DocketNumber： S066735
Citation Numbers： 973 P.2d 527, 83 Cal. Rptr. 2d 548, 20 Cal. 4th 163, 99 Cal. Daily Op. Serv. 2576, 99 Daily Journal DAR 3360, 1999 Cal. LEXIS 1656
Judges： Chin, Kennard, Baxter
Filed Date： 4/8/1999
Status： Precedential
Modified Date： 11/2/2024
Opinion
Defendant Los Angeles Cellular Telephone Company (L.A. Cellular) sells cellular telephones and services. Cellular telephones are sold on the open market. As to wholesale sales of cellular services, however, L.A. Cellular has a government-protected “duopoly” status with one other company. In an effort to gain new subscribers for its services and increase overall profits, L.A. Cellular sold telephones below cost. It lost money on telephone sales but made up for those losses with its increased sales of services. Plaintiffs are companies that sell cellular telephones but may not sell services. These companies claim that, because they are not allowed to sell services, they cannot fairly compete with L.A. Cellular’s strategy of selling telephones below cost and recouping the losses with profits on the sales of services. The action requires us to interpret California’s Unfair
We conclude that to violate sections 17043 and 17044, part of the Unfair Practices Act, which prohibit below-cost sales and loss leaders, a company must act with the purpose, i.e., the desire, of injuring competitors or destroying competition. We also conclude that, even if L.A. Cellular’s actions lacked the purpose necessary to violate the Unfair Practices Act, they might be deemed unfair under the unfair competition law. We therefore agree with the Court of Appeal’s conclusions and affirm its judgment.
I. Factual and Procedural History
At the time relevant to this action,
Plaintiffs sued L.A. Cellular, alleging that its below-cost telephone sales practice harmed them. It alleged several causes of action including, as relevant here, that L.A. Cellular violated the Unfair Practices Act and the unfair competition law. The action under the Unfair Practices Act alleged
The Court of Appeal reversed as to the cause of action under the unfair competition law and affirmed the judgment as to the other causes of action. It held that L.A. Cellular proved it did not have an “injurious intent,” and hence its actions did not violate sections 17043 and 17044 of the Unfair Practices Act. It also held that L.A. Cellular’s actions might nevertheless have violated the unfair competition law and remanded the matter for retrial on that cause of action. Plaintiffs petitioned for review of the holding regarding the Unfair Practices Act, and L.A. Cellular petitioned for review of the holding regarding the unfair competition law. We granted both petitions.
II. Discussion
Preliminarily, we note that some amici curiae have suggested that this action might infringe on the regulatory authority of the Public Utilities Commission (PUC). (See generally, San Diego Gas & Electric Co. v. Superior Court (1996) 13 Cal.4th 893, 918 [55 Cal.Rptr.2d 724, 920 P.2d 669]; Farmers Ins. Exchange v. Superior Court (1992) 2 Cal.4th 377, 390-392 [6 Cal.Rptr.2d 487, 826 P.2d 730].) The Court of Appeal invited the PUC to file an amicus curiae brief addressing this question. That brief concludes that it is unlikely this action will interfere with the PUC’s regulatory responsibilities. Having considered the matter ourselves, we agree.
In 1995, the PUC issued an order largely rescinding prior prohibitions on the practice of “bundling,” i.e., “packaging cellular telephone equipment with cellular service and discounting the price of the package.” (Re Regulation of Cellular Radiotelephone Utilities, supra, 59 Cal.P.U.C.2d at p. 196.) The PUC expressed concern that cellular equipment dealers “will be unable to continue to profitably compete if bundling is permitted because of below-cost equipment sales . . . .” (Id. at p. 206.) Despite this concern, it chose to
More recently, the PUC noted that the “court, not the [PUC], has jurisdiction to determine violations of antitrust laws,” and that “[i]f an entity violates below-cost pricing law . . . , it is subject to the usual consequences for such violations. We note that while we would, of course, review a below-cost allegation brought before us in an appropriate proceeding, we are certainly not the primary enforcer of below-cost pricing law.” (Investigation on the Commission’s Own Motion Into the Regulation of Cellular Radiotelephone Utilities (1997) Cal.P.U.C. Dec. No. 97-02-053, pp. 18, 39 [1997 WL 129412].)
We conclude that we may decide this action without infringing on the PUC’s authority.
A. Plaintiffs’ Petition (Unfair Practices Act)
Plaintiffs alleged defendant violated the Unfair Practices Act in two ways: (1) by selling below cost in violation of section 17043, and (2) by using loss leaders in violation of section 17044. Neither the trial court nor the Court of Appeal found any violation of either section because plaintiffs did not establish defendant acted with the necessary culpable mental state. Plaintiffs argue that the courts below misconstrued section 17043’s mental state requirement, and that section 17044 does not require a culpable mental state.
1. Below-cost Sales (§ 17043)
Section 17043 provides: “It is unlawful for any person engaged in business within this State to sell any article or product at less than the cost
Plaintiffs contend the defendant need not desire to injure competitors or destroy competition to violate section 17043; instead, “plaintiffs need only show the defendant believed or knew that harm was substantially certain to result, or that the manifest probability of harm was very great.” California courts have not decided this precise question. The cases describing section 17043’s mental state requirement have generally repeated the statutory language or loosely used the word “intent” without defining it. (E.g., Wholesale T. Dealers v. National etc. Co. (1938) 11 Cal.2d 634, 643 [82 P.2d 3, 118 A.L.R. 486] [quoting the statutory language]; id. at p. 658 [referring to the “intent” requirement].) No case has expressly considered whether the statute requires the desire to injure competitors or destroy competition or only knowledge that the injury or destruction will occur.
In some other contexts, courts have interpreted an intent requirement as plaintiffs urge. We have said that “ ‘intent,’ in the law of torts, denotes not only those results the actor desires, but also those consequences which he knows are substantially certain to result from his conduct.” (Schroeder v. Auto Driveaway Co. (1974) 11 Cal.3d 908, 922 [114 Cal.Rptr. 622, 523 P.2d 662].) Schroeder quoted Justice Oliver Wendell Holmes: “ ‘If the manifest probability of harm is very great, and the harm follows, we say that it is done maliciously or intentionally; if not so great, but still considerable, we say that the harm is done negligently; if there is no apparent danger, we call it mischance.’ (Holmes, Privilege, Malice and Intent (1894) 8 Harv.L.Rev. 1.)” (Id. at p. 922, fn. 10; see also Estate of Kramme (1978) 20 Cal.3d 567, 572-573 [143 Cal.Rptr. 542, 573 P.2d 1369] [“While the word ‘intentionally’ has been variously defined depending on the context and intent of the Legislature [citation], this section specifies that a particular result, rather than a particular act, must have been intended. For a result to be caused ‘intentionally,’ the actor must either desire the result or know, to a substantial certainty, that the result will occur. [Citations.]” (Fn. omitted.)].)
If section 17043 used the word “intent” to describe the necessary mental state, plaintiffs’ position might have merit. Section 17043, however, does not say “intent”; it says “purpose.” “Intent” might be ambiguous; “purpose” is not.
We discuss the Model Penal Code and commentaries only because they focus on the difference between purpose and knowledge, the ambiguity of the word “intent,” and the precise meaning of the word “purpose.” Because the Model Penal Code was drafted after the Unfair Practices Act, the Legislature could not have considered the code in enacting the act. California has not adopted the Model Penal Code. But the American Law Institute did not modify the meaning of the word “purpose” or invent the ambiguity in the word “intent.” Its discussion is instructive as to the correct interpretation of the word “purpose.”
Plaintiffs cite for support the first Restatement of Torts, which was published near the time the Legislature enacted the Unfair Practices Act. That Restatement, however, also reflects the difference between purpose and knowledge, while recognizing that often knowledge alone is sufficient for
Thus, the drafters of the first Restatement of Torts also understood the difference between purpose and knowledge, while they believed that often knowledge alone may be sufficient for liability. That understanding is reflected even more clearly elsewhere. Section 13 of that Restatement, defining battery, requires an “intention[al]” act. Comment d to that section defines an act as intentional if it is “done for the purpose of causing the contact or apprehension or with knowledge on the part of the actor that such contact or apprehension is substantially certain to be produced.” (Rest., Torts, § 13, com. d, p. 29, italics added.) Although the Restatement defines intent broadly as including both purpose and knowledge, it recognizes the narrow meaning of the word “purpose.” The Restatement Second of Torts rewrote section 870 to refer to “intentionally” causing an injury, which is defined as including knowledge. (Rest.2d Torts, § 870, com. b, p. 280; see also id. at § 8 A, p. 15.) But comment b to section 870 also says, “In some cases in which the claim may be entirely novel the court may decide to limit the liability to the situation in which the defendant acted for the purpose of producing the harm involved.” (Rest.2d Torts, § 870, com. b, p. 280.) Again, the Restatement shows an awareness of the precise meaning of the word “purpose.”
We do not doubt that an actor who knows but does not desire that an act will cause a result might be deemed to intend that result, or that this intent or knowledge might be sufficient for some forms of tort liability. But these circumstances do not change the meaning of the word “purpose.” We are interpreting a statute. Section 17043 uses the word “purpose,” not “intent,” not “knowledge.” We therefore conclude that to violate section 17043, a
2. Loss Leaders (§ 17044)
Section 17044 provides: “It is unlawful for any person engaged in business within this State to sell or use any article or product as a ‘loss leader’ as defined in Section 17030 of this chapter.” Section 17030, in turn, defines “Loss leader” as “any article or product sold at less than cost: flO (a) Where the purpose is to induce, promote or encourage the purchase of other merchandise; or ft¡] (b) Where the effect is a tendency or capacity to mislead or deceive purchasers or prospective purchasers; or [H] (c) Where the effect is to divert trade from or otherwise injure competitors.” On its face, this language does not appear to require any culpable mental state when subdivision (c) applies. Plaintiffs argue that section 17044 prohibits use of loss leaders any time the effect is to divert trade from or otherwise injure competitors, and that they need not show defendant had any particular mental state.
Whatever merit the argument might have in the abstract, we are not deciding a question of first impression. Beginning in 1952, California courts have interpreted section 17044 as containing the same mental state requirement as section 17043. “While section 17044 of the act provides that the practice of using any article or product as a loss leader’ is included among the prohibitions of the chapter, we conclude it was the intent of the Legislature to make it unlawful to sell articles below cost for the purpose of injuring competitors or destroying competition and that to be unlawful, ‘loss leader’ sales must be made for that purpose.” (Ellis v. Dallas (1952) 113 Cal.App.2d 234, 239 [248 P.2d 63].)
This holding was reaffirmed in Dooley’s Hardware Mart v. Food Giant Markets, Inc. (1971) 21 Cal.App.3d 513 [98 Cal.Rptr. 543]. There the plaintiff, like plaintiffs here, argued that section 17044 does not have an “intent” requirement “because there is no mention of it in either section 17044 or section 17030, the two sections directly and immediately applicable.” (Dooley’s Hardware Mart v. Food Giant Markets, Inc., supra, 21 Cal.App.3d at p. 516.) They further argued that a 1953 amendment to section
Two subsequent appellate court decisions have reiterated that sections 17043 and 17044 contain identical “intent” requirements, although without independent analysis. (Western Union Financial Services, Inc. v. First Data Corp. (1993) 20 Cal.App.4th 1530, 1540, fn. 10 [25 Cal.Rptr.2d 341]; Hladek v. City of Merced (1977) 69 Cal.App.3d 585, 591 [138 Cal.Rptr. 194].)
Decisions from this court are inconclusive but tend to support the conclusion that both sections require the same mental state. Plaintiffs rely on the early decision of People v. Pay Less Drug Store (1944) 25 Cal.2d 108 [153 P.2d 9]. In that case, the trial court found that the defendants had sold certain “items below cost for the purpose of destroying the business of competitors .... The court also found that the defendants had sold certain articles as ‘loss leaders.’ ” {Id. at p. 112.) We noted that “Section 3 of the Unfair Practices Act makes it unlawful to sell any article or product at less than cost as defined, for the purpose of injuring competitors or destroying competition,” and that the “section also prohibits the sale of ‘loss leaders,’ as
A more recent decision also does not consider this question in detail, but supports the holding of Ellis v. Dallas, supra, 113 Cal.App.2d 234. In Tri-Q, Inc. v. Sta-Hi Corp. (1965) 63 Cal.2d 199, 203 [45 Cal.Rptr. 878, 404 P.2d 486], we adopted a portion of the Court of Appeal opinion, including that portion relevant here. In that case, the plaintiff claimed the defendant had violated sections 17043 and 17044. (Tri-Q, Inc. v. Sta-Hi Corp., supra, 63 Cal.2d at p. 203.) The trial court found the defendant had not sold its product at less than cost. The opinion upheld that factual finding but then said: “But even had the trial court found that the product had been sold below cost, there would still be the issue of whether the seller had so acted ‘for the purpose of injuring competitors or destroying competition.’ (Bus. & Prof. Code, § 17043; . . . Ellis v. Dallas, supra, 113 Cal.App.2d 234, 239.)” (Id. at p. 207.) The opinion noted that the trial court found, on sufficient evidence, that the defendant had no injurious intent, and, therefore, “it does not appear to be probable that a result more favorable to the plaintiff Tri-Q, Inc., would have been reached by the trial court even if it had found that such prices were less than the actual cost of the product.” (Id. at p. 209.) This language apparently applied to both the sections 17044 and 17043 claims.
Although we did not expressly discuss whether section 17044 requires the same mental state as section 17043, this language in Tri-Q, Inc. v. Sta-Hi Corp., supra, 63 Cal.2d 199, and our citation to the very page of Ellis that decided the question (Ellis v. Dallas, supra, 113 Cal.App.2d at p. 239), shows we at least assumed both sections require the same mental state.
Plaintiffs argue the appellate court decisions were wrongly decided and we should overrule them. They also argue that Tri-Q, Inc. v. Sta-Hi Corp., supra, 63 Cal.2d 199, did not clearly decide the question. Additionally, they
We thus see that, for almost half a century, California courts have unanimously interpreted section 17044 to require the same mental state as section 17043. Although we have never explicitly considered the question, we assumed that interpretation was correct in a decision that is itself over three decades old. During that time, the Legislature has amended California’s statutes regulating competition numerous times, sometimes to overrule judicial interpretations. (See Stop Youth Addiction, Inc. v. Lucky Stores, Inc., supra, 17 Cal.4th at pp. 569-570.) But it has left this rule intact. Legislative inaction is often not a convincing reason to refuse to change a statutory interpretation. (E.g., Ventura County Deputy Sheriffs’ Assn. v. Board of Retirement (1997) 16 Cal.4th 483, 506 [66 Cal.Rptr.2d 304, 940 P.2d 891].) Under the circumstances here, however, including the longevity of the rule and the unanimity of the decisions stating it, we believe it is up to the Legislature to change it if it is to be changed. In Dooley’s Hardware Mart v. Food Giant Markets, Inc., supra, 21 Cal.App.3d at pages 516-517, the court reaffirmed the holding of Ellis v. Dallas, supra, 113 Cal.App.2d 234, partly because of legislative inaction in the intervening two decades. That rationale is even stronger today, yet another quarter of a century later. Section 17044 has a long-settled meaning. We should not at this late date find it requires no culpable mental state after 50 years of contrary judicial interpretation. We decline plaintiffs’ request to overrule that interpretation.
Accordingly, the lower courts were correct that plaintiffs’ action under section 17044 fails for the same reason their action under section 17043 fails—they did not prove defendant acted with the necessary purpose.
B. Defendant’s Petition (Unfair Competition Law)
The Court of Appeal held that even though, when L.A. Cellular sold telephones below cost, it lacked the purpose necessary to violate the Unfair
1. General Principles
The purpose of the Unfair Practices Act is “to safeguard the public against the creation or perpetuation of monopolies and to foster and encourage competition, by prohibiting unfair, dishonest, deceptive, destructive, fraudulent and discriminatory practices by which fair and honest competition is destroyed or prevented.” (§ 17001.) It prohibits specific “practices which the legislature has determined constitute unfair trade practices.” (Wholesale T. Dealers v. National etc. Co., supra, 11 Cal.2d at p. 643.) The prohibitions against purposeful below-cost sales and loss leaders (§§ 17043, 17044) are two examples. The consequences of violating the Unfair Practices Act can be quite severe. A prevailing plaintiff may receive treble damages and attorney fées. (§ 17082.) The act even provides criminal sanctions. Any person who violates the act is guilty of a misdemeanor punishable by up to a $1,000 fine and six months’ imprisonment. (§ 17100.) This severity might explain why the Legislature applied these sanctions to below-cost sales and loss leaders only when done with the purpose of injuring competitors or destroying competition.
The unfair competition law is independent of the Unfair Practices Act and other laws. Its remedies are “cumulative ... to the remedies or penalties available under all other laws of this state” (§ 17205), but its sanctions are less severe than those of the Unfair Practices Act. Prevailing plaintiffs are generally limited to injunctive relief and restitution. (§ 17203; see ABC Internal Traders, Inc. v. Matsushita Electric Corp. (1997) 14 Cal.4th 1247, 1268 [61 Cal.Rptr.2d 112, 931 P.2d 290].) Plaintiffs may not receive damages, much less treble damages, or attorney fees. (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1266 [10 Cal.Rptr.2d 538, 833 P.2d 545]; Consumers Union of United States, Inc. v. Fisher Development, Inc. (1989) 208 Cal.App.3d 1433, 1443 [257 Cal.Rptr. 151].) The law provides for civil penalties (e.g., § 17206) but contains no criminal provisions.
However, the law does more than just borrow. The statutory language referring to “any unlawful, unfair or fraudulent” practice (italics added) makes clear that a practice may be deemed unfair even if not specifically proscribed by some other law. “Because Business and Professions Code section 17200 is written in the disjunctive, it establishes three varieties of unfair competition—acts or practices which are unlawful, or unfair, or fraudulent. ‘In other words, a practice is prohibited as “unfair” or “deceptive” even if not “unlawful” and vice versa.’ ” (Podolsky v. First Healthcare Corp. (1996) 50 Cal.App.4th 632, 647 [58 Cal.Rptr.2d 89], quoting State Farm Fire & Casualty Co. v. Superior Court, supra, 45 Cal.App.4th at p. 1102.) The case of Motors, Inc. v. Times Mirror Co. (1980) 102 Cal.App.3d 735 [162 Cal.Rptr. 543] is an example of the unfair competition law’s independent force. There, the plaintiff challenged a newspaper’s two-tiered advertising rate structure. The Court of Appeal held that the plaintiff stated a valid cause of action under the unfair competition law even though the Unfair Practices Act did not itself prohibit the pricing policy at issue. (Motors, Inc. v. Times Mirror Co., supra, 102 Cal.App.3d at p. 741 [citing
The unfair competition law, which has lesser sanctions than the Unfair Practices Act, has a broader scope for a reason. “[T]he Legislature . . . intended by this sweeping language to permit tribunals to enjoin on-going wrongful business conduct in whatever context such activity might occur. Indeed, ... the section was intentionally framed in its broad, sweeping language, precisely to enable judicial tribunals to deal with the innumerable 1 “new schemes which the fertility of man’s invention would contrive.” ’ (American Philatelic Soc. v. Claibourne (1935) 3 Cal.2d 689, 698 [46 P.2d 135].) As the Claibourne court observed: ‘When a scheme is evolved which on its face violates the fundamental rules of honesty and fair dealing, a court of equity is not impotent to frustrate its consummation because the scheme is an original one. . . .’ (3 Cal.2d at pp. 698-699 . . . ; accord, FTC v. The Sperry & Hutchinson Co. (1972) 405 U.S. 233, 240 [31 L.Ed.2d 170, 177, 92 S.Ct. 898].) With respect to ‘unlawful’ or ‘unfair’ business practices, [former] section 3369 [today section 17200] specifically grants our courts that power. [^] In permitting the restraining of all ‘unfair’ business practices, [former] section 3369 [today section 17200] undeniably establishes only a wide standard to guide courts of equity; as noted above, given the creative nature of the scheming mind, the Legislature evidently concluded that a less inclusive standard would not be adequate.” (Barquis v. Merchants Collection Assn., supra, 7 Cal.3d at pp. 111-112, fn. omitted.) “[I]t would be impossible to draft in advance detailed plans and specifications of all acts and conduct to be prohibited [citations], since unfair or fraudulent business practices may run the gamut of human ingenuity and chicanery.” (People ex rel. Mosk v. National Research Co. of Cal., supra, 201 Cal.App.2d at p. 772.)
Rubin v. Green, supra, 4 Cal.4th 1187, illustrates this principle. In that case, the plaintiff relied on the unfair competition law to pursue an action that the litigation privilege of Civil Code section 47, subdivision (b), otherwise prohibited. We “rejected the claim that a plaintiff may, in effect, ‘plead around’ absolute barriers to relief by relabeling the nature of the action as one brought under the unfair competition statute.” (Rubin v. Green, supra, 4 Cal.4th at p. 1201.) A bar against an action “may not be circumvented by recasting the action as one under Business and Professions Code section 17200.” (Id. at p. 1202.) We found “the conduct of defendants alleged in the complaint” came “within the scope of [Civil Code] section 47(b),” and thus was “absolutely immune from civil tort liability .... To permit the same . . . acts to be the subject of an injunctive relief proceeding brought by this same plaintiff under the unfair competition statute undermines that immunity. If the policies underlying section 47(b) are sufficiently strong to support an absolute privilege, the resulting immunity should not evaporate merely because the plaintiff discovers a conveniently different label for pleading what is in substance an identical grievance arising from identical conduct as that protected by section 47(b).” (Id. at pp. 1202-1203.)
A plaintiff may thus not “plead around” an “absolute bar to relief’ simply “by recasting the cause of action as one for unfair competition.” (Manufacturers Life Ins. Co. v. Superior Court (1995) 10 Cal.4th 257, 283 [41 Cal.Rptr.2d 220, 895 P.2d 56].) The rule does not, however, prohibit an action under the unfair competition law merely because some other statute
This conclusion is consistent with the overall pattern of the Unfair Practices Act and the unfair competition law. As discussed above, the Unfair Practices Act condemns specific conduct. The unfair competition law is less specific, because the Legislature cannot anticipate all possible forms in which unfairness might occur. If, in the Unfair Practices Act (or some other provision), the Legislature considered certain activity in certain circumstances and determined it to be lawful, courts may not override that determination under the guise of the unfair competition law. However, if the Legislature did not consider that activity in those circumstances, the failure to proscribe it in a specific provision does not prevent a judicial determination that it is unfair under the unfair competition law.
L.A. Cellular argues that the decision of Motors, Inc. v. Times Mirror Co., supra, 102 Cal.App.3d 735, and the Court of Appeal decision in this case are inconsistent with another Court of Appeal decision, Hobby Industry Assn. of America, Inc. v. Younger (1980) 101 Cal.App.3d 358 [161 Cal.Rptr. 601] (Hobby Industry). We believe, however, that these cases can be mutually reconciled, and that all are consistent with the general framework of the unfair competition laws. Hobby Industry involved the Fair Packaging and Labeling Act (§ 12601 et seq.), which generally provides immunity to wholesalers and retailers. (Hobby Industry, supra, 101 Cal.App.3d at p. 369.) The Attorney General argued that, despite this immunity, “suits may be brought against [wholesalers and retailers] under the unfair competition statutes ...” (Ibid.) The court disagreed, finding “nothing in section 17200 et seq. which reimposes the liability on wholesalers and retailers which is expressly excluded by section 12602. . . . Although the Supreme Court has construed the orbit of the unfair competition statutes expansively (People v. McKale (1979) 25 Cal.3d 626, 631-632 [159 Cal.Rptr. 811, 602 P.2d 731], and Barquis v. Merchants Collection Assn. (1972) 7 Cal.3d 94, 111-113 [101 Cal.Rptr. 745, 496 P.2d 817]), it cannot be said that this
We thus conclude that a plaintiff may not bring an action under the unfair competition law if some other provision bars it. That other provision must actually bar it, however, and not merely fail to allow it. In other words, courts may not use the unfair competition law to condemn actions the Legislature permits. Conversely, the Legislature’s mere failure to prohibit an activity does not prevent a court from finding it unfair. Plaintiffs may not “plead around” a “safe harbor,” but the safety must be more than the absence of danger.
If no statute provides a safe harbor, a court must determine whether the challenged conduct is unfair within the meaning of the unfair competition law. In doing so, courts may not apply purely subjective notions of fairness. “The appellate courts have ‘neither the power nor the duty to determine the wisdom of any economic policy; that function rests solely with the legislature. . . .’ (Max Factor & Co. v. Kunsman (1936) 5 Cal.2d 446, 454 [55 P.2d 177] .)” (Wolfe v. State Farm Fire & Casualty Ins. Co. (1996) 46 Cal.App.4th 554, 562 [53 Cal.Rptr.2d 878].) This court has not yet defined “unfair” under this law. A few Courts of Appeal have attempted a definition. (E.g., People v. Casa Blanca Convalescent Homes, Inc. (1984) 159 Cal.App.3d 509, 530 [206 Cal.Rptr. 164, 53 A.L.R.4th 661] [“[A]n ‘unfair’ business practice occurs when it offends an established public policy or when the practice is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.”]; State Farm Fire & Casualty Co. v. Superior Court, supra, 45 CaI.App.4th at p. 1104 [“ ‘the court must weigh the utility of the defendant’s conduct against the gravity of the harm to the alleged victim’ ”].)
L.A. Cellular and supporting amici curiae emphasize the need for California businesses to know, to a reasonable certainty, what conduct California law prohibits and what it permits. We sympathize with this concern. An undefined standard of what is “unfair” fails to give businesses adequate guidelines as to what conduct may be challenged and thus enjoined and may sanction arbitrary or unpredictable decisions about what is fair or unfair. In some cases, it may even lead to the enjoining of procompetitive conduct and thereby undermine consumer protection, the primary purpose of the antitrust laws. “Because ours is a culture firmly wedded to the social rewards of commercial contests, the law usually takes care to draw lines of legal liability in a way that maximizes areas of competition free of legal penalties.” (Della Penna v. Toyota Motor Sales, U.S.A., Inc. (1995) 11 Cal.4th 376, 392 [45 Cal.Rptr.2d 436, 902 P.2d 740].) Courts must be careful not to make economic decisions or prevent rigorous, but fair, competitive strategies that all companies are free to meet or counter with their own strategies. Companies that cannot compete with others that are more capable or efficient may lawfully fail.
Accordingly, we believe we must devise a more precise test for determining what is unfair under the unfair competition law. To do so, we may turn for guidance to the jurisprudence arising under the “parallel” (Barquis v. Merchants Collection Assn., supra, 1 Cal.3d at p. 110) section 5 of the Federal Trade Commission Act (15 U.S.C. § 45(a)) (section 5). “In view of the similarity of language and obvious identity of purpose of the two statutes, decisions of the federal court on the subject are more than ordinarily persuasive.” (People ex rel. Mosk v. National Research Co. of Cal., supra, 201 Cal.App.2d at p. 773; see also Bank of the West v. Superior Court, supra, 2 Cal.4th at pp. 1263-1264.) Admittedly, the two statutes are enforced in
The United States Supreme Court has stressed that the “ ‘antitrust laws . . . were enacted for “the protection of competition, not competitors.'” ’ ” (Cargill, Inc. v. Monfort of Colorado, Inc. (1986) 479 U.S. 104, 115 [107 S.Ct. 484, 491-492, 93 L.Ed.2d 427], original italics.) They “do not require the courts to protect small businesses from the loss of profits due to continued competition, but only against the loss of profits from practices forbidden by the antitrust laws.” (Id. at p. 116 [107 S.Ct. at p. 492].) Injury to a competitor is not equivalent to injury to competition; only the latter is the proper focus of antitrust laws. (See Atlantic Richfield Co. v. USA Petroleum Co. (1990) 495 U.S. 328, 344 [110 S.Ct. 1884, 1894-1895, 109 L.Ed.2d 333]; Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc. (1977) 429 U.S. 477, 488-489 [97 S.Ct. 690, 697-698, 50 L.Ed.2d 701]; § 17001 [the purpose of the antitrust law is “to foster and encourage competition” by prohibiting “practices by which fair and honest competition is destroyed or prevented”].) The high court has also found unfair practices that “conflict with the basic policies of [some other laws] even though such practices may not actually violate these laws” or amount to “trade restraints in their incipiency.” (FTC v. Brown Shoe Co. (1966) 384 U.S. 316, 321, 322 [86 S.Ct. 1501, 1504, 16 L.Ed.2d 587], fn. omitted.)
These principles convince us that, to guide courts and the business community adequately and to promote consumer protection, we must require that any finding of unfairness to competitors under section 17200 be tethered to some legislatively declared policy or proof of some actual or threatened
2. Application to This Case
Applying these principles to this case is a two-step process. First, we must determine whether the Legislature has provided a safe harbor for L.A. Cellular’s conduct. Second, if it has not, we must determine whether that conduct is unfair as we have just defined it.
L.A. Cellular argues that sections 17043 and 17044 provide a safe harbor for all below-cost sales when the seller lacks the purpose of injuring competitors or destroying competition. We disagree. Although the Legislature limited the sanctions of treble damages, attorney fee awards, and criminal charges to purposeful below-cost sales, nothing in section 17043 or 17044 makes all other below-cost sales lawful, including those that have the effect, although not the purpose, of destroying competition. The Unfair Practices Act neither outlaws nor affirmatively permits all nonpurposeful below-cost sales. Accordingly, it does not preclude a court from deeming nonpurposeful conduct unfair under the unfair competition law.
This conclusion becomes clear when we consider another provision of the Unfair Practices Act that we believe does provide a safe harbor. Section 17026.1, subdivision (a)(2), enacted in 1992 and operative in 1994, provides: “Consistent with the provisions of subdivision (d) of Section 17050, providers of cellular services shall be permitted to sell cellular telephones below cost, provided that sales below cost are a good faith endeavor to meet the legal market prices of competitors in the same locality or trade area.” (Italics
L.A. Cellular argues, however, that because sections 17043 and 17044 deal with the same subject as this case—below-cost sales—and do not proscribe the conduct here, courts may not find it unfair. We are not persuaded. The practice challenged here resembles in some respects that condemned in sections 17043 and 17044, but differs in other ways. L.A. Cellular did not act with the purpose of injuring competitors or destroying competition. But it is a “duopolist,” employing an overall strategy that might not be available to its nonduopolist competitors. As explained below, this circumstance is critical. The Legislature undoubtedly did not consider below-cost sales in this context. This may be one of the myriad unanticipated ways in which unfair competition may occur. The Legislature could not have anticipated this precise situation any more than it could “draft in advance detailed plans and specifications of all acts and conduct to be prohibited.” (People ex rel. Mosk v. National Research Co. of Cal., supra, 201 Cal.App.2d at p. 772.) The originality of this practice does not place it beyond the reach of the unfair competition law.
We thus conclude that (1) good faith sales that section 17026.1 permits may not be deemed unfair under the unfair competition law; (2) below-cost sales and loss leaders under sections 17043 and 17044, the purpose of which is to injure competitors and destroy competition, are subject to the sanctions of the Unfair Practices Act; and (3) sales that come within neither the safe harbor of section 17026.1 nor the prohibitions of sections 17043 and 17044 may be considered unfair under the independent provisions of the unfair competition law as we have defined it. Accordingly, we agree with the Court of Appeal that the trial court erred in concluding that the unfair competition law cause of action necessarily failed when the other causes of action failed. Permitting this action under the unfair competition law does not allow plaintiffs to “plead around” an absolute bar of some other provision.
We now turn to the question whether the below-cost sales of this case are unfair under the test we have just stated. Because the trial court granted
Courts must be particularly cautious in evaluating claims that a competitor’s prices are too low. Pricing practices are not unfair merely because a competitor may not be able to compete against them. Low prices often benefit consumers and may be the very essence of competition. “Low prices benefit consumers regardless of how those prices are set, and so long as they are above predatory levels, they do not threaten competition.” (Atlantic Richfield Co. v. USA Petroleum Co., supra, 495 U.S. at p. 340 [110 S.Ct. at p. 1892].) Courts must not prohibit “vigorous competition” nor “render illegal any decision by a firm to cut prices in order to increase market share. The antitrust laws require no such perverse result, for ‘[i]t is in the interest of competition to permit dominant firms to engage in vigorous competition, including price competition.’ ” (Cargill, Inc. v. Monfort of Colorado, Inc., supra, 479 U.S. at p. 116 [107 S.Ct. at p. 492].)
The conduct challenged here, however, might be unfair. The PUC has indicated that the “cellular equipment market” is supposed to be openly “competitive,” in contrast to the “cellular service market,” which is not. (Re Regulation of Cellular Radiotelephone Utilities, supra, 59 Cal.P.U.C.2d at pp. 203, 206.) Indeed, it expressed concern that, if it permitted bundling, below-cost pricing by service providers might destroy competition for providing equipment. It permitted bundling only because it believed that “cellular dealers operate in a reasonably competitive market that will continue to exist even if bundling is authorized.” (Id. at p. 206.)
The trial court will have to determine whether the challenged strategy met the test of unfairness we have articulated. This case has an unusual circumstance that might bring it within the unfair competition law’s coverage: L.A. Cellular’s position as a wholesale duopolist. On remand, the court might find that L.A. Cellular used this legally privileged status in violation of section 17200. “[F]air and honest competition” (§ 17001) in equipment sales might not be possible when a legally privileged company sells equipment below cost as a strategy to increase profits on service sales that are prohibited to its equipment competitors.
Allowing a company to sell telephones at a loss to increase profits on service sales, and to recoup its losses with those profits, might threaten the
L.A. Cellular’s desire to make telephone purchases attractive to consumers in order to increase its service sales may be legitimate. If its pricing strategy is found unfair as we have defined it, it might still seek to gain customers in other ways, but it may not destroy the competitiveness of the telephone market. Accordingly, we agree with the Court of Appeal that this action must be remanded for retrial on the unfair competition law cause of action. Because we have stated the applicable test for the first time, we think plaintiffs should be allowed to present additional evidence to meet that test if they choose. Defendant may also, of course, present a defense. (Pinsker v. Pacific Coast Soc. of Orthodontists (1969) 1 Cal.3d 160, 167 [81 Cal.Rptr. 623, 460 P.2d 495].)
As we have noted, section 17026.1, which permits the sale of telephones below cost in “a good faith endeavor to meet the legal market prices of competitors in the same locality or trade area” (italics added), provides a safe harbor for those good faith sales. In light of its ruling on the Unfair Practices Act cause of action, the trial court expressly did not “reach[]” the question “whether L.A. Cellular in setting its prices in this manner fell within” this provision. It will have to do so on remand in determining whether L.A. Cellular violated the unfair competition law and, if it determines L.A. Cellular did, in fashioning a remedy. The court must not limit L.A. Cellular’s actions in such a way as to make it unable to compete with its service rival. Section 17026.1, however, refers to a competitor’s “legal”
In its briefing in this court, L.A. Cellular assures us that it “and AirTouch compete vigorously in the service market . . . .” The court on remand should do nothing to hamper this competition for services. As the Court of Appeal noted, the PUC “has expressed a preference for ‘healthy and direct [price] competition for cellular service’ . . . .” (Quoting Re Regulation of Cellular Radiotelephone Utilities, supra, 59 Cal.P.U.C.2d at p. 205.)
III. Conclusion
The judgment of the Court of Appeal is affirmed. The unfair competition law cause of action shall be retried consistently with the legal principles stated in this opinion.
George, C. L, Mosk, J. Brown, L, and Dibiaso, J.,
All further statutory citations are to the Business and Professions Code unless otherwise indicated.
The Legislature has given section 17200 et seq. no official name. Accordingly, we are now using the label “unfair competition law.” (Stop Youth Addiction, Inc. v. Lucky Stores, Inc. (1998) 17 Cal.4th 553, 558, fn. 2 [71 Cal.Rptr.2d 731, 950 P.2d 1086].)
The situation may have changed somewhat in the meantime. “Competition in the cellular service market, which now consists of two regulated facilities-based carriers in each cellular market, will be expanded in many areas with the entry of an unregulated system . . . .” (Re Regulation of Cellular Radiotelephone Utilities (1995) 59 Cal.P.U.C.2d 192, 203.) This opinion concerns only the facts reflected in the record and not possible recent developments.
In its amicus curiae brief, the PUC did express one “caveat”: that a judicial decision prohibiting bundling would interfere with its jurisdiction. We need not decide this point, for the question of bundling is not before us. Like the Court of Appeal, we express no opinion regarding bundling.
The Model Penal Code itself resolves the ambiguity by defining “ ‘intentionally’ or ‘with intent’ ” as meaning “purposely.” (Model Pen. Code, § 1.13(12).) Some of the states that have adopted that code’s distinction between purpose and knowledge have used the word “intentionally” instead of “purposely” but have defined it to mean “conscious objective.” (Model Pen. Code & Commentaries, com. 2 to § 2.02, p. 235, fn. 11.)
As originally enacted in 1941, section 17044 provided, “The practice of using any article or product as a Toss leader’ is included among the prohibitions of this chapter.” (Stats. 1941, ch. 526, § 1, p. 1842.) The section was amended in 1953 to read as it now does. (Stats. 1953, ch. 334, § 1, p. 1601.) Section 17030 was enacted in 1941 with section 17044 and has not been amended since. (Stats. 1941, ch. 526, § 1, p. 1841.)
Justice Baxter would essentially read the word “purpose” out of section 17043 and subject L.A. Cellular to potential treble damages, attorney fees, and even criminal sanctions for nonpurposeful conduct despite the statutory language. We decline to do so.
In its entirety, section 17200 provides: “As used in this chapter, unfair competition shall mean and include any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by Chapter 1 (commencing with Section 17500) of Part 3 of Division 7 of the Business and Professions Code [which involves advertising].”
Apparently taking her cue from the brief of amicus curiae American Council of Life Insurance, Justice Kennard asserts the unfair competition law did nothing more than codify the common law. (Cone. & dis. opn. of Kennard, J., post, at p. 194.) (Even L.A. Cellular does not make such a sweeping argument.) She relies primarily on International etc. Workers v. Landowitz (1942) 20 Cal.2d 418 [126 P.2d 609]. (Cone. & dis. opn. of Kennard, I., post, atpp. 194, 196, 197, 200.) That decision does, indeed, contain some language supporting her position. However, in Barquis v. Merchants Collection Assn., supra, 7 Cal.3d at page 109, we unanimously concluded “that ‘unfair competition’ as used in the section cannot be equated with the common law definition of ‘unfair competition,’ but instead specifies that, for the purposes of its provisions, unfair competition ‘shall mean and include unlawful, unfair or fraudulent business practice . . . .’ (Italics added.)” Regarding the language Justice Kennard cites, we stated, “Although the Landowitz opinion does contain some language which may be read to limit [Civil Code former] section 3369 [the original unfair competition law] to common law ‘unfair competition,’ subsequent cases . . . have not confined the section so narrowly; in view of the factual context of Landowitz, such language was not crucial to the decision.” (Id. at pp. 111-112, fn. 12; see also Rubin v. Green, supra, 4 Cal.4th at p. 1200 [“to
L.A. Cellular also relies on Perdue v. Crocker National Bank (1985) 38 Cal.3d 913 [216 Cal.Rptr. 345, 702 P.2d 503] and Blank v. Kirwan (1985) 39 Cal.3d 311 [216 Cal.Rptr. 718, 703 P.2d 58]. Those cases have no bearing on this issue. We held in each that the plaintiff’s allegations—entirely different from the allegations here—did not state a cause of action under the unfair competition law or some other law. In neither case did we suggest an action under the unfair competition law is precluded merely because some other statute does not provide for that action.
Section 5 contains two prohibitions: one against “unfair methods of competition” and the other against “unfair or deceptive acts or practices.” The former generally governs injuries to competitors, the latter injuries to consumers as well as competitors. (Barquis v. Merchants Collection Assn., supra, 7 Cal.3d at pp. 109-110.) Our notice of federal law under section 5 means only that federal cases interpreting the prohibition against “unfair methods of competition” may assist us in determining whether a particular challenged act or practice is unfair under the test we adopt. We do not deem the federal cases controlling or determinative, merely persuasive.
This case involves an action by a competitor alleging anticompetitive practices. Our discussion and this test are limited to that context. Nothing we say relates to actions by consumers or by competitors alleging other kinds of violations of the unfair competition law such as “fraudulent” or “unlawful" business practices or “unfair, deceptive, untrue or misleading advertising.” We also express no view on the application of federal cases such as FTC v. Sperry & Hutchinson Co. (1972) 405 U.S. 233 [92 S.Ct. 898, 31 L.Ed.2d 170] that involve injury to consumers and therefore do not relate to actions like this one. Contrary to Justice Kennard’s concurring and dissenting opinion, this test is not unduly uncertain. A body of law interpreting section 5 already exists. (See, e.g., Averitt, The Meaning of “Unfair Methods of Competition” in Section 5 of the Federal Trade Commission Act (1980) 21 B.C. L.Rev. 227.)
Justices Kennard and Baxter have differing interpretations of the facts. The trial court concluded that, because L.A. Cellular did not violate the Unfair Practices Act, it did not violate the unfair competition law; therefore, it never considered the facts in light of the test we have stated. We think it best for the trial court to do so on remand in the first instance. We also express no opinion on the correct remedy should the trial court find L.A. Cellular violated the unfair competition law.
Associate Justice of the Court of Appeal, Fifth District, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.