FromCal said:
A is a franchisor. B and C are A's franchisees. All of A's franchise agreements are for exclusive territories for the sale of trademarked services that are delivered to the given geographic area. A's francise agreement provides that the franchised (i.e., trandemarked) services cannot be sold for less than a specified sum. B and C have adjacent but not intersecting market territories. If B wants to charge less than the minimum, can B get out of the restrictions from A on the claim that A's agreement constitutes "price fixing"? Can C sue B and/or A if B's prices dip below the minimum?
[Edited by FromCal on 05-05-2001 at 06:44 PM]
My response:
Under both California and federal antitrust law, price fixing is illegal per se. This means that any combination that tampers with price structures constitutes an unlawful activity. [Kolling v Dow Jones & Co. (1982, 1st Dist) 137 Cal App 3d 709, 187 Cal Rptr 797] Indirect purchasers who are injured by illegal overcharges resulting from price fixing may bring an action under the Cartwright Act. [Union Carbide Corp. v Superior Court (1984) 36 Cal 3d 15, 201 Cal Rptr 580, 679 P2d 14]
Proof of a price fixing violation requires only evidence of a conspiracy among defendants to fix prices. There is no recognized defense or justification for price fixing. [Rosack v Volvo of America Corp. (1982, 1st Dist) 131 Cal App 3d 741, 182 Cal Rptr 800; B.W.I. Custom Kitchen v Owens-Illinois, Inc. (1987, 1st Dist) 191 Cal App 3d 1341, 235 Cal Rptr 228] For example, the fact that the price fixed was a reasonable one is not a defense. [Rosack v Volvo of America Corp. (1982, 1st Dist) 131 Cal App 3d 741, 182 Cal Rptr 800]
One test for determining if particular conduct constitutes price fixing is whether the conduct interferes with the freedom of sellers or traders to sell in accordance with their own judgment. The particular effect the agreement or conduct has on the actual prices is not dispositive. [Kolling v Dow Jones & Co. (1982, 1st Dist) 137 Cal App 3d 709, 187 Cal Rptr 797; Rosack v Volvo of America Corp. (1982, 1st Dist) 131 Cal App 3d 741, 182 Cal Rptr 800]
The prohibition against price fixing applies whether the price-fixing scheme is horizontal or vertical, even if the agreement is between noncompetitors. [Mailand v Burckle (1978) 20 Cal 3d 367, 143 Cal Rptr 1, 572 P2d 1142] Agreements to maintain either minimum [Harris v Capitol Records Distributing Corp. (1966) 64 Cal 2d 454, 50 Cal Rptr 539, 413 P2d 139] or maximum [Kolling v Dow Jones & Co. (1982, 1st Dist) 137 Cal App 3d 709, 187 Cal Rptr 797] retail prices are illegal.
However, the exchange of price data among competitors is not a per se violation of antitrust law. The exchange may be found valid under the rule of reason if it increases economic efficiency and renders the market more competitive. [Derish v San Mateo-Burlingame Bd. of Realtors (1982, 1st Dist) 136 Cal App 3d 534, 186 Cal Rptr 390] Also, a consignor selling through a consignee may fix the price at which the consignee is authorized to sell the goods without violating the Cartwright Act. [Shasta Douglas Oil Co. v Work (1963, 3rd Dist) 212 Cal App 2d 618, 28 Cal Rptr 190]
Any person whose business or property is injured by a Cartwright Act violation may sue to recover treble damages, interest, costs, attorney fees, and to obtain injunctive relief. The action may be brought in any court having jurisdiction in the county where the defendant resides or is found, where any agent resides or is found, or where service may be obtained, regardless of the amount in controversy. [B & P C §16750(a)]
In order to have standing to bring an action under B & P C §16750, the plaintiff must have suffered damage. However, in some cases, such as price fixing, the necessary damaging impact may be established by presumption or inference. [California Dental Assn. v California Dental Hygienists’ Assn. (1990, 2nd Dist) 222 Cal App 3d 49, 271 Cal Rptr 410]
An additional standing requirement is that the alleged antitrust violation be the proximate cause of plaintiff’s injuries. This requirement ensures that the action is maintained only by a party within the "target area" of the antitrust violation, and not by one who was incidentally injured. The injury must be of the type that the antitrust laws were intended to prevent, and must flow from the conduct that renders defendant’s acts unlawful. The plaintiff must also show that the injury was one within the area of the economy endangered by a breakdown of competitive conditions. [Kolling v Dow Jones & Co. (1982, 1st Dist) 137 Cal App 3d 709, 187 Cal Rptr 797]
Under federal antitrust law, indirect purchasers of an alleged price-fixed product cannot maintain a treble damage action unless they dealt directly with the defendant. [Illinois Brick Co. v Illinois (1977) 431 US 720, 52 L Ed 2d 707, 97 S Ct 2061] The California Legislature, however, amended the Cartwright Act to provide that the plaintiff may bring an action for damages even if he or she has dealt only indirectly with the defendant. [B & P C §16750(a)]
There are, however, certain agreements or practices that because of their "pernicious effect on competition and lack of any redeeming virtue" are conclusively presumed to be unreasonable, and therefore illegal. These practices do not require elaborate inquiry as to the precise harm they have caused or the business excuse for their use. Among these practices are price fixing, division of markets, group boycotts, tying arrangements [Suburban Mobile Homes, Inc. v AMFAC Communities, Inc. (1980, 1st Dist) 101 Cal App 3d 532, 161 Cal Rptr 811], resale price maintenance, and certain types of reciprocal dealing. [Bert G. Gianelli Distributing Co. v Beck & Co. (1985, 1st Dist) 172 Cal App 3d 1020, 219 Cal Rptr 203] Under federal antitrust analysis, the fact that an activity may turn out to be harmless in a particular set of circumstances will not prevent it from being declared illegal per se. [Catalano, Inc. v Target Sales, Inc. (1980) 446 US 643, 64 L Ed 2d 580, 100 S Ct 1925, on remand (CA9 Cal) 625 F2d 331]
In deciding whether to apply a per se or rule of reason analysis to a particular practice, a court must distinguish between practices that would always or almost always tend to restrict competition and decrease output and those designed to increase economic efficiency and render markets more competitive. [Reynolds v California Dental Service (1988, 1st Dist) 200 Cal App 3d 590, 246 Cal Rptr 331 (holding that prepaid dental plans were not illegal per se)] A court will not generally apply a per se analysis to a practice if it is unfamiliar with it and there is no evidence of the economic consequences of the practice. [Dimidowich v Bell & Howell (1986, CA9 Cal) 803 F2d 1473 (holding that dual distributorships were not illegal per se under the Cartwright Act)] Courts are also less likely to apply a per se rule to "vertical" restraints than to "horizontal" ones. [Bert G. Gianelli Distributing Co. v Beck & Co. (1985, 1st Dist) 172 Cal App 3d 1020, 219 Cal Rptr 203]
Good luck to you.
IAAL
