A California court of appeals remanded for further proceedings a judgment for Los Angeles Cellular Telephone Co., allowing four cellular dealers to revisit part of their case against the carrier, charging unfair business practices.
According to the dealers-Cel-Tech Communications Inc., Comtech Inc., Cellular Service Inc. and Nutek Inc.-L.A. Cellular injured their businesses by selling cellular phones below cost as a strategy to gain subscribers. Court documents indicate that L.A. Cellular estimated each service activation was valued at about $1,500, making the practice of selling phones below cost financially justifiable.
A trial court originally had ruled in L.A. Cellular’s favor, saying the carrier was justified in marketing phones as loss leaders because the goal was to compete with AirTouch Communications rather than injure the dealers. In order to be guilty of unfair business practices, L.A. Cellular must have acted with specific intent to injure competitors or to destroy competition, according to court documents.
“The company believes our conduct was driven by a need to compete and that conduct was entirely legal and appropriate and delivered significant benefits to consumers in Southern California,” said Steve Crosby, vice president of external affairs for L.A. Cellular. While the company is disappointed at the direction of the latest ruling, Crosby said, “We are confident that we were right.”
The appeals court upheld three of four rulings in favor of L.A. Cellular. The fourth action, which alleged L.A. Cellular engaged in unfair competition under section 17200 of the Unfair Competition Act, will be retried in Los Angeles County Superior Court.
After upholding judgments on the first three claims, the appeals court said, “Nonetheless, on the limited record before us, it appears L.A. Cellular’s engaging in below cost sales of cellular equipment in its quest to expand its related cellular service business, a practice which is subsidized by its duopoly profits, may constitute unfair competition under section 17200.”
“It is a victory that the court has begun to see through the smoked glass of L.A. Cellular’s below cost practices and how (it) put cellular companies like Cel-Tech out of business,” said Fuad Radi, a spokesman for Cel-Tech.
