Selling Direct to End-Users Does Not Equal Unfair Competition

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So the court held in Weco Supply Co., Inc. v. The Sherwin-Williams Co., No. 1:10-CV-00171 AWI BAM (E.D. Cal. May 25, 2012) (Ishii, J.).

The plaintiff, a “jobber” (i.e., a non-exclusive distributor), complained when its supplier began selling directly to its end-user customers. (The supplier argued it did so to preserve the end-users’ business after the distributor began offering other manufacturers’ products.)

The court held that although Sherwin-Williams’ conduct undoubtedly harmed Weco’s commercial interests, a factfinder could not reasonably find that Sherwin-Williams engaged in “unfair competition” under the California Supreme Court’s Cel-Tech standard. Weco presented no evidence tending to show that Sherwin-Williams’ conduct raised the price to consumers, harmed allocative efficiency, or diminished the quality of paint sold. In fact, prices offered by Sherwin-Williams to end-users were lower than the prices offered by Weco. (Nevertheless, Sherwin-Williams’ sales to the end-users were profitable.)

In short, there’s nothing unfair about a manufacturer selling directly to customers in competition with its distributor.  Of course, contractual rights, if they exist, can give rise to particular supplier obligations.

[View source.]

 

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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