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Fiction becomes reality in California courts

In the novel “Atlas Shrugged” you’ll find all sorts of fictional laws that sound like they are protecting the “little guy” but really just restrain trade. There’s the "Anti-Greed Act," as well as the "Equalization of Opportunity Act" that prevents people from starting more than one business, and the "Anti Dog-Eat-Dog Act," restricting aggressive competitive practices, such as selling your production below cost to put a competitor out of business.

In California and a number of other states, it ain’t fiction, as a San Francisco weekly newspaper ruefully discovered to the tune of $21 million.

Matt Welch reports on a blog at reason.com that the San Francisco Bay Guardian sued the SF Weekly for allegedly selling advertising space below cost. This month a state appellate court upheld the lower judgment of $16 million plus $5 million in interest.

Under California Code, Section 17040, “It is unlawful for any person engaged in the production, manufacture, distribution or sale of any article or product of general use or consumption, with intent to destroy the competition …”

(Nevada’s anti-trust law prohibits companies from reaching agreements or colluding to sell below cost.)

The SF Weekly was purchased in 1995 by a large chain called New Times. According to the appellate court ruling, “The objective of the acquisition of SF Weekly was to increase circulation and improve content by bringing more ‘magazine-length journalism into the paper.’ Thus, from 1995 to 2000 the journalism staff of the SF Weekly was increased significantly, as was the editorial size of the paper, its circulation, number of advertisers, and total revenue.”

Sounds like they were trying to provide a better product to the reader and the advertiser. Can’t have that.

The court ruling called that cut-throat competition “predatory pricing.”

Welch makes the suggestion, and it sounds reasonable, “Why shouldn’t the San Francisco Chronicle now use the same law (and courts) to go after Craigslist for its ‘predatory pricing’ of classified ads? Why shouldn’t every weaker link in a two-newspaper California town accuse the deeper-pocketed winner of ‘injuring competitors’ through lower prices?”

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