Court upholds Bay Guardian verdict

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In a dramatic victory for small independent businesses in California, the state Court of Appeal ruled Aug. 11th that the state’s Unfair Practices Act protects the victims of predatory pricing as long at they can prove that a bigger company sold its product below cost and did so with the intent of damaging the smaller competitor. You can read the decision here.

The ruling in the Bay Guardian's case against SF Weekly and its chain owner could have lasting implications on anti-competitive conduct in the state.

The Bay Guardian sued the Weekly and New Times, now owned by Village Voice Media, alleging that the chain had systematically sold ads below cost in an effort to harm the locally owned independent paper. In 2008, after a six-week trial, a San Francisco jury agreed with the Guardian, and awarded more than $6 million in damages. Trial court judge Marla Miller then trebled part of the award. Today, with interest and attorney’s fees, the judgment is worth more that $22 million.

The Weekly and New Times appealed, arguing, among other things, that the California law that bars predatory pricing should require proof that the predator would be able to recoup its losses down the road – a nearly impossible standard that has eviscerated federal unfair practices cases.
In an unanimous decision, the three-judge panel rejected that claim and concluded that the state law was designed to protect small businesses from precisely the type of anticompetitive behavior demonstrated by the Weekly.

In the state law, the Court ruled, “the very gravamen of the offense is the purpose underlying the anticompetitive act, rather than the actual or threatened harm to competition.  The intent or purpose of the below-cost sale is at the heart of the statute, and distinguishes the violation from a below-cost pricing strategy undertaken for legitimate, nonpredatory business reasons.”

In fact, the Court concluded:

“The history of the amalgamation of statutes that comprise the UPA “teaches that a primary concern in the enactment of the UPA was the protection of smaller, independent retailers, especially grocers, against unfair competitive practices of the large chain stores.  As a contemporary commentator explained, the prohibitions added in 1933 on secret rebates and unearned discounts (now section 17045) and below-cost sales (now section 17043) ‘are designed to protect the retailer whose more powerful neighbor is attempting to drive him out of business.’ “

We’ll be covering the case in depth in next week’s paper.