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California Supreme Court Deems Unearned Discounts an Unfair Trade Practice
Description California Supreme Court disallowed the granting of "unearned discounts”" by manufacturers to buyer and labeled it an "unfair trade practice" under the state Unfair Practices Act because it injures competitors and destroys competition.
Topic Antitrust
Key Words State Unfair Practices Act, Price Discrimination
C A S E   S U M M A R Y
Facts Matsushita sold Panasonic brand name products to ABC, Procom, and Tele-Com, competitor wholesale distributors of electronics. ABC sued Matsushita, Procom, and Tele-Com for violating California's "unfair competition law," claiming that Matsushita sold goods to Procom and Tele-Com for 5% less than it did to ABC. The 5% secret discount was claimed to be illegal under California law which prohibits unjustified price discrimination that tends to destroy competition. The price difference could not be justified (earned) on the basis of differences in marketing services performed by Procom and Tele-Com. The price discrimination caused ABC to lose business and profits since Procom and Tele- Com could undercut ABC in sale prices to retailers.
Lower Court Decision The trial court sustained Matsushita's demurrer, which was upheld by the court of appeal. ABC appealed.
Supreme Court Decision Reversed. Under the Unfair Practices Act, sellers may not secretly allow some buyers special "unearned discounts" that would injure competitors and tend to destroy competition. The statute is "aimed at preventing a distributor from discriminating between customers." ABC has the right, as a wholesaler, to bring such suit and have it heard, and had the right to request damages for lost profits, as well as request an injunction against such price discrimination in the future.
Citation ABC International Traders v. Matsushita Electric, 61 Cal.Rptr.2d 112 (Sup. Ct., Cal., 1997)

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