# Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co.

> California Supreme Court · April 8, 1999 · 83 Cal. Rptr. 2d 548

URL: https://www.frixlaw.com/law-library/cases/9567995

## Case

- **Full name:** CEL-TECH COMMUNICATIONS, INC., Et Al., Plaintiffs and Appellants, v. LOS ANGELES CELLULAR TELEPHONE COMPANY, Defendant and Respondent
- **Court:** California Supreme Court
- **Decided:** April 8, 1999
- **Citations:** 83 Cal. Rptr. 2d 548; 20 Cal. 4th 163; 99 Daily Journal DAR 3360; 973 P.2d 527; 99 Cal. Daily Op. Serv. 2576; 1999 Cal. LEXIS 1656
- **Precedential status:** Published
- **Opinion:** Concurring in part by Baxter
- **Judges:** Chin, Kennard, Baxter
- **Cited by:** 1,317 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/9567995

## How later opinions describe it (automated extraction)

- stating that, "[w]hen a plaintiff who claims to have suffered injury from a direct competitor's 'unfair' act or practice invokes section 17200, the word 'unfair' in that section means conduct that threatens an incipient violation of an antitrust law, or violates the policy or …
- holding “courts may not apply purely subjective notions of 20 fairness” or rely on “[v]ague references to ‘public policy’” and must instead identify “conduct that 21 threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those 22 laws …
- holding that the word “unfair” in section 17200 encompasses “conduct that threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those laws because its effects are comparable to or the same as a violation of the law, or otherwise signi…
- finding that unfair conduct is that which “threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those laws because its effects are comparable to or the same as a violation of the law or otherwise significantly threatens or harms comp…
- holding that for an act to be “unfair,” it must “threaten[]” a violation of law or “violate[] the policy or spirit of one of those laws because its effects are comparable to or the same as a violation of the law”

## Opinion text

BAXTER, J., Concurring and Dissenting.
I concur in the judgment insofar as it reverses the judgment of the trial court for defendant on the cause of action brought under section 17204 of the Business and Professions Code for *207 violation of the unfair competition law (UCL) (§ 17200 et seq.). 1 I dissent insofar as the majority affirm judgment for defendant on the sections 17043, 17044, Unfair Practices Act (UPA) (§ 17000 et seq.), causes of action.
While I have several reservations about the majority opinion, my principal concern is that the majority construe the UPA as permitting below-cost sales which injure competitors and/or destroy competition because the intent of the below-cost seller is to compete, but not to cause injury. This construction is inconsistent with the purpose and language of the UPA, in particular sections 17050, subdivision (d), and 17071 under which the statutory presumption of intent or purpose to injure competitors or destroy competition arising on proof of below-cost sales may be rebutted only by proof of a good faith belief that the price of a competitor with which the below-cost sale was to compete was a legal price. Under the majority construction, intent to injure becomes a subjective element of a section 17043 violation, rather than the objective element created by the section 17071 statutory presumption, and the limited exceptions to the ban on below-cost sales created by section 17050 are expanded far beyond those intended by the Legislature.
At the same time as they restrict UPA liability and abrogate an objective standard of intent, the majority expand potential liability under the UCL for “unfair” practices, again importing subjectivity into a law that no longer gives fair warning of conduct that may be deemed unlawful. Another regrettable consequence of the majority approach is an unnecessary divergence between California laws governing anticompetitive conduct and federal antitrust law, in particular a departure from the intent to injure concept that is part of the federal antitrust distinction between “competitive” and “predatory” pricing. The result will create uncertainty in the business community over potential liability for conduct that is permissible under federal law and under the UPA, but may, nonetheless, be deemed “unfair” under the UCL. Both the UPA and the UCL are susceptible to a construction that would largely eliminate that uncertainty and more closely conform to the apparent legislative intent underlying the California law. The majority reject this opportunity to adopt that construction.
I also have reservations about the majority’s conclusion that “purpose” as used in section 17043 has a narrower meaning than “intent.” I doubt that the Legislature had this distinction in mind when the UPA was enacted.
*208 I
Background.
Plaintiffs include wholesale and retailer sellers of cellular phones, as well as resellers of cellular service who are wholesalers of cellular telephones, two of whom also sell cellular telephones at retail. Defendant Los Angeles Cellular Telephone Company (L.A. Cellular), a cellular service provider, also engages in the wholesale and retail sale of cellular phones. Although L.A. Cellular’s principal market is the provision of cellular service, because it has opted to sell cellular phones to its agents and to customers of its cellular service, it is competing in the wholesale and retail markets for sale of cellular phones. Thus plaintiffs are competitors which defendant reasonably should have known might be injured by below-cost sales in either market. Although the record shows that competition in the sale of cellular phones has not been destroyed as a result of defendant’s conduct, and sellers continue to enter the market, the record also demonstrates that defendant’s conduct did injure plaintiffs, its competitors, who were in business when the below-cost sales complained of in this action occurred.
Plaintiffs’ evidence established that as a result of its inability to compete with defendant’s subsidized below-cost sales, 2 plaintiff Cel-Tech Communications, Inc. (Cel-Tech) was ceasing operations. Plaintiffs Comtech, Inc. and Cellular Service, Inc., the resellers of cellular service, suffered business declines when their equipment sales deteriorated because they could not *209 compete with defendant’s below-cost sales. All plaintiffs were injured as a result of their inability to compete with those below-cost sales.
Judgment for defendant was entered pursuant to Code of Civil Procedure section 631.8, supposedly at the close of plaintiffs’ evidence. However, in their case-in-chief, plaintiffs had called an officer of defendant L.A. Cellular as an adverse witness pursuant to Evidence Code section 776 3 and defendant was allowed to call that person as a defense witness. Thus, the record reflects not only plaintiffs’ evidence of below-cost sales of cellular phones by defendant and injury to plaintiffs and to competition in the cellular phone market, but also defendant’s explanation of its purpose in doing so. That purpose, the trial court found, was only to compete with its competitor in the cellular service market, AirTouch Cellular (then PacTel). Before it launched its below-cost sales program, L.A. Cellular had been unable to attract new customers for its cellular service because the high prices for cellular phones deterred prospective subscribers. Thus, by its below-cost sales, defendant sought to compete in the cellular service market, not to injure sellers engaged only in equipment sales.
Perhaps the most dramatic evidence of the actual injurious effect of L.A. Cellular’s below-cost sales, however, was the impact on plaintiff Cel-Tech. That impact on plaintiff Cel-Tech was staggering. Cel-Tech, a privately owned company started by its owner with $4,000 in savings, was clearly a very successful business before defendant launched its below-cost sales campaign, having grown from nothing in 1984 when it started business as a retail seller to $36 million in revenues and $2 million in gross profits by 1992. At that time it was primarily a wholesaler/distributor of cellular phones, and was the largest distributor of cellular phones in Los Angeles and one of the largest in the nation. Based on its volume of sales, Cel-Tech became a distributor for several manufacturers and private label producers of cellular phones, among them Mitsubishi International, Mitsubishi Electric, NEC, OKI, Toshiba, Ericsson/GE, and Pioneer from which it was able to purchase cellular phones at or very near the price charged to carriers. It sold cellular phones to retailers who sold to “end users,” and to resellers, including agents of L.A. Cellular and AirTouch. By the end of 1994 it was out of the business of cellular phone sales and distribution as both a retailer and distributor and was liquidating its inventory as a direct result of defendant’s below-cost sales. It could not compete without selling its phones below cost. *210 Not only was it unable to make a profit, it could not even cover its overhead costs.
The trial court found that “L.A. Cellular was doing what it said it was doing, which was keeping a watchful eye on the ads and setting its hardware prices to compete with its major competitor, AirTouch, and to increase its sale of service activations. Those were L.A. Cellular’s primary motivations and . . . injury to the plaintiffs was unintended.” The Court of Appeal, correctly, disagreed with the trial court’s further finding that L.A. Cellular did not know that its conduct would injure plaintiffs. It held, and I agree, that the record contained substantial evidence that the injury to plaintiffs was readily foreseeable.
The Court of Appeal questioned the sufficiency of the evidence to support a conclusion that L.A. Cellular’s purpose was only to compete with Air-Touch for market share in the cellular service industry. I share that skepticism. My review of the record supports plaintiffs’ claim that the record is equally susceptible to a conclusion that AirTouch lowered its prices for cellular phones in order to meet the predatory pricing of L.A. Cellular. Regardless of how this question should be resolved, however, the record contains no evidence that if L.A. Cellular acted to meet the prices of AirTouch for cellular phones, it did so with a good faith belief that those prices were legal.
II
The “Purpose” Element of a Section 17043 Violation
I agree with the majority that “intent” and “purpose” may have different meanings. “Intent” may encompass both acts done with the intent to cause a particular result and those undertaken with knowledge that there is a substantial certainty that the result will follow, while “purpose” encompasses only the former. I do not agree that the Legislature intended that distinction in the UPA, however.
A statute must be construed with regard to the statutory scheme of which it is a part and the court should give meaning to every word if possible, avoiding a construction that will render any part surplusage. (Briggs v. Eden Council for Hope & Opportunity (1999) 19 Cal.4th 1106, 1118 [ 81 Cal.Rptr.2d 471 , 969 P.2d 564 ] (Briggs); People v. Comingore (1977) 20 Cal.3d 142, 147 [ 141 Cal.Rptr. 542 , 570 P.2d 723 ].) A court will normally presume that when the Legislature uses different words in the same connection in different parts of a statute that a different meaning was intended. *211 (Briggs, supra, 19 Cal.4th at p. 1117 .) In the UPA , however, the Legislature appears to have used “intent” and “purpose” interchangeably. The enforcement provisions of the law suggest that the distinction drawn by the majority was not intended.
One provision describing conduct proscribed by the UPA uses “intent” to describe the mental element of the offense. Section 17040 prohibits locality discrimination, other than in a good faith effort to meet a competitive price, when the discrimination is “with intent to destroy the competition” of a regularly established dealer in the product, or to prevent competition by a person who intends to become a dealer in the product. Of the other UPA provisions defining offenses, only sections 17043 and 17044 (by incorporation of section 17030) use the term “purpose,” the former to require for violation through below-cost sales a mental element of acting with the “purpose of injuring competitors or destroying competition,” the latter to require as a “loss leader” element a “purpose ... to induce, promote or encourage the purchase of other merchandise.” (§ 17030.) Absent some reason to believe that the Legislature intended broader applicability of the offense defined in section 17040 than that in section 17043, it is difficult to accept the construction proposed by the majority. Under the majority construction, locality discrimination is an offense if the actor knew or reasonably should have known that the discrimination would injure competitors or destroy competition, but the same actor whose below-cost sales caused identical harm would be liable and subject to an injunction only if the actor’s purpose was to injure or destroy competition.
Moreover, the presumptions and evidentiary rules created by the UPA refer to proving the “purpose or intent” of the actor. Section 17071 provides that below-cost sales are “presumptive evidence of the purpose or intent to injure competitors or destroy competition.” Section 17071.5 provides that a retailer’s limitation of quantity in a below-cost sale creates a “presumption of the purpose or intent to injure competitors or destroy competition.” Section 17075 permits introduction of evidence of prevailing wages to “prove the intent or purpose” to violate the UPA.
Finally, section 17095 provides: “Any person, who, either as a director, officer or agent of any firm or corporation or as agent of any person, violating the provisions of this chapter, assists or aids, directly or indirectly, in such violation is responsible therefore equally with the person, firm or corporation for which he acts.” The UPA provisions authorizing injunctive relief and criminal prosecution against an agent of the offending party then provide that it is sufficient to prove the “unlawful intent of the person, firm *212 or corporation for which he acts.” (§§ 17096, 17101, italics added.) Under the majority construction, the principal that makes below-cost sales or uses loss leaders violates the UPA only if acting for the purpose of injuring or destroying competition, but an agent of the principal is liable if the principal acted with knowledge that this was a probable result.
I am at a loss to understand why the Legislature would relieve from UPA liability a principal that acted with knowledge or reason to know that below-cost pricing would injure competitors, but impose liability on an agent of the principal on the ground that the principal had such knowledge or had reason to know. Yet this is the result of the distinction between “purpose” and “intent” drawn by the majority.
On this basis alone I would hold that plaintiffs made a prima facie showing of the specific intent element of a section 17043 or 17044 violation by presenting evidence that defendant engaged in below-cost sales and used loss leaders in circumstances in which it knew or should have known because of the substantial certainty of the impact of those sales that the below-cost sales would injure competitors and destroy competition. That defendant’s purpose was only to compete with AirTouch is irrelevant. The UPA permits price competition. Except in narrowly defined circumstances, however, it does not permit below-cost sales which the actor knows or should know will injure competitors or destroy competition. If a competitor is engaging in unlawful below-cost sales the UPA provides a remedy which will restore competition to the market—an injunction against the competitor’s unlawful below-cost sales. (§ 17070.)
HI
Rebutting the Presumption of Injurious Intent or Purpose
The most disturbing aspect of the majority’s construction of the below-cost sales prohibition of the UPA, however, lies in their assumption that below-cost sales do not violate section 17043 if the below-cost seller acts with intent to compete with another seller of the same product and does not have the conscious intent or purpose to injure competitors or destroy competition, regardless of whether the below-cost seller has a good faith belief that the price of the competitor is a legal price. With due respect, this cannot have been the intent of the Legislature. The majority holding in this respect is inconsistent with the legislative purpose underlying the UPA, the statutory presumption of violation the Legislature created, and the limited circumstances in which the Legislature permits the presumption to be rebutted.
The UPA was enacted “to safeguard the public [interest] against the creation or perpetuation of monopolies and to foster and encourage *213 competition . . . .” (§ 17001.) The Legislature has demonstrated recognition that enforcement of the antitrust laws is critical to achieving the purpose of the law. It has done so by permitting private as well as governmental enforcement and by providing for treble damages (§ 17082) as further encouragement for enforcement. It also directs that the UPA be liberally construed (§ 17002) and, to ensure that violators will not escape liability by claiming lack of intent to injure competition, in section 17071 has created a presumption of intent or purpose to injure competitors or destroy competition, a presumption which arises on a showing of below-cost sales and injury.
As the trial court and Court of Appeal recognized, the Legislature has not placed on a UPA plaintiff the heavy burden of proving the subjective intent or purpose of a competitor who makes below-cost sales. Absent a “smoking gun” memorandum or “e-mail” revealing a below-cost seller’s subjective intent to injure competitors or destroy competition, proof of such intent or purpose is well nigh impossible to come by. Instead of demanding this of injured competitors of the below-cost seller, the Legislature has created a presumption of intent or purpose which arises on proof of both below-cost sales and injurious effect. It then has defined the circumstances in which, those sales do not violate the UPA, shifting the burden to the defendant to establish that one of those circumstances motivated the sales.
Section 17071 creates the presumption; “In all actions brought under this chapter proof of one or more acts of selling or giving away any article or product below cost or at discriminatory prices, together with proof of the injurious effect of such acts, is presumptive evidence of the purpose or intent to injure competitors or destroy competition.” 4
At the time most sales underlying this action took place, section 17050 defined the circumstances in which below-cost sales are permissible and thereby established the means by which a defendant may rebut the presumption of injurious purpose or intent: It provides in pertinent part:
“The prohibitions of this chapter against locality discrimination, sales below cost, and loss leaders do not apply to any sale made:
“(a) In closing out in good faith the owner’s stock or any part thereof
“(b) When the goods are damaged or deteriorated in quality . . . .
*214 “(c) By an officer acting under the orders of any court.
“(d) In an endeavor made in good faith to meet the legal prices of a competitor selling the same article or product, in the same locality or trade area and in the ordinary channels of trade.
“(e) In an endeavor made in good faith by a manufacturer, selling an article or product of his own manufacture, in a transaction and sale to a wholesaler or retailer for resale to meet the legal prices of a competitor selling the same or a similar or comparable article or product, in the same locality or trade area and in the ordinary channels of trade.” (Ibid., italics added.)
An additional exception to the ban on below-cost sales, available only to providers of cellular service and operative only as of January 1, 1994, is now found in section 17026.1, subdivision (a)(2). That subdivision authorizes below-cost sales of cellular phones by a provider of cellular service competing with another provider of cellular service. Section 17026.1, subdivision (a)(2), 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 added.) This express authorization to sell equipment below cost to compete with the legal price of a company competing primarily in the market for cellular service which the Legislature described as being “[consistent with subdivision (d) of Section 17050,” confirms that the only competition-based exception to the sections 17043 and 17044 ban on below-cost sales is for sales made to compete with what is believed in good faith to be a legal price of a competitor. The below-cost seller cannot rebut the presumptive intent to injure competitors or destroy competition with evidence that it simply intended to compete, not to injure.
The majority assume without discussion that section 17050 is not the exclusive means by which a defendant may rebut the presumption of section 17071 and establish the absence of intent or purpose to injure or destroy competition. They hold that even if a person selling below cost does so for competitive reasons other than a good faith attempt to meet a competitor’s legal price, there is no violation of section 17043 absent a purpose to injure competition in the market for the product being sold. That is not the law.
The majority uncritically rely for that assumption, as did the trial court, on a statement in Dooley’s Hardware Mart v. Food Giant Markets, Inc. (1971) *215 21 Cal.App.3d 513, 518 [ 98 Cal.Rptr. 543 ] (Dooley’s Hardware), that a UPA defendant may rebut the statutory presumption of intent or purpose to injure competitors or destroy competition “either by evidence tending to bring them within one of the exceptions to the prohibitions contained in the Act or by evidence establishing otherwise that they did not have the requisite wrongful intent.” (Italics added, fn. omitted.)
A careful reading of People v. Pay Less Drug Store (1944) 25 Cal.2d 108, 114 [ 153 P.2d 9 ] (Pay Less), on which the Court of Appeal relied in Dooley’s Hardware, reveals however that this court’s statement that nonstatutory bases may exist by which to rebut the presumption that arises from below-cost sales was dictum. The defendants in Pay Less conducted a retail grocery business. They admitted below-cost sales of more than 400 items as “loss leaders” but denied intent to injure competitors or destroy competition. They claimed that the sales were made in a good faith effort to meet the legal prices of competitors, and thus relied only on subdivision (d) of section 17050 in their effort to rebut the presumption of injurious purpose or intent. In response to the defendants’ claim that the presumption was unconstitutional, this court addressed the nature of the presumption now codified as section 17071 and the means by which it may be rebutted. “Proof of injurious effect is permitted to be shown with the proof of sales below cost as presumptive or prima facie evidence that the requisite intent existed. The obvious and only effect of this provision is to require the defendants to go forward with such proof as would bring them within one of the exceptions or which would negative the prima facie showing of wrongful intent. They may present facts showing that they were within the express exceptions regardless of actual intent; or they may introduce evidence of another necessity not expressly included to show that sales were made in good faith and not for the purpose of injuring competitors or destroying competition.” (Pay Less, supra, 25 Cal.2d at p. 114 , italics added.)
The court noted that it was unnecessary in the Pay Less case to consider what circumstances other than those expressly designated in section 17050 would justify sales below cost and thus negate the prima facie showing of unlawful intent since the defendants relied only on the exception found in subdivision (d) of the section. Nothing in Pay Less warrants a conclusion that, in stating that there might be circumstances other than those set forth in section 17050 on which below-cost sales could be justified, this court contemplated that price competition alone could justify below-cost sales. To have done so would have read the “good faith” effort to meet a competitor’s *216 “legal price” out of the statute. Instead, the court referred to another “necessity” to resort to below-cost sales. Competition alone cannot create such a necessity. 5
When construing a statute a court must consider the entire statutory scheme of which it is part and give effect to all parts of the statute, avoiding an interpretation that would render any provision nugatory. (People v. Pieters (1991) 52 Cal.3d 894, 898-899 [ 276 Cal.Rptr. 918 , 802 P.2d 420 ]; Lungren v. Deukmejian (1988) 45 Cal.3d 727, 735 [ 248 Cal.Rptr. 115 , 755 P.2d 299 ].) Subdivision (d) of section 17050 provides that below-cost sales do not violate the UPA when they are made in an effort to compete with what the seller in good faith believes is a legal price of a competitor. That legislative limitation on competitive below-cost sales is rendered nugatory by a construction of section 17043 which permits a seller to price its products below its cost to meet any competitor’s price regardless of whether there is a good faith belief that the competitor’s price is itself legal. The Legislature did not intend that a below-cost seller could avoid the requirement of a good faith belief that the competitor’s price was legal by simply proving that it intended only to compete and meant no harm. The majority’s contrary conclusion virtually ensures the end of meaningful competition in some product areas. As long as a below-cost seller intends no evil, it is free to wreak havoc on the competitive market for the product it sells below cost regardless of its knowledge of the impact of its action on other sellers of the same or a similar product.
The majority construction of the UPA also creates uncertainty over potential UCL liability, uncertainty that exists only because the majority hold that *217 the UPA does not expressly make below-cost sales for the purpose of competition lawful. I cannot agree. Section 17050 does make below-cost sales lawful in the circumstances specified therein. However, properly construed, unless an exception other than described in subdivision (d) of section 17050 is applicable, the UPA permits below-cost sales only when made to meet what is believed in good faith to be a legal price of a competitor. If that belief is present the sale is lawful and does not violate either the UPA or UCL. If it is absent the sale is both a violation of the UPA and the UCL.
The legislative limitation on below-cost sales in subdivision (d) of section 17050 to those made in a good faith belief that the price with which the seller is competing is legal does not deny the seller a fair opportunity to compete. When a seller is faced with competition from what appear to be unlawful below-cost sales by a competitor, the UPA provides the seller with a remedy other than further injury to any remaining competitors and potential destruction of the remaining market through its own below-cost sales. That remedy is a UPA-authorized injunction (§ 17070) to force the competitor to discontinue unlawful below-cost sales. “Each side must obey the law; the fact that one competing party disregards the statute does not give the other side a legal excuse to do so.” (Page v. Bakersfield Uniform etc. Co. (1966) 239 Cal.App.2d 762, 770 [ 49 Cal.Rptr. 46 ].)
The record reflects that in general L.A. Cellular established a wholesale price for cellular phones at 6 percent above its cost, 6 and a retail price at 2 percent higher. It had a “meet comp” (meet competition) policy, however, which sometimes affected the retail price at which it made retail sales and priced phones sold to its agents. In December 1993 the vice-president of sales and marketing for L.A. Cellular circulated a memorandum on hardware pricing and promotions to its agents. The memorandum stated that L.A. Cellular planned “to continue the policy of meeting what we believe to be the legal hardware prices of our primary competition(s).” The vice-president of sales and marketing testified that AirTouch (and its agents) was then its primary competitor. L.A. Cellular’s guidelines, however, were only to monitor competitors’ ads, TV, radio, and print media and to consider dropping its prices to meet prices that were below that at which L.A. Cellular was selling equipment. Its guideline was to match the offers made by AirTouch as closely as possible, although it did not do so in all cases. This witness conceded that AirTouch prices did in some cases seem to be suspiciously low and he did not know what AirTouch’s costs were. In many cases, *218 however, L.A. Cellular was selling below its cost. At this time “bundling” was not authorized in California, but L.A. Cellular had found a high correlation between sales of equipment and activation.
L.A. Cellular’s aggressive pricing during 1993 resulted in a 56 percent increase in December 1993 activations over its activations in December 1992, a factor it attributed to having “cornered the market for mass marketing of equipment.” During that period its price for one cellular phone product dropped from $399 to under $149. The witness conceded, however, that L.A. Cellular’s price drop was not simply to compete with AirTouch, but because it wanted to meet the AirTouch competitive reaction to L.A. Cellular’s price reductions.
The record is ambiguous with regard to whether defendant had a good faith belief that AirTouch or any sellers of cellular telephones whose price it was attempting to meet with its below-cost sales were selling the equipment below cost or, if so, were nonetheless selling cellular telephones at a legal price. The vice-president of sales and marketing testified that L.A. Cellular’s marketing staff watched AirTouch ads and set its prices accordingly. 7 While they were not comfortable meeting the prices offered in advertisements from some sellers whose affiliation they were not sure of, L.A. Cellular “felt that if AirTouch had a broadly advertised price point, that we were reasonably comfortable they were doing it within the law.” They did attempt to determine if a competitor’s price was legal by talking with the manufacturers of the equipment, but the response from manufacturers with whom L.A. Cellular already had a relationship was “none of your business.” They recognized that Motorola, which manufactured cellular phones sold by both L.A. Cellular and AirTouch also provided switching equipment to AirTouch and assumed that moneys might be applied “across those relationships.” In the end, however, the belief was simply that the manufacturer probably had a pricing strategy for AirTouch that was similar to that for L.A. Cellular and a feeling that AirTouch would not want to hazard legal exposure by its pricing actions. No similar effort was made to determine the lawfulness of competitor’s prices when the West Los Angeles super store policy was followed. If a person came into that store with a competitive ad at a lower price, the salesperson could meet that price with management authorization.
*219 Thus, the record may support a finding that L.A. Cellular had a good faith belief that when it made below-cost sales to compete with AirTouch it was competing with a legal price. On the other hand, it does not appear to support a finding that all of the below-cost sales were made to compete with what L.A. Cellular believed in good faith was a legal price.
Regardless of whether there is a distinction between the mental elements of purpose and intent, plaintiffs established a prima facie violation of section 17043. Their evidence established below-cost sales of cellular phones and injurious effect. Defendant’s evidence could not rebut the presumption of intent to injure competitors unless the concededly below-cost sales were made with a good faith belief that the prices of the competitors which defendant endeavored to meet were legal prices. That factual issue is one for the trial court. The judgment for defendant on the UPA causes of action should be set aside and the matter remanded for trial.
IV
Reconciling Federal Competitive vs. Predatory Pricing Doctrine With the UPA and UCL
A “predatory pricing scheme” such as one forbidden under the Sherman Act ( 15 U.S.C. § 2 ) 8 generally encompasses (1) below-cost pricing which (2) will drive competitors out of the market or deter others from entering, the ultimate object of which is to enable the predator to recover its losses through higher prices in the monopolistic market created thereby. (Brooke Group Ltd. v. Brown & Williamson Tobacco Corp. (1993) 509 U.S. 209, 222-224 [ 113 S.Ct. 2578, 2587-2589 , 125 L.Ed.2d 168 ]; Matsushita Elec. Industrial Co. v. Zenith Radio (1986) 475 U.S. 574, 584, fn. 8 [ 106 S.Ct. 1348, 1354-1355 , 89 L.Ed.2d 538 ].) The UPA ban on below-cost pricing has the same objective. Establishing a violation under the UPA is less cumbersome, however, as the plaintiff need only prove below-cost pricing and injury to a competitor or to competition. By limiting the circumstances in which below-cost pricing is exempted from the ban of sections 17043 and 17044, the UPA assumes that below-cost sales in other situations will result in monopolistic control of a market as sellers unable to compete with below-cost sales are driven out. Thus, a UPA plaintiff need not demonstrate that the below-cost seller anticipates recoupment of losses in the monopolistic market, the second prong of the predatory pricing test applied under federal law.
*220 The majority construe the UPA as permitting a product to be sold at a price below cost in order to compete with a competitor’s price, be that price legal or otherwise, without violating the UPA even if the seller knows that the sales will injure competitors and potentially destroy competition as long as the seller does not subjectively intend harm to the competitors or to competition. They also hold, however, that this conduct may subject the seller to liability under the UCL. The result is that conduct which is “predatory” and thus unlawful under federal antitrust law is permitted under the UPA, although there is no reason to believe that, in enacting the UPA proscription of below-cost pricing, the California Legislature intended to afford California consumers less protection than did Congress when comparable federal antitrust legislation was adopted. In fact California law appears to afford greater protection since it protects competitors as well as competition against discriminatory pricing, and permits recovery without the showing required under the second prong of the federal “predatory” pricing test. Moreover, in holding that a seller that believes its conduct is permissible under the UPA may nonetheless be subject to suit under the UCL, the majority create a new arena of uncertainty for the business community. The potential impact of UCL liability is minimized by the majority, but, in fact, a UCL suit exposes a business to substantial risks. (See, e.g., Stop Youth Addiction, Inc. v. Lucky Stores, Inc. (1998) 17 Cal.4th 553 [ 71 Cal.Rptr.2d 731 , 950 P.2d 1086 ].)
As I have demonstrated above, the UPA and UCL are subject to a construction which would avoid having conduct that is lawful under the UPA deemed “unfair” under the UCL. A construction of the UPA which bans all below-cost pricing except that expressly permitted by section 17050, and thus permits below-cost pricing only to meet what is believed to be a competitor’s legal price, would better protect consumers and would lessen uncertainty in the business community over the lawfulness of below-cost pricing. A pricing scheme that violated the UPA would necessarily violate the UCL, but would not otherwise constitute an “unfair” business practice.
The construction of the UPA and UCL that I propose would also be consistent with federal prohibitions on predatory pricing, which federal law distinguishes from pricing that is simply competitive. A California business that engaged in below-cost sales only to meet a competitor’s legal price would not violate federal antitrust law in so doing. It might do so under the majority’s construction of the UPA.
The UPA is, as this court recognized in Stop Youth Addiction Inc. v. Lucky Stores, Inc., supra, 17 Cal.4th at page 570 , “roughly analogous to the federal *221 Clayton Act” in its prohibition of below-cost pricing and price discrimination. It should, therefore, be construed accordingly.
In construing either the state or the federal antitrust laws, the court should recognize that the overarching purpose of these laws is to protect the consumer, not the competitors of a business whose efficiencies enable it to sell its products at a low price. “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. (1990) 495 U.S. 328, 340 [ 110 S.Ct. 1884, 1892 , 109 L.Ed.2d 333 ].)
Under federal law, a plaintiff alleging a violation need not prove that a competitor intends to injure the plaintiff or destroy competition. 9 The initial burden is only to establish that the price is predatory. To do so, “a plaintiff . . . must prove that the prices complained of are below an appropriate measure of its rival’s costs” and “that the competitor had a reasonable prospect, or ... a dangerous probability, of recouping its investment in below-cost prices. [Citations.] ‘For the investment to be rational, the [predator] must have a reasonable expectation of recovering, in the form of later monopoly profits, more than the losses suffered.’ [Citation.] Recoupment is the ultimate object of an unlawful predatory pricing scheme; it is the means by which a predator profits from predation. Without it, predatory pricing produces lower aggregate prices in the market, and consumer welfare is enhanced. Although unsuccessful predatory pricing may encourage some inefficient substitution toward the product being sold at less than its cost, unsuccessful predation is in general a boon to consumers.
“That below-cost pricing may impose painful losses on its target is of no moment to the antitrust laws if competition is not injured: It is axiomatic that the antitrust laws were passed for ‘the protection of competition, not competitors.’ ” (Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., supra, 509 U.S. at pp. 222, 224 [113 S.Ct. at pp. 2587, 2588], original italics.)
The rationale underlying the federal approach to predatory pricing was explained in Matsushita Elec. Industrial Co. v. Zenith Radio, supra, 475 U.S. at page 589 [ 106 S.Ct. at page 1357 ]: “[T]he success of [predatory pricing] schemes is inherently uncertain: the short-run loss is definite, but the long-run gain depends on successfully neutralizing the competition. Moreover, it is not enough simply to achieve monopoly power, as monopoly *222 pricing may breed quick entry by new competitors eager to share in the excess profits. The success of any predatory scheme depends on maintaining monopoly power for long enough both to recoup the predator’s losses and to harvest some additional gain.” “In order to recoup their losses, [predators] must obtain enough market power to set higher than competitive prices, and then must sustain those prices long enough to earn in excess profits what they earlier gave up in below-cost prices.” (Id. at pp. 590-591 [ 106 S.Ct. at p. 1358 ].)
As explained by authors Areeda and Turner, whose reasoning apparently underlies the current federal approach (see Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., supra, 509 U.S. at pp. 221-222, 225 [113 S.Ct. at pp. 2586-2587, 2589]), rational business behavior seeks to maximize profits. Each competitor in a given market is attempting to attract more business. In most instances, one sale by a business translates to one sale lost by its competitors. It is a benefit to consumers to have such a system because businesses attempt to beat out their competitors by underselling them, thus attracting consumers. In a highly competitive market, prices approach the level of cost. It would be deemed irrational in the short run for business to sell below cost because a business is a profit-seeking entity. Thus, when an item is sold below cost, it is reasonable to presume a motive other than competition on the merits. (See Areeda & Turner, Predatory Pricing and Related Practices Under Section 2 of the Sherman Act (1975) 88 Harv. L. Rev. 697 .)
L.A. Cellular’s conduct might not violate federal antitrust law. While it was able to recoup its losses, and clearly anticipated that it would be able to do so, that recoupment was in profits from increased sales of its cellular service, not cellular phones. Moreover, while these plaintiffs were injured by defendant’s below-cost sales, competition was not. The record confirms that the cellular telephone business in the Los Angeles area continued to grow and new retailers continued to enter the market. Thus, competition continued in both the cellular phone and the cellular service markets. L.A. Cellular did not achieve and the record does not suggest that it intended to achieve or sustain monopoly power in the cellular phone market.
Nonetheless, insofar as the UPA is broader than federal antitrust law and does give broader protection to competitors, as does the UCL (Barquis v. Merchants Collection Assn. (1972) 7 Cal.3d 94, 109-111 [ 101 Cal.Rptr. 745 , 496 P.2d 817 ]), the purpose or intent element of California law may be conformed to federal law by the construction of the UPA suggested above. Recognizing that intent or purpose to injure competitors or destroy competition is presumed whenever a product is intentionally (Tri-Q, Inc. v. Sta-Hi, *223 supra, 63 Cal.2d at pp. 207-208) sold below cost, unless section 17050 exempts the sale, would bring California antitrust law into conformity with the first prong of the federal test of predatory pricing. It would also carry out more fully the legislative intent of protecting competitors as well as consumers from the impact of below-cost pricing.
Requiring proof of subjective intent to injure competitors, or as the majority do, permitting the presumption of intent or purpose to be rebutted by proving simply lack of such intent, is not appropriate in the competitive business arena. “[Cjutting prices in order to increase business often is the very essence of competition.” (Matsushita Elec. Industrial Co. v. Zenith Radio, supra, 475 U.S. at p. 594 [ 106 S.Ct. at p. 1360 ].)
Any price cut which attracts a consumer who would have gone to another seller, harms the seller that did not make the sale. Evidence that the below-cost seller did not intend to injure is meaningless. To intend to compete through below-cost sales is, necessarily, to intend to injure a competitor. For this reason the UPA does not require proof of intent to injure, but instead presumes that intent exists for purposes of section 17043 and 17044 when a business engages in below-cost selling.
Modern economic theory assumes that a business with prices lower than those of its competitors intends harm to the competitors insofar as it is able to attract customers who would otherwise trade with the competitors. Since this behavior stimulates competition it benefits consumers. Therefore, it is inappropriate to import into antitrust law the criminal law concept of intent or purpose to cause injury as a state of mind warranting punishment. Subdivision (d) of section 17050 demonstrates that the California Legislature did not intend to do so. Antitrust law encourages the state of mind of beating competitors through lower prices because, to a certain point, consumers benefit. It is only when “[a] firm . . . drives out or excludes rivals by selling at unremunerative prices [that it] is not competing on the merits, but engaging in behavior that may properly be called predatory.” (Areeda & Turner, Predatory Pricing and Related Practices Under Section 2 of the Sherman Act, supra, 88 Harv. L.Rev. at p. 697.)
The UPA draws the predatory price line at average total cost. (§§ 17026, 17029.) No article or product may be sold at a lower price unless permitted by section 17050 because intent to injure rather than compete on the merits is presumed when pricing is predatory.
This court should, to the extent possible under the language of California antitrust laws and consistent with legislative intent, construe the purpose or *224 intent provision of the UPA in conformity with federal law. Uniformity benefits both the business community and the consumers for whose protection these laws were enacted.
For all of the above reasons, I believe that the judgment for defendant on the UPA cause of action should be set aside and the matter remanded to the superior court for trial on both the UPA and UCL causes of action.
All statutory references are to the Business and Professions Code unless otherwise indicated.
“Cost” is defined in section 17026: “ ‘Cost’ as applied to production includes the cost of raw materials, labor and all overhead expenses of the producer. “ ‘Cost’ as applied to distribution means the invoice or replacement cost, whichever is lower, of the article or product to the distributor and vendor, plus the cost of doing business by the distributor and vendor and in the absence of proof of cost of doing business a markup of 6 percent on such invoice or replacement cost shall be prima facie proof of such cost of doing business. “ ‘Cost’ as applied to warranty service agreements includes the cost of parts, transporting the parts, labor, and all overhead expenses of the service agency. “Discounts granted for cash payments shall not be used to reduce costs.” Section 17029 provides, in turn: “ ‘Cost of doing business’ or ‘overhead expense’ means all costs of doing business incurred in the conduct of the business and shall include without limitation the following items of expense: labor (including salaries of executives and officers), rent, interest on borrowed capital, depreciation, selling cost, maintenance of equipment, delivery costs, credit losses, all types of licenses, taxes, insurance and advertising.” Finally, section 17073 provides: “Proof of average overall cost of doing business for any particular inventory period when added to the cost of production of each article or product, as to a producer, or invoice or replacement cost, whichever is lower, of each article or product, as to a distributor, is presumptive evidence of cost of each such article or product involved in any action brought under this chapter.”
Evidence Code section 776, subdivision (a): “A party to the record of any civil action, or a person identified with such a party, may be called and examined as if under cross-examination by any adverse party at any time during the presentation of evidence by the party calling the witness.”
Section 17071.5 creates a similar presumption when a retailer’s limitation of quantity and sale of the item below invoice or replacement cost is established.
Tri-Q, Inc. v. Sta-Hi Corp. (1965) 63 Cal.2d 199 [ 45 Cal.Rptr. 878 , 404 P.2d 486 ], is not authority for such an exception to the limited circumstances in which section 17050 authorizes below-cost sales. There, under pre-1985 procedures, a single appeal in consolidated cases was before this court on grant of hearing. The discussion of the section 17071 presumption there was in the portion of the vacated Court of Appeal opinion which addressed a UPA cause of action. This court adopted that part of the opinion because neither of the parties raised any issue as to its adequacy in the petition for hearing. ( 63 Cal.2d at p. 203 .) The first issue addressed was whether the defendant corporation had sold its product below cost. The trial court found and the Court of Appeal agreed that the evidence supported its finding that under applicable accounting practices the product was not sold below cost. Moreover, the corporation did not intend to sell below cost. In that context the opinion states: “That evidence was sufficient to render the presumption embodied in section 17071 of the Business and Professions Code of little evidentiary value. Consequently, 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.) That dictum in Tri-Q, Inc. v. Sta-Hi Corp., supra, 63 Cal.2d 199, 209 , at best stands for the proposition that a good faith belief that a product is not being sold below cost is a defense to a section 17043 action.
Under section 17026, 6 percent is prima facie proof of the cost of doing business which must be added to the invoice or replacement cost of an item in establishing whether a product is sold below cost.
Before it initiated a general practice of below-cost equipment sales in conjunction with sales of cellular service, L.A. Cellular sold equipment below cost at its “super store” in West Los Angeles when asked by a customer to meet the price of another retail seller with an adjacent business because that seller was offering lower prices. When it did so, it had the customer execute a document in which the customer stated that the customer was making the certificate to induce L.A. Cellular to sell the equipment at a price competitive with a named competitor pursuant to section 17050, subdivision (d) and that the customer had no reason to believe that the competitor’s price was not a lawful price.
Title 15 United States Code section 13a (the Robinson-Patman Act) prohibits, inter alia, selling “goods at unreasonably low prices for the purpose of destroying competition or eliminating a competitor.”
The concept of intent to injure has decreased in importance over the past 20 years. (See McCall, Private Enforcement of Predatory Price Laws Under the California Unlawful Practices Act and the Federal Antitrust Acts (1997) 28 Pacific LJ. 311, 331.)

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9567995. Public record. Not legal advice.