CACI 3404 Horizontal Restraints—Group Boycott—Rule of Reason—Essential Factual Elements

California Civil Jury Instructions CACI

3404 Horizontal Restraints—Group Boycott—Rule of Reason—Essential Factual Elements

[Name of plaintiff] claims that [name of defendant] agreed to [describe conduct, e.g., “formulate an arbitrary membership limitation rule with [identify other participant[s]]”]. To establish this claim, [name of plaintiff] must prove all of the following:

1.That [name of defendant] and [name of alleged coparticipant[s]] agreed to [describe conduct, e.g., “formulate an arbitrary membership limitation rule”];

2.That the purpose or effect of [name of defendant]’s conduct was to restrain competition;

3.That the anticompetitive effect of the restraint[s] outweighed any beneficial effect on competition;

4.That [name of plaintiff] was harmed; and

5.That [name of defendant]’s conduct was a substantial factor in causing [name of plaintiff]’s harm.

Directions for Use

This instruction applies to agreements between competitors that are directly intended to affect competition facing them. In determining whether to give this per se instruction or the rule of reason instructions, it is important whether the challenged combination was horizontal (between competitors), vertical (between sellers and buyers), or some combination of the two. Horizontal combinations are subject to per se instructions; vertical combinations to the rule of reason instructions. Those combinations falling in between must be carefully scrutinized to determine whether their principal purpose is to restrain competition between competitors or to downstream resellers by the seller.

For additional instructions regarding the rule of reason, see CACI Nos. 3411 through 3414.

Sources and Authority

Trusts Unlawful and Void. Business and Professions Code section 16726.

“Trust” Defined. Business and Professions Code section 16720(c).

Trade Groups Not Unlawful. Business and Professions Code section 16725.

“A group boycott can involve an agreement that a group of buyers will purchase only from a designated seller … . [A]n unlawful group boycott requires an express or implicit agreement among competitors to restrict commerce in some manner.” (UAS Management, Inc. v. Mater Misericordiae Hospital (2008) 169 Cal.App.4th 357, 365–366 [87 Cal.Rptr.3d 81].)

“It is well settled that the antitrust laws do not preclude a trader from unilaterally determining the parties with whom it will deal and the terms on which it will transact business. An antitrust case must be based upon conspiratorial rather than unilateral conduct. Thus, only group boycotts are unlawful under the Sherman and Cartwright Acts.” (G.H.I.I. v. MTS, Inc. (1983) 147 Cal.App.3d 256, 267–268 [195 Cal.Rptr. 211], internal citations omitted.)

In Marin County Bd. of Realtors v. Palsson (1976) 16 Cal.3d 920, 931 [130 Cal.Rptr. 1, 549 P.2d 833], the Supreme Court explained that there is a distinction between “direct boycotts aimed at coercing parties to adopt noncompetitive practices and indirect boycotts which result in refusals to deal only as a by-product of the agreement.”

Not all group boycotts are evaluated as per se violations: “This limitation on the per se rule is particularly applicable to trade association agreements not directly aimed at coercing third parties and eliminating competitors. In cases involving such agreements, courts have generally applied the rule of reason test.” (Marin County Bd. of Realtors, supra, 16 Cal.3d at p. 932.)

“Although the Sherman Act and the Cartwright Act by their express terms forbid all restraints on trade, each has been interpreted to permit by implication those restraints found to be reasonable.” (Corwin v. Los Angeles Newspaper Service Bureau, Inc. (1971) 4 Cal.3d 842, 853 [94 Cal.Rptr. 785, 484 P.2d 953], internal citation omitted.)

“To determine whether the restrictions are reasonable, ‘the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be obtained, are all relevant facts.’ The court should consider ‘the percentage of business controlled, the strength of the remaining competition [and] whether the action springs from business requirements or purpose to monopolize … .’ Whether a restraint of trade is reasonable is a question of fact to be determined at trial.” (Corwin, supra, 4 Cal.3d at pp. 854–855, internal citations omitted.)

“Generally, in determining whether conduct unreasonably restrains trade, ‘[a] rule of reason analysis requires a determination of whether … its anti-competitive effects outweigh its pro-competitive effects.’ ” (Bert G. Gianelli Distrib. Co. v. Beck & Co. (1985) 172 Cal.App.3d 1020, 1048 [219 Cal.Rptr. 203], internal citation omitted, overruled on other grounds in Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 389 [46 Cal.Rptr.3d 668, 139 P.3d 56].)

“The alleged antitrust violation need not be the sole or controlling cause of the injury in order to establish proximate cause, but only need be a substantial factor in bringing about the injury.” (Saxer v. Philip Morris, Inc. (1975) 54 Cal.App.3d 7, 23 [126 Cal.Rptr. 327], internal citation omitted.)

“The plaintiff in a Cartwright Act proceeding must show that an antitrust violation was the proximate cause of his injuries. The frequently stated ‘standing to sue’ requirement is merely a rule that an action for violation of the antitrust laws may be maintained only by a party within the ‘target area’ of the antitrust violation, and not by one incidentally injured thereby. An ‘antitrust injury’ must be proved; that is, the type of injury the antitrust laws were intended to prevent, and which flows from the invidious conduct which renders defendants’ acts unlawful. Finally, a plaintiff must show an injury within the area of the economy that is endangered by a breakdown of competitive conditions.” (Kolling v. Dow Jones Co. (1982) 137 Cal.App.3d 709, 723–724 [187 Cal.Rptr. 797], internal citations and footnote omitted.)

“The exact parameters of ‘antitrust injury’ under section 16750 have not yet been established through either court decisions or legislation.” (Cellular Plus, Inc. v. Superior Court (1993) 14 Cal.App.4th 1224, 1234 [18 Cal.Rptr.2d 308].)

Secondary Sources

1 Witkin, Summary of California Law (11th ed. 2017) Contracts, §§ 602–621
6 Antitrust Laws and Trade Regulation, Ch. 105, California, § 105.02[3] (Matthew Bender)
3 Levy et al., California Torts, Ch. 40, Fraud and Deceit and Other Business Torts, § 40.168[5] (Matthew Bender)
49 California Forms of Pleading and Practice, Ch. 565, Unfair Competition, § 565.77 (Matthew Bender)
1 Matthew Bender Practice Guide: California Unfair Competition and Business Torts, Ch. 5, Antitrust, 5.05, 5.11, 5.17–5.22