Antitrust Law Daily Wrap Up, ANTITRUST—N.D. Cal.: “Udder Covers” maker unable to avoid sales below cost, unfair competition claims, (Sep 24, 2014)

By Greg Hammond, J.D.

Nursing cover maker Bebe Au Lait, LLC has stated sufficient unfair competition and sales below cost claims against Mothers Lounge, LLC and Udder Covers, LLC (collectively, Mothers Lounge)—the makers of an alleged “knock off” nursing cover. In partially denying Mothers Lounge’s motion to dismiss, the federal district court in San Jose, California determined that Bebe Au Lait stated sufficient claims under California’s Unfair Practices Act (UPA) and Unfair Competition Law (UCL) (Bebe Au Lait, LLC v. Mothers Lounge, LLC, September 23, 2014, Davila, E.).

Background. Bebe Au Lait owns a patent for a flexible, convex stiffener located across the top of a nursing cover that bends and returns to a convex shape allowing nursing mothers to see their nursing infants. Mothers Lounge allegedly created a “knock off” of the product and sells it for “free” on their website, when a promotion code is entered, but charges a shipping fee of $11.90. Bebe Au Lait filed suit against Mothers Lounge, alleging—in part—violations of both the UPA and the UCL. Specifically, the company alleged that Mothers Lounge’s practice of selling its knock-off nursing covers has caused Bebe Au Lait to lose profits and has reduced its market share. Mothers Lounge moved to dismiss the UCL and UPA based claims.

UPA claims. Under section 17043 of the UPA, “it is unlawful for any person engaged in business within [California] to sell any article or product at less than the cost thereof to such vendor, or to give away any article or product, for the purpose of injuring competitors or destroying competition.” To state a valid claim under section 17043, Bebe Au Lait was required to plead that Mothers Lounge (1) gave away its product and (2) had the purpose of injuring Bebe Au Lait or destroying competition that resulted in a competitive injury.

The court concluded that Bebe Au Lait sufficiently alleged both elements. Specifically, it determined that, although consumers are charged $11.90 for shipping fees, the amount was irrelevant as to whether the product itself was being given away for free, which is what Bebe Au Lait alleged. Further, the plaintiff sufficiently alleged that Mothers Lounge’s purpose was to harm Bebe Au Lait through diversion of sales and to harm competition.

Section 17044 of the UPA states that “it is unlawful for any person engaged in business within [California] to sell or use any article or product as a ‘loss leader’ as defined in Section 17030 of this chapter.” A loss leader is any article or product sold at less than costs where—in part—the effect is to divert trade from or otherwise injure competitors. Bebe Au Lait sufficiently pleaded its section 17044 claim, as it alleged: (1) the defendants’ fully allocated cost is $5 per unit; (2) Mothers Lounge’s free product is less than the fully allocated cost; and (3) its purpose was to harm Bebe Au Lait through diversion of sales. Consequently, the motion to dismiss Bebe Au Lait’s UPA claims was denied.

UCL claim. In support of its motion to dismiss, Mothers Lounge also argued that Bebe Au Lait failed to adequately allege a violation of the unlawful and unfair prongs of the UCL. The court first found that the unlawful prong UCL claim was viable, as it already determined that the underlying UPA claim was sufficiently pleaded. However, the court also agreed with Mothers Lounge’s argument that Bebe Au Lait failed to allege harm to competition under the unfair prong of the UCL, as the company failed to allege that the defendants’ practice was detrimental to competition or consumers. Consequently, the motion to dismiss was granted as to the unfair prong of the UCL claim, but denied with regard to the unlawful prong.

The case number is 5:13-CV-03035-EJD.

Attorneys: Perry J. Narancic (LexAnalytica, PC) for Bebe au Lait, LLC. Kristopher Lane Reed (Kilpatrick Townsend and Stockton LLP) for Mothers Lounge, LLC. and Udder Covers, LLC.

Companies: Bebe au Lait, LLC; Mothers Lounge, LLC; Udder Covers, LLC

Cases: Antitrust CaliforniaNews