California Civil Jury Instructions (CACI)

3405. Horizontal and Vertical Restraints (Use for Direct Competitors or Supplier/Reseller Relations) - Other Unreasonable Restraint of Trade—Rule of Reason—Essential Factual Elements

[Name of plaintiff] claims that [name of defendant] agreed to [insert unreasonable restraint of trade]. To establish this claim, [name of plaintiff] must prove all of the following:

1. That [name of defendant] [and [name of alleged co-participant[s]]] agreed to [describe conduct constituting an unreasonable restraint of trade];

2. That the purpose or effect of [name of defendant]'s conduct was to restrain competition;

3. That the anticompetitive effect of the restraint[s] outweighed any beneficial effect on competition;

4. That [name of plaintiff] was harmed; and

5. That [name of defendant]'s conduct was a substantial factor in causing [name of plaintiff]'s harm.

Directions for Use

This instruction is intended for actions that are limited only by the bounds of human ingenuity. Any such conduct, if it does not fit into a per se category, is judged under the rule of reason. Thus, the illegality of a termination that results from a buyer's disobedience with a seller's exclusive "dealing," territorial location, or customer restrictions, unless ancillary to price fixing, should be resolved under the rule of reason. For cases involving vertical restraints, see also the vertical restraint instructions contained in this series.

It is possible for a complaint to include both per se and rule of reason claims. Also, per se claims alternatively may be tested under the rule of reason if there is reason to believe that proof of the per se claims may fall short. If either is the case, connecting language between the pertinent instructions should be provided, such as: "If you find that [name of defendant]'s conduct did not amount to an agreement to [specify conduct, e.g., "fix resale prices," "boycott," "allocate markets"], [name of plaintiff] may still prove that the conduct otherwise lessened competition."

For additional instructions regarding the rule of reason, see CACI Nos. 3411 through 3414.

Sources and Authority

Business and Professions Code section 16726 provides: "Except as provided in this chapter, every trust is unlawful, against public policy and void."

Business and Professions Code section 16720(a) provides: "A trust is a combination of capital, skill or acts by two or more persons for any of the following purposes: To create or carry out restrictions in trade or commerce."

Business and Professions Code section 16725 provides: "It is not unlawful to enter into agreements or form associations or combinations, the purpose and effect of which is to promote, encourage or increase competition in any trade or industry, or which are in furtherance of trade."

"The Cartwright Act, like the Sherman Act, prohibits 'combinations' for the purpose of restraining trade. '[A] combination means a concert of action by individuals or entities maintaining separate and independent interests.' " (Roth v. Rhodes (1994) 25 Cal.App.4th 530, 543 [30 Cal.Rptr.2d 706], internal citations omitted.)

" 'Horizontal combinations are cartels or agreements among competitors which restrain competition among enterprises at the same level of distribution. They are ordinarily illegal per se. Vertical restraints are imposed by persons or firms further up the chain of distribution of a specific product (or in rare cases, further down the chain) than the enterprise restrained. Vertical non-price restraints are tested under the rule of reason; that is, the plaintiff must prove that the restraint had an anticompetitive effect in the relevant market in order to prevail.' " (Exxon Corp. v. Superior Court (1997) 51 Cal.App.4th 1672, 1680- 1681 [60 Cal.Rptr.2d 195], internal citations and footnote omitted.)

"Although the Sherman Act and the Cartwright Act by their express terms forbid all restraints on trade, each has been interpreted to permit by implication those restraints found to be reasonable." (Corwin v. Los Angeles Newspaper Service Bureau, Inc. (1971) 4 Cal.3d 842, 853 [94 Cal.Rptr. 785, 484 P.2d 953], internal citation omitted.)

"To determine whether the restrictions are reasonable, 'the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was mposed; the nature of the restraint and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be obtained, are all relevant facts.' The court should consider 'the percentage of business controlled, the strength of the remaining competition [and] whether the action springs from business requirements or purpose to monopolize . . . .' Whether a restraint of trade is reasonable is a question of fact to be determined at trial." (Corwin, supra, 4 Cal.3d at pp. 854-855, internal citations omitted.)

"Generally, in determining whether conduct unreasonably restrains trade, '[a] rule of reason analysis requires a determination of whether . . . its anti-competitive effects outweigh its pro-competitive effects.' " (Bert G. Gianelli Distributing Co. v. Beck and Co. (1985) 172 Cal.App.3d 1020, 1048 [219 Cal.Rptr. 203], internal citation omitted.)

"The alleged antitrust violation need not be the sole or controlling cause of the injury in order to establish proximate cause, but only need be a substantial factor in bringing about the injury." (Saxer v. Philip Morris, Inc. (1975) 54 Cal.App.3d 7, 23 [126 Cal.Rptr. 327], internal citation omitted.)

"The plaintiff in a Cartwright Act proceeding must show that an antitrust violation was the proximate cause of his injuries. The frequently stated 'standing to sue' requirement is merely a rule that an action for violation of the antitrust laws may be maintained only by a party within the 'target area' of the antitrust violation, and not by one incidentally injured thereby. An 'antitrust injury' must be proved; that is, the type of injury the antitrust laws were intended to prevent, and which flows from the invidious conduct which renders defendants' acts unlawful. Finally, a plaintiff must show an injury within the area of the economy that is endangered by a breakdown of competitive conditions." (Kolling v. Dow Jones and Co., Inc. (1982) 137 Cal.App.3d 709, 723-724 [187 Cal.Rptr. 797], internal citations and footnote omitted.)

"The exact parameters of 'antitrust injury' under section 16750 have not yet been established through either court decisions or legislation." (Cellular Plus, Inc. v. Superior Court (1993) 14 Cal.App.4th 1224, 1234 [18 Cal.Rptr.2d 308].)

Secondary Sources

1 Witkin, Summary of California Law (9th ed. 1987) Contracts, §§ 575- 590

2 Antitrust and Trade Regulation Law Section, State Bar of California, California Antitrust Law (2d ed. 2001), § 9.03B

1 Antitrust Laws & Trade Regulation, Ch. 12, The Per Se Rule and the Rule of Reason, § 12.03 (Matthew Bender)

3 Levy et al., California Torts, Ch. 40, Fraud and Deceit and Other Business Torts, § 40.165[2] (Matthew Bender)

49 California Forms of Pleading and Practice, Ch. 565, Unfair Competition (Matthew Bender)

(New September 2003)