Antitrust Law Daily Wrap Up, ANTITRUST—C.D. Cal.: Software developer states unfair competition, but not price discrimination, claims against competitor, (Sep 26, 2013)

By Tobias J. Gillett, J.D., LL.M.

A developer of remote access software for Apple Macintosh computers failed to state claims under the Robinson-Patman Act and California’s sales below cost law predicated on a competitor’s sale of its software below cost, the federal district court in Los Angeles has ruled (Code Rebel, LLC v. Aqua Connect, Inc., September 24, 2013, Lew, R.). However, the developer did state a claim under California’s Unfair Competition Law (UCL) against its competitor based on alleged intentional and negligent interference with economic advantage.

Code Rebel, LLC developed remote access software products for use with Apple Macintosh computers called iRAPP and iRAPP TS. Aqua Connect, Inc., developer of a competing remote access software product for Apple Macintosh computers called Aqua Connect Terminal Server (ACTS), allegedly became aware of the iRAPP software, and proceeded to engage in a course of conduct involving false representations to third parties regarding the iRAPP programs and the sale of the ACTS software at prices below its cost.

Code Rebel filed suit, asserting claims for violation of the Robinson-Patman Act’s prohibition on price discrimination; violation of California’s law against sales below cost for the purpose of injuring competition, Cal. Bus. & Prof. Code § 17043; violation of the UCL; and other claims. Aqua Connect filed a motion to dismiss.

Robinson-Patman Act. The court dismissed the Robinson-Patman Act price discrimination claim with leave to amend, concluding that Code Rebel had failed to provide sufficient facts to show that Aqua Connect’s software was a tangible product. The court explained that the Robinson-Patman Act’s prohibition of price discrimination “extends only to transactions involving commodities,” and that courts have held that the term “commodity” to refer to “only tangible products of trade.” The court cited the Northern District of California’s 2008 decision in Windsor Auctions, Inc. v. eBay, Inc. (2008-1 Trade Cases ¶76,217), for the proposition “that software lacks the requirement of a ‘tangible component,’” and therefore concluded “that software is not a commodity and is not subject to the Robinson-Patman Act.” However, Code Rebel had not alleged whether Aqua Connect’s software included physical items. Thus, the court granted leave to amend to provide facts that would show the software included physical items or was a tangible product.

California sales below cost law. The court also dismissed Code Rebel’s below cost sales claim under Cal. Bus. & Prof. Code § 17043 with leave to amend. The court explained that a plaintiff proceeding under § 17043 “must allege the defendant’s sales price, its cost in the product and its cost of doing business.” Here, Code Rebel alleged only that Aqua Connect had sold its software at a price below cost for the purpose of injuring its competitors, and had failed to allege Aqua Connect’s sales price, its cost in the product, or its cost of doing business.

California Unfair Competition Law. However, the court declined to dismiss Code Rebel’s claim under the UCL. Code Rebel asserted its claim under the “unlawful” prong of the UCL, which treats violations of other laws as unlawful and independently actionable practices. The court observed that, under the UCL, a plaintiff claiming an injury from a direct competitor’s unfair act or practice “must plead 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 are the same as a violation of the law, or otherwise significantly threatens or harms competition.” Here, Code Rebel alleged that Aqua Connect had engaged in both intentional and negligent interference with economic advantage, resulting in harm to Code Rebel’s business reputation and goodwill, and that Aqua Connect had engaged in that conduct with the intent to destroy competition.

The case is No. CV 13-4539 RSWL (MANx).

Attorneys: Andres F. Quintana and John M.Houkom (Quintana Law Group APC) for Code Rebel LLC. Clay R. Wilkinson (MK Hagemann PC) for Aqua Connect Incorporated.

Companies: Code Rebel, LLC; Aqua Connect, Inc.

Cases: Antitrust StateUnfairTradePractices CaliforniaNews