Small business wins big - Page 2

Ruling in Guardian suit supports predatory pricing law

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Throughout the trial and afterward, Andy Van De Voorde, VVM's executive associate editor, repeatedly belittled the suit on the grounds that the Guardian didn't present individual instances of lost ads. But the court rejected that argument, saying that nothing in the UPA mandated a showing of individual below-cost sales; the fact that the Weekly lost money for 10 years, and that its overall ads prices were far below its total cost of operations, was plenty of evidence of illegal sales. The Guardian, the ruling states, was not "required to prove the precise amounts of damages attributable to the loss of individual customers or sales." In fact, that standard would make predatory pricing cases of this nature — with thousands of sales over many years, almost impossible to pursue — particularly, the court noted, when "it is the wrongful acts of the defendant that have created the difficulty in proving the amount of lost profits."

The recoupment argument was critical: New Times wanted the court to force the state to adopt a federal standard that since the 1980s has pretty much gutted federal antitrust law.

The appeals court justices resoundingly rejected that claim, ruling that the state Legislature has every right to pass laws protecting small businesses against acts that the federal courts may be willing to allow. And it's clear that the UPA contains no mention of recoupment.

"We do not lightly imply terms or requirements that have not been expressly included in the statute," the ruling states.

New Times argued, both in court and in its published reports, that laws against anticompetitive conduct must protect consumers, not businesses; if one company cuts prices, that helps consumers — and unless there's evidence that a lack of competition in the future would cause prices to go up, then the law shouldn't prohibit below-cost sales.

But the Appeals Court took a different approach, concluding that this particular state law was not only designed to protect consumers in the short term, but small businesses (and thus overall competition) in the long term.

That's consistent with the history of the Unfair Practices Act, which was written during California's progressive era, when reformers were concerned about large businesses (particularly supermarket chains) driving local markets out of business. It was, James R. McCall, a professor at UC Hastings College of Law, wrote in the Pacific Law Journal, "the first comprehensive modern state predatory pricing statute."

In a 1997 article, McCall noted that federal courts had undermined much of the power of antitrust laws such as the Sherman Antitrust Act, such that "by 1980, the era of expansive application of antitrust acts in federal courts had ended." However, the California law, later copied in six other states, "is precisely drawn to eliminate defined commercial practices such as predatory pricing."

Joseph Hearst, an East Bay attorney and appellate specialist who helped write the Guardian's appeal brief, noted that the court had taken the questions in the appeal very seriously. "It is obvious the court did an enormous amount of independent research — quoting cases neither side had mentioned in their briefs and demonstrating a mastery of the topic," he said. "The court was clearly aware of the issues at stake, not only in this case but in future cases involving the Unfair Practices Act. They carefully explored how the UPA is different from federal predatory pricing law and pointed out that the UPA, in some respects, sets a much tougher standard than federal law, which is why they could confidently say that it does not require the federal 'recoupment' standard."