Public policy in California dictates that businesses should be free to compete against each other in the marketplace. Competition among businesses greatly benefits consumers. At the same time, competition engenders higher quality goods and higher service quality at price points advantageous to the consumer. Toward that end, California’s antitrust law, known as the “Cartwright Act,” prohibits a wide variety of conduct designed to restrain competition in the marketplace.
The San Jose business lawyers at Structure Law Group, LLP dedicate their practice to helping business owners grow their company while insulating them from harm. Unfair competition has a negative effect on consumers and businesses. Business entities should avoid structuring agreements which arguably cause unfair competition. Failure to do so could subject those businesses to lengthy and costly litigation and expose them to potential damages.
According to California business, trusts are unlawful and against public policy. California law defines a trust as a “combination of capital, skills, or acts by two or more persons” to:
- restrict commerce;
- limit the production or raise the prices of goods;
- prevent competition in manufacturing;
- price gouging or price fixing;
- enter into agreements or contracts that obligate a business to fix a price for the manufacture or delivery of goods below an agreed-upon price;
- agree to combine assets to which has the direct or indirect result of fixing prices, or
- agree to discriminate against a person in trade based upon sex, race, color, or creed in the sale of goods, manufacturing, or extending credit.
Unlawful agreements are by their nature conspiracies. Any person or business entity found liable as part of an anti-trust conspiracy can be forced to pay triple damages, plus costs, and reasonable attorneys’ fees. The Cartwright Act, therefore, provides a strong financial incentive to avoid becoming involved in an anti-trust conspiracy. Businesses must also beware that the federal anti-trust law, known as the “Sherman Act” may also apply in certain circumstances.
Conspiracies take on differing descriptions depending upon the nature of the agreements involved. Anti-trust conspiracies can either be vertical or horizontal conspiracies. Both are unlawful. Horizontal restraint occurs when competitors agree to restrain trade at the same level of distribution. A horizontal conspiracy is “per se unlawful.” A vertical conspiracy is an agreement which restrains trade higher up on the distribution chain from the subject suffering the economic restraint. The question of legality rests upon the legal standard courts call the “rule of reason.” Under the rule of reason, the person alleging the conspiracy must prove that the “relevant market” was affected by the restraint on trade higher in the chain of distribution.
Any restraint that fixes prices is unlawful on its face, regardless of the effect on the market. This is true even if the resulting price is reasonable in the market. Price fixing is the epitome of restraint on trade. Similarly, any agreement to fix output or distribution is also unlawful. In addition to price fixing, other California courts have ruled that market division, group boycotting (i.e., competitors agreeing to boycott a certain entity), and tying agreements (where one product sold is “tied” to another for a fixed price) are also unlawful.
Consult Experienced Business Attorneys Before Entering Into Agreements With Other Businesses
The San Jose business attorneys at Structure Law Group, LLP are experienced in advising businesses. They can help your business avoid any unintended or unforeseen anti-trust pitfalls. Call them today at 408-441-7500 to schedule a meeting.