California Civil Jury Instructions (CACI)

3334. Affirmative Defense to Locality Discrimination Claim - Manufacturer Meeting Downstream Competition

[Name of defendant] claims that any locality discrimination proven by [name of plaintiff] was justified by the need to meet competition. To succeed, [name of defendant] must prove that [his/ her/its] sales of [product/service] to [name of reselling customer] were made in an attempt, in good faith, to meet the legal prices of [name of competitor's reseller] selling in the ordinary course of business in the same locality or trade area.

To meet legal prices means to lower the price to a point that the seller believes in good faith is at or above the legal price of the competitor of the reseller whose price it is trying to meet. That is, a seller may attempt to "meet," but not "beat," what in good faith it believes to be that competitor's legal price.

Directions for Use

This defense applies to locality discrimination when the manufacturer is providing a lower price to its reseller, so that the reseller can compete fairly against the lower prices charged by the reseller of another manufacturer.

Sources and Authority

Business and Professions Code section 17050(d) and (e) provides: "The prohibitions of this chapter against locality discriminations, sales below cost, and loss leaders do not apply to any sale made . . . [i]n an endeavor made in good faith to meet the legal prices of a competitor selling the same article or product, in the same locality or trade area and in the ordinary channels of trade [or] [i]n an endeavor made in good faith by a manufacturer, selling an article or product of his own manufacture, in a transaction and sale to a wholesaler or retailer for resale to meet the legal prices of a competitor selling the same or a similar or comparable article or product, in the same locality or trade area and in the ordinary channels of trade."

"The requirement [to ascertain the 'legal prices' of competitors] is not absolute. It is merely that the defendants shall have endeavored 'in ood faith' to meet the legal prices of a competitor." (People v. Pay Less Drug Store (1944) 25 Cal.2d 108, 117 [153 P.2d 9].)

"The operator of a service industry cannot legally reduce its prices to a below-cost figure with intent to injure another or offer free service to prevent further loss of business to a competitor 'who is indiscriminately and deliberately offering free service and below cost prices to such operator's customers.' Each side must obey the law; the fact that one competing party disregards the statute does not give the other side a legal excuse to do so." (G.B. Page v. Bakersfield Uniform & Towel Supply Co. (1966) 239 Cal.App.2d 762, 770 [49 Cal.Rptr. 46].)

Secondary Sources

1 Witkin, Summary of California Law (9th ed. 1987) Contracts, §§ 591- 596, pp. 534-539

1 Antitrust and Trade Regulation Law Section, State Bar of California, California Antitrust Law (2d ed. 1997), § 1.03A

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 (Matthew Bender)

23 California Points and Authorities, Ch. 235, Unfair Competition (Matthew Bender)

(New September 2003)