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Below-Cost Pricing Law in California
Howard M. Ullman, Orrick, Herrington & Sutcliffe LLP
Most national and international companies do business in California. Like other states, California has laws prohibiting below cost pricing of goods and services, but California’s features unique plaintiff-friendly provisions that can in theory expose your company to more liability than the laws of other states. For example, no proof of harm to competitors is required, only intent to harm. California law also prohibits the use of loss leaders – articles or products sold at less than cost to promote other merchandise, mislead prospective purchasers or injure competitors.
This article looks at how California’s law differs from the federal Robinson-Patman Act, how it defines “below cost” for enforcement purposes, and some affirmative defenses that are available, including a showing that below cost pricing was for perishable goods, to close out stock or for goods that were damaged or deteriorated.
For violations of the UPA’s pricing provisions, a plaintiff can recover treble damages, attorney’s fees, and costs, and injunctive relief against the pricing practices at issue. Violations can also amount to criminal misdemeanors and subject violators to fines and imprisonment, but this rarely occurs.
Because California does not require proof of the possibility of recouping losses, because it provides plaintiffs with powerful (but rebuttable) presumptions, and because the defenses to a below-cost claim under California law are limited, companies that do business in California should make sure that aggressive promotions, discounts, or rebates do not violate California’s below-cost pricing law.