, however, show that, despite the California law’s seemingly easier standard, plaintiffs have had problems prevailing on Section 17043 claims.²

I. CALIFORNIA BELOW-COST PRICING CLAIMS UNDER SECTION 17043

Section 17043 of the UPA provides: "It is unlawful for any person engaged in business within this State to sell any article or product at less than the cost thereof to such vendor, or to give away any article or product, for the purpose of injuring competitors or destroying competition."³ The elements of a Section 17043 claim are (1) a below-cost sale; (2) undertaken for the purpose of injuring competitors or destroying competition that; (3) causes a competitive injury.⁴