CACI No. 3332. Affirmative Defense to Locality Discrimination, Below Cost Sales, Loss Leader Sales, and Secret Rebates - Functional Classifications

Judicial Council of California Civil Jury Instructions (2023 edition)

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3332.Affirmative Defense to Locality Discrimination, Below Cost
Sales, Loss Leader Sales, and Secret Rebates - Functional
[Name of defendant] claims that any [locality discrimination/below cost
sales/loss leader sales/secret rebates] proven by [name of plaintiff] [is/are]
within the law because they apply to different classes of customers. To
succeed, [name of defendant] must prove all of the following:
1. That [name of defendant] created different classes of customers,
such as [broker/jobber/wholesaler/retailer/[insert other]];
2. That customers in the different classes performed different
functions and assumed the risk, investment, and costs involved;
3. That the difference in [price/rebate/discount/special
services/privileges] for [product/service] was given only in those
sales where the favored buyer performed the function on which
the claim of a different class is based; and
4. That the difference in price was reasonably related to the value of
such function.
New September 2003
Directions for Use
This defense applies to locality discrimination, sales below cost, loss leader sales,
and secret rebates.
Sources and Authority
Functional Classifications. Business and Professions Code section 17042.
‘[T]he law should tolerate no subterfuge. For instance, where a wholesaler-
retailer buys only part of his goods as a wholesaler, he must not claim a
functional discount on all. Only to the extent that a buyer actually performs
certain functions, assuming all the risk, investment, and costs involved, should
he legally qualify for a functional discount. Hence a distributor should be
eligible for a discount corresponding to any part of the function he actually
performs on that part of the goods for which he performs it.’ (Diesel Elec.
Sales & Serv., Inc. v. Marco Marine San Diego (1993) 16 Cal.App.4th 202, 217
[20 Cal.Rptr.2d 62], internal citations omitted.)
“[A] pricing structure in which a distributor sells to a retailer at one discount
and to a rack-jobber at another is expressly permitted by section 17042.” (Harris
v. Capitol Records Distributing Corp. (1966) 64 Cal.2d 454, 463 [50 Cal.Rptr.
539, 413 P.2d 139], footnote omitted.)
Secondary Sources
1 Witkin, Summary of California Law (11th ed. 2017) Contracts, §§ 623-629
3 Levy et al., California Torts, Ch. 40, Fraud and Deceit and Other Business Torts,
§ 40.153 (Matthew Bender)
49 California Forms of Pleading and Practice, Ch. 565, Unfair Competition,
§ 565.53 (Matthew Bender)
23 California Points and Authorities, Ch. 235, Unfair Competition, § 235.20
(Matthew Bender)
1 Matthew Bender Practice Guide: California Unfair Competition and Business
Torts, Ch. 5, Antitrust, 5.100[4]

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