Daily Journal: Trial to start in Bay Guardian's suit over rival's ad costs - Page 3

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Attorneys say California superior courts generally are seen as more friendly to plaintiffs.

That's largely because federal courts have been swayed by decades-old economic theory that is skeptical of the plausibility of predatory-pricing claims, some say.

"[The theory] was highly critical of the idea that predation could ever work," said Daniel A. Crane, an antitrust professor at the Benjamin N. Cardozo School of Law. "For one, it's extremely expensive. Then, you not only have to prevail, you have to recoup [recover your losses]. If another firm comes into the market, you don't get to recoup. It's almost a suicidal way of doing business."

Crane, who has written about predatory-pricing cases, said economic theory also has developed in support of predatory-pricing claims. But in his view, the theories often don't stand up in the real world.

Don T. Hibner, an antitrust attorney with Sheppard, Mullin, Richter & Hampton in Los Angeles, agreed.

"With enough ifs, we could put Paris in a bottle," Hibner said, paraphrasing a French proverb. "We want to use economic theory to buttress facts and common sense. If we're going out on a limb and all we have is economic theory, God help us."

To protect competitors from purely theoretical claims, Hibner said federal courts have adopted tougher standards for plaintiffs in predatory-pricing cases. First, they've adopted a method of calcuutf8g cost that takes into account only variable costs.

California uses a method called "fully allocated costs," which factors in all costs, both fixed and variable. That method generally yields a higher cost, making it easier for a plaintiff to show that any sale was below cost.

Second, federal courts require the plaintiff to prove that the defendant would in fact be able to recover or recoup its losses after the plaintiff was pushed out of the market. California courts have not directly addressed the issue of recoupment, making the recoupment prong debatable, attorneys say.

Cost and recoupment are the "two horns on which you can be hooked" in federal courts, according to Maxwell M. Blecher, of Blecher & Collins in Los Angeles. Blecher most often represents plaintiffs in predatory-pricing cases.

Hibner said the California statutes dealing with sales below cost "seem to mean what they say," he said.

The primary statute at issue, Business and Professions Code 17043, reads, "It is unlawful for any person engaged in business within this state to sell any article or product at less than the cost thereof to such vendor, or to give away any article or product, for the purpose of injuring competitors or destroying competition."

Hibner said literal readings of the statute sometimes can shift the protection of antitrust laws from consumers to "inefficient competitors."

But according to Alldredge, the language makes the Guardian's case simple.

"All you do is take all of their costs and divide that by the number of inches of advertising space they sold," he said. "That tells you how much the cost is per inch. Whenever they sell below that cost, under California law, they've committed a violation."
And, he added, under California's Unfair Practices Act, with even one below-cost sale, a defendant's negative intent is presumed.

That places the burden on the defense to show that they had another reason for selling below cost.

"Why were we selling below cost on certain advertisements?" Labar asked. "We couldn't get a higher price."

Labar said the triable issue of fact is intent.

"They're trying to say a handful of documents and a couple of statements indicate we were trying to run them out of business," he said. "We say, 'No, they indicate we were trying to compete.'"

Copyright 2008 Daily Journal Corp. Reprinted with permission. This file cannot be downloaded from this page.