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.

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