California Civil Jury Instructions (CACI)

3414. Rule of Reason - "Geographic Market" Explained

[Name of plaintiff] claims that the relevant geographic market is [identify area, e.g., "the city of Los Angeles"]. [Name of defendant] claims that the relevant geographic market is [identify area, e.g., "the state of California"].

A geographic market is the area where buyers turn for alternate sources of supply or where sellers normally sell. The geographic market may or may not be the same as the area where the parties in this case currently compete or do business. It may be smaller or larger than that area.

A geographic market may be limited to the area where a product can be shipped and sold profitably. You may consider whether purchasing patterns are so different in the two areas that products sold in one area tend not to be sold in another. For example, this might occur if the cost of transporting a product into or out of the claimed geographic market is large compared to the value of the product.

In deciding whether products are in the same geographic market, you may consider whether a small increase in the price of the product in one area would cause a considerable number of customers in that area to buy the product in another area. If so, these two areas are likely to be in the same geographic market.

If a significant increase in the price in one area does not cause a significant number of consumers to buy the product in another area, these areas are not likely to be in the same geographic market.

Directions for Use

The word "service" should be substituted for "product" wherever that word appears if the case concerns services rather than products.

In some cases an example may be helpful to illustrate the terms used. Regarding the significance of price increases, an example like that given in the Directions for Use in CACI No. 3413, Rule of Reason—"Product Market" Explained, may be adapted. Regarding the significance of customer purchasing patterns, the following example may suffice:

Retail customers are not likely to travel too far to buy shoes. So, a product market defined as "shoe stores" is not likely to include shoe stores in two towns that are 25 miles from each other. However, if the product market is for an inventory of shoes purchased by shoe stores at wholesale, the geographic market is likely to be nationwide, since shoe stores are likely to purchase shoes no matter where companies distributing shoes are located.

Regarding the significance of transporting costs, the following example may suffice:

Gravel, which is relatively cheap but heavy, and therefore relatively costly to ship, is likely to compete in a narrower geographic market than computer software, which, if valued by weight, is more costly per pound than gravel but also much less costly to ship per unit. Accordingly, a geographic market defined as a city or a region may be appropriate for assessing gravel competition, while a nationwide, or even worldwide, geographic market may be more appropriate for assessing the competition between software sellers.

Sources and Authority

The "area of effective competition in the known line of commerce must be charted by careful selection of the market area in which the seller operates, and to which the purchaser can practicably turn for supplies." (U.S. v. Philadelphia National Bank (1963) 374 U.S. 321, 359 [83 S.Ct. 1715, 10 L.Ed.2d 915].)

"The term 'relevant market' encompasses notions of geography as well as product use, quality, and description. The geographic market extends to the ' " 'area of effective' " competition . . . where buyers can turn for alternate sources of supply.' " (Oltz v. St. Peter's Community Hospital (9th Cir. 1988) 861 F.2d 1440, 1446, internal citations omitted.)

Secondary Sources

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, § 40.168 (Matthew Bender)

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

(New September 2003)