Legal Question in Business Law in California

Re: New Pricing

There are at least three meanings of "illegality" that you may have in mind in asking your question. Lawyers often think of something being illegal if there is a criminal penalty associated with it, like murder or hunting pheasant out of season. I can only think of one issue under which your price-cutting might be illegal in that kind of way. The Business and Professions Code declares some price cutting as an "unfair trade practice" and declares the practices to be misdemeanors in certain cases. Generally speaking, this set of laws deals with selling below cost, offering loss leaders, etc. with the intent to drive competitors out of the marketplace. The exact language is a bit vague and too long to quote, but if you would be selling below cost, obtain and study B&P Code section 17000 and following sections.

The second concept of "illegal" includes things that are probibited by statute or judicial policy, but for which there is no criminal penalty. Selling below cost but lacking an intent to harm a competitor MIGHT fall into that category (I don't know), but there are plenty of examples in commercial law of statutes directing a person to do this or that, or to refrain from doing it, which are not punished criminally in the breach. Failure to observe such laws results in lesser consequences, such as (occasionally) civil penalties, invalidity of a contract or a provision thereof, or a right to sue given someone suffering damages as a result.

Finally, the third type of illegality is that your proposed price-cutting might simply be a breach of a private contract with the distributors, using the term "contract" in the broadest sense, to include both express and implied agreements that you might breach if you go into competition with them, especially if you undercut them. The remdies for breach of contract are the mildest of the three types of "illegality." There is no jail time, no fine, and no realistic likelihood of punitive damages. There is really no moral wrong done in breaching a contract, at least usually. The harmed party's sole remedy is recovery of money damages (usually).