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 WISCONSIN
 
LEGISLATURE
 P. O. Box 7882 Madison, WI 53707-7882
 
DATE:
Thursday, January 10, 2008
TO:
All Legislators
FROM:
Representatives Kramer and Vukmir andSenator Carpenter 
RE:
Co-Sponsorship of 
The Competitive Marketplace Act
 
SUMMARY
We are introducing
The Competitive Marketplace Act
which will repeal Wisconsin’s Unfair Sales Act (also known as “the minimum markup law”) and replace it with provisions designed toprotect consumers and the marketplace against true anticompetitive pricing practices. The billwill be circulated this week.Past legislative attempts focused on eliminating the markup on gasoline. These efforts faileddue to intense lobbying pressure and concerns raised about the potential for predatory pricingthat could harm small businesses in the state of Wisconsin. Our legislation differs from previousefforts in that we intend to repeal the entire 1939 Unfair Sales Act
(Wis Stat §100.30)
andreplace it with contemporary standards adopted by both the U.S. Supreme Court and theWisconsin Supreme Court. These standards clearly distinguish procompetitive practices andanticompetitive (predatory) practices.The Competitive Marketplace Act will protect Wisconsin’s consumers, retailers, andwholesalers against predatory practices while promoting competition and a competitivemarketplace.Passed in 1939, the Unfair Sales Act discourages competitive pricing. Sellers are in violationof the law for selling below a statutory minimum price for the purpose of 
“diverting trade” 
from acompetitor. Such practices are considered an
“unfair method of commerce.” 
The law condemnsprocompetitve pricing practices even when they have no possibility of harming competitors,competition or consumers.In Wisconsin, a seller can violate the Unfair Sales Act even when they are selling a productabove their cost because the statutory definition has little or no rational basis. For certainproducts, most notably gasoline, the seller is required to add a gross profit margin (markup) of as much as 9.18%. For products, like alcohol, the consumer must pay a 9% retail/wholesalemarkup above cost on every product regardless of its price or profit margin to the retailer. Fewpeople are aware that a seller in Wisconsin is prohibited from selling products below the costtheir competitor pays, even if the price is more than the sellers own cost. Merchants are alsoprohibited from using below-cost pricing in special promotions or customer loyalty programs.Supporters of the current law claim that it protects the small “mom-and-pop” stores againstlarger companies that can sell below-cost for a period of time, drive them out of business andthen increase their prices. The Competitive Marketplace Act addresses this concern byprohibiting predatory pricing and imposing steep penalties for violators.
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THE COMPETITIVE MARKETPLACE ACT
The Competitive Marketplace Act (CMA) will replace the existing Unfair Sales Act. The CMAaddresses the concerns of Wisconsin’s business owners and consumers by allowing retailers to competefreely for their customers’ patronage.Unlike the current law which places the well-being of businesses ahead of consumers, the CMAplaces the interests of consumers and businesses on a level-playing field, a term often invoked by thosewho would prefer retaining the current one-sided advantage they now hold. In drafting this legislation, wecarefully considered the potential impact that repealing the current law would have, and what steps couldbe taken to ensure that Wisconsin has a competitive and vibrant marketplace.Our legislative predecessors held a view that protecting individual competitors, regardless of their efficiency. was more important than fostering competition in the marketplace. As this1940 U.S. SupremeCourt opinionexpresses, federal law
“has not permitted the age-old cry of ruinous competition and competitive evils to be a defense to price-fixing conspiracies.” 
Yet, in Wisconsin, it has been the law of the land for nearly 70 years.In developing this legislation, we chose to avoid the path of our predecessors. We did not consult withbusiness leaders, industry groups, or trade organizations. We turned instead to the courts. TheCompetitive Marketplace Act draws its language and construction from three separate sources - theFederal Trade Commission Act, the Wisconsin Supreme Court and current statutes.TheWisconsin Supreme Courtadopted a federal standard for determining anticompetitive pricing in2003 and we have incorporated the language into the new Act. As the court notes, from a long line of federal predatory pricing cases:
"predatory pricing schemes are rarely tried, and even more rarely successful, and the costs of an erroneous finding of liability are high. The mechanism by which a firm engages in predatory pricing - lowering prices - is the same mechanism by which a firm stimulates competition; because cutting prices in order to increase business often is the very essence of competition; mistaken inferences are especially costly, because they chill the very conduct the antitrust laws are designed to protect. It would be ironic indeed if the standards for predatory pricing liability were so low that antitrust suits themselves became a tool for keeping prices high.” 
(at ¶27, citations omitted).
TheCourt, added,
“Adoption of a predatory pricing standard authorizing successful claims when no harmful activity has occurred would be detrimental to market competition and consumer welfare in Wisconsin.” 
(at ¶28).
 Thus, the Court adopted the Brooke Group standard. In order to be anticompetitive (predatory), theseller’s price must be set below an appropriate measure of the seller’s cost and the seller must have adangerous probability of recouping the seller’s investment in below
−
cost pricing by later raising pricesabove competitive levels.Under the Competitive Marketplace Act, using language from theFederal Trade Commission Act, wealso provide the Department of Agriculture Trade and Consumer Protection a process for evaluating andpreventing below-cost pricing conduct that is
likely to cause direct, substantial, and reasonably foreseeable injury to consumers 
. DATCP is also given the authority to create rules that are consistentwith FTC findings regarding predatory pricing practices. These provisions will allow DATCP to evaluateand prevent anticompetitive pricing practices that may be occurring in this state as well as practices thatthe FTC discovers in other statesThe Department of Justice may, independently or together with DATCP, investigate and stop below-cost pricing practices that are likely to injure competition and consumers. If the Department of Justice or aDistrict Attorney believes a seller is employing anticompetitive pricing practices, they may bring an actionunder Wisconsin’s mini-Sherman Antitrust law
(Wis Stat § 133.03 
)
.
The new Act increases the maximum finefor violating the antitrust laws from $100,000 to $1,000,000. Under 133.03, a violator may be charged witha Class H felony and injured parties have the right to seek treble damages and court costs.
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DETAILS OF THE ACT
Under the bill, anticompetitive (predatory) pricing and pricing that injures competition are prohibited.Anticompetitive pricing is a violation of Wisconsin’s antitrust law. Pricing that injures or could injurecompetition is enforced by The Department of Agriculture, Trade and Consumer Protection and theDepartment of Justice.
Anticompetitive Pricing 
Anticompetitive pricing occurs when a seller’s price is less than an appropriate measure of the sellers costand the seller has a dangerous probability of recouping their losses in below-cost pricing by later increasing their price above a competitive level.The Department of Justice or a District Attorney may commence an action against a seller who engagesin anticompetitive pricing. A violator may be found guilty of a class H felony and may be fined up to$1,000,000.Parties who believe they have been injured may pursue a civil action against a seller for treble (triple)damages and court costs. Such cases may include a class action.
Pricing that Injures Competition 
Pricing that injures competition occurs when a seller’s price is less than an appropriate measure of thesellers cost and poses a direct, substantial and reasonably foreseeable injury to consumers and notoutweighed by countervailing benefits to competition.The Department of Agriculture, Trade and Consumer Protection, may conduct a hearing to determine if aseller’s pricing injures competition or consumers. If the department finds that the seller’s price injurescompetition, the department shall prepare written findings and may issue an order requiring the seller tocease the violation and assess a penalty of up to $2,500. Such an order is subject to judicial review.The Department of Justice may independently pursue an action to restrain the practice under a temporaryor permanent injunction and assess a penalty of up to $2,500. Such an order is subject to judicial review.As an alternative, DATCP or the Department of Justice may accept a seller’s written agreement to stoppricing that is alleged to be in violation.DATCP may promulgate rules for administering or interpreting the Competitive Marketplace Act. Theserules must be consistent with federal laws and controlling legal precedent relating to predatory pricing.
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