Is It Illegal To Give Stuff Away?

from the wait-a-second... dept

Kevin Heller has picked up on the fact that both Yahoo and GoDaddy seem to be selling domain registrations below cost, and wonders if this violates California's unfair practices act (or similar acts in other states) which says: "It is unlawful for any person engaged in business within this State 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." This is a typical "anti-dumping" law, that usually doesn't get much attention unless some large incumbent feels threatened by an outsider. However, when you read that, it could be interpreted in a way that makes any company that advertises break the law. An advertisement is, by its very nature, giving something away at less than cost for the purpose of injuring competitors (that is, getting a sale instead of having that go to competitors). Apple and Pepsi are giving away free iTunes songs. That's below cost, and clearly designed to take business away from other music download stores (and from other beverages). That seems to violate the law. What about in the software space? Does this outlaw any company that offers free software? Is MySQL violating the law by offering the database for free? What about Microsoft offering anti-spyware for free? Or does the law somehow only apply to tangible goods? Even in that case... when I bought my laptop, it came with a "free" printer. That's obviously below cost and designed to take business away from the competition. While they're not new, in an age where "free" is important, isn't it about time these anti-dumping laws went away?


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  1.  
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    Justin Hollabaugh (profile), Feb 8th, 2005 @ 11:32am

    Console Gaming Systems

    So does that mean you can't buy or sell a console gaming system (PS2, XBox, GameCube, etc.) in California? Or, at least, they are much more expensive there? Consoles are almost always a loss leader.

    Besides, who's bright idea was it to give the government any sort of control over what you can and can't sell your own goods for?

     

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  2.  
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    Griffon, Feb 8th, 2005 @ 1:13pm

    Re: Console Gaming Systems

    What this means it hat a resaler can't sell the item for less then they paid the suppler for it ie dumping product into the market to kill off competition that can't afford to operate at a loss for a prolonged period of time. This sets the base price at .01 cents above the whoelsale cost. This dosn't apply to anyone without a retail license though.

     

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    bbay, Feb 8th, 2005 @ 1:14pm

    No Subject Given

    "Injuring competitors" and "destroying competition" are terms of art that should be understood to have a meaning, in context, different from the common-sense meaning. They certainly aren't meant to be equivalent to "competing".

    Successfully getting a sale, to the detriment of your competitors, is not what laws like this are talking about. They're talking about specific tortuous behaviours, and they are generally crafted with the consumer's best interest in mind.

    For example: an entity that engaged in unfair practices (e.g. undercutting it's competition) would only do so until it changed the conditions of the market (it's competitors have gone out of business), at which point it would take advantage of the new market (raise it's prices to what the new market can bear). Thus harming the consumer.

    Interpretation of legal documents by laymen is frequently plagued by these kinds of misunderstandings. The fact that it "could be interpreted in a way", doesn't mean that it would ever actually be interpreted in that way, in a court of law, by people who are presumably well briefed on the subject.

    The same thing goes for any other discipline which has existed long enough to develop it's own unique vocabulary and nuance.

     

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  4.  
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    Mike (profile), Feb 8th, 2005 @ 1:20pm

    Re: No Subject Given

    Okay... but how does that work when the nature of goods change? So what if you have one company trying to sell something (say, software), and another company decides they want to sell services around that software, and so they give away a similar software product, and try to sell services.

    The first company can clearly claim that the second is trying to destroy them by completely underpricing them... when the reality is just a business model shift.

     

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  5.  
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    bbay, Feb 8th, 2005 @ 1:34pm

    Re: No Subject Given

    Sure, but the key part is the phrase, "for the purpose of injuring competitors or destroying competition," which speaks to intent.

    Having a business model that coincidentally changes the landscape for your competitors (or even for people who you didn't realize you would be affecting) isn't anti-competitive behaviour. (Despite how your competitors might wish to frame the debate.) The law in question, and others like it, are meant to apply, in a very narrow way, only to predatory practices.

    If your point is that this would be a judgment call, then you're certainly right about that. And we would certainly hope that the judgments are made by someone who understands the distinction.

     

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  6.  
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    GP, Feb 8th, 2005 @ 9:26pm

    Re: No Subject Given

    The court(s) in the Microsoft antitrust case had to deal with this issue, regarding just what new features can be added to an OS (essentially for free) without constituting unfair competition against sellers of those stand-alone features. I imagine that Symantec is pondering that issue tonight, after MSFT's antivirus acquisition.

     

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    donovan, Feb 9th, 2005 @ 6:22am

    Illegal to give away for free

    The 'free' printer is a loss leader - that's specifically authorized elsewhere (as are other below market costs), which, like the coupons in a grocery store, require you to spend a little extra time (and eventually money) on other things, ink cartridges in the case of the printer, other groceries in the case of the coupons.

    It's the same (or used to be the same) for television broadcasts: you get a free transmission of the TV shows, in exchange for watching the advertisements. The TV stations (and radio and others) get to choose a price.

    Things would be very different if everyone ran their own factory - then giving away anything for 'free' would have an effect on other factories. And that's where the anti-dumping laws come in to play, since 'free' for one person is not 'free' for the others.

     

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