Opinion ID: 1424019
Heading Depth: 2
Heading Rank: 2

Heading: Price Discrimination Prohibition

Text: Section 6-2-103(1) declares it unlawful for any person, firm, or corporation doing business in the state of Colorado and engaged in the production, manufacture, distribution, or sale of any commodity, product, or service, ... with the intent to destroy the competition of any regular established dealer in such commodity, product, or service, or to prevent the competition of any person, firm, private corporation, or municipal or other public corporation which in good faith intends and attempts to become a dealer, to discriminate between different sections, communities, or cities, or portions thereof, or between different locations in such sections, communities, cities, or portions thereof in this state by selling or furnishing a commodity, product, or service at a lower rate in one section, community, or city, or any portion thereof, or in one location in such section, community, or city, or any portion thereof than in another.... In this action the plaintiff consumers allege that a violation of this section has occurred and that they have been damaged by the violation because they have been overcharged in order to subsidize and support Cablevision's attempt to drive its competitor out of business. Cablevision argues that this is not the type of injury that area price discrimination laws were designed to prevent and that the plaintiffs accordingly are not the proper persons to assert a claim under the statute. Cablevision first contends that price discrimination legislation was designed primarily to protect competitors and that therefore only competitors may bring private enforcement actions for violations of these laws. Cablevision relies largely on the fact that the Robinson-Patman Act, the federal counterpart to § 6-2-103, was enacted primarily to protect competitors. See generally, Frederick M. Rowe, Price Discrimination Under the Robinson-Patman Act 3-23 (1962). The Robinson Patman Act declares it unlawful for any person engaged in commerce, in the course of such commerce, either directly or indirectly, to discriminate in price between different purchasers of commodities of like grade and quality, where ... the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them [subject to certain exceptions and justifications] .... Robinson-Patman Act § 2(a), 15 U.S.C. § 13(a) (1973). Price discrimination is considered a destructive practice both because it may be utilized by a dominant business to create a monopoly and because it has been deemed to constitute unfair competition. Rudolf Callman, The Law of Unfair Competition Trademarks & Monopolies § 7.24 at 47 (4th ed. 1981) (hereinafter Callman). Price discrimination prohibitions contained in the precursor to section 2(a) of the Robinson-Patman Act, section 2 of the Clayton Act, [13] regarded price discrimination as primarily an antitrust violation because of its potential to drive competitors out of business and result in a monopoly. Id. at 48. [A]ntitrust laws are designed to benefit consumers by encouraging low prices, not to protect competitors. Indiana Grocery Co., Inc. v. Super Valu Stores, Inc., 684 F.Supp. 561, 582 (S.D.Ind.1988), aff'd, 864 F.2d 1409 (7th Cir.1989); see also Brunswick, 429 U.S. at 488, 97 S.Ct. at 697 (The antitrust laws ... were enacted for `the protection of competition, not competitors, ' (quoting Brown Shoe Co. v. United States, 370 U.S. 294, 320, 82 S.Ct. 1502, 1521, 8 L.Ed.2d 510 (1962)) (emphasis originally in Brown Shoe ); North Ave. Furniture & Appliance, 645 P.2d at 1295 (federal antitrust legislation is designed to protect the public by preserving free competition). As originally enacted, therefore, the federal statute focused on price discrimination as it affected the public and ultimate consumer rather than on how it affected competitors. In 1936 the Clayton Act was amended by the Robinson-Patman Act, which added statutory provisions designed to protect competitors from unfair competition. The Robinson-Patman amendments complemented those Clayton Act provisions already in place that were designed to protect the market from the monopolistic effects of price discrimination. See Callman § 7.24 at 48. Therefore, the legislative history of the federal price discrimination provision indicates that the law was designed to protect the public generally from monopolistic actions as well as to protect competitors from unfair competition. The Colorado Unfair Practices Act was enacted in 1937 shortly after this federal legislation. Ch. 261, secs. 1-17, 1937 Colo.Sess.Laws 1280, 1280-87. The Colorado Act specifically provides that one of its purposes is to safeguard the public against the creation or perpetuation of monopolies. § 6-2-102. Cablevision also makes a closely related argument that the language of section 6-2-103(1) applies only to primary-line competition [14] and that because consumers are not primary-line competitors they may not bring suit to enforce the statute. The specific language on which Cablevision focuses is that which prohibits discrimination intended to destroy the competition of any regular established dealer in such commodity, product, or service, or to prevent the competition of any person, firm, private corporation, or municipal or other public corporation which in good faith intends and attempts to become a dealer. ... § 6-2-103(1) (emphasis added). The language of the statute focuses on competition with other dealers. Such language has been held in other contexts to limit the reach of a price discrimination statute to primary-line competition. Harris v. Capitol Records Distrib. Corp., 64 Cal.2d 454, 50 Cal.Rptr. 539, 543-44, 413 P.2d 139, 143-44 (1966) (Unfair Practices Act `protects only first-line competition against predatory price cutting on an area basis and does not make illegal price discriminations which only injure second or third-line competition....') (quoting Birmingham, Legal Aspects of Petroleum Marketing Under Federal and California Laws, 7 U.C.L.A.L.Rev. 161, 246-47 (1960)); Beam v. Monsanto Co., Inc., 259 Ark. 253, 532 S.W.2d 175, 181-82 (1976) (court rejects interpretation of state unfair practices act that would broaden the act to protect persons other than dealers). We agree with Cablevision that the language of section 6-2-103(1) limits its scope to conduct intended to destroy or prevent primary-line competition. We do not believe, however, that it follows from this interpretation that the plaintiffs are not proper parties to bring the present suit. Although the plaintiffs in this action are not themselves dealers, the injury they assert is a result of price discrimination allegedly intended to injure Cablevision's primary-line competitor, Citizens Cable. The facts, as alleged by the plaintiffs, present a classic case of price discrimination of the very type section 6-2-103(1) was designed to prohibit. Cablevision's argument that the plaintiff consumers are not the proper parties to bring suit is similar to the argument raised by the defendants in Blue Shield v. McCready, 457 U.S. 465, 102 S.Ct. 2540, 73 L.Ed.2d 149 (1982). In that case the plaintiffs were subscribers to a group health plan who challenged the plan's policy of reimbursing subscribers for the services of psychiatrists but not for the comparable services of psychologists as being violative of section 1 of the Sherman Act. [15] This section declares illegal [e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce .... 15 U.S.C. § 1. The plaintiffs alleged that they were entitled to recover treble damages pursuant to section 4 of the Clayton Act because Blue Shield's failure to reimburse subscribers for the services of psychologists had been in furtherance of an unlawful conspiracy to exclude psychologists from a segment of the psychotherapy market. Id. at 470, 102 S.Ct. at 2543-44. The District Court had granted Blue Shield's motion to dismiss because the injury to the subscribers resulting from denial of reimbursement was not within the `sector of the economy competitively endangered' and thus was `too indirect and remote to be considered antitrust injury.' Id. at 470-71, 102 S.Ct. at 2544 (quoting District Court) (emphasis in original). The Fourth Circuit Court of Appeals reversed, [16] and the United States Supreme Court upheld the reversal. In determining that the plaintiffs' injury was not too remote, the Supreme Court looked (1) to the physical and economic nexus between the alleged violation and the harm to the plaintiff, and (2), more particularly, to the relationship of the injury alleged with those forms of injury about which Congress was likely to have been concerned in making defendant's conduct unlawful .... Id. at 478, 102 S.Ct. at 2547-48. In this action, consumers in the Area of Noncompetition allege that Cablevision committed price discrimination with the intent to drive Citizens Cable out of business. They allege that they have been injured because the price they paid for Cablevision's service was artificially high in order to subsidize its price war against Citizens Cable inside the Area of Competition. It has been recognized that a competitor's ability to obtain funds from other customers to subsidize a price war is key to its ability to initiate and sustain the price war. In some instances, [a competitor] can afford to finance his `war effort' against his competitor only because he is able to subsidize the loss in that struggle with the profits from sales effected at higher prices in other markets. Callman § 7.01 at 4 (emphasis added); see also Moore v. Mead's Fine Bread Co., 348 U.S. 115, 119, 75 S.Ct. 148, 150, 99 L.Ed. 145 (1954) (court recognized that ability of competitor to sustain price war was based in part on ability to underwrite losses through profits made by maintaining high prices in other markets). Because a competitor's act of subsidizing a price war through overcharges in other markets is so intimately tied to the unfair practice that section 6-2-103 seeks to prevent, we conclude that the payment of such overcharges is a type of injury that the statute was designed to prevent. See Blue Shield, 457 U.S. at 483-84, 102 S.Ct. at 2551 (Although [plaintiff] was not a competitor of the conspirators, the injury she suffered was inextricably intertwined with the injury the conspirators sought to inflict on psychologists and the psychotherapy market.). We therefore hold that the plaintiffs in this action have alleged an injury that is cognizable under sections 6-2-103(1) and -111(1) of the Colorado Unfair Practices Act. We reverse the district court's dismissal of the plaintiffs' Unfair Practices Act claim and remand to the court of appeals to consider the issue of whether as a matter of law Cablevision is insulated from claims asserted under the Act because it has only one office, [17] and for further proceedings consistent with the views expressed in this opinion. VOLLACK, J., dissents, and ROVIRA, C.J., and KIRSHBAUM, J., join in the dissent.