Mogul Steamship Co. v. McGregor, Gow, & Co

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Brief Fact Summary.

Defendant lowered prices and offered incentive in an attempt to drive Plaintiff from the market. Plaintiff sued Defendant for unfair competition.

Synopsis of Rule of Law.

Competition, however severe and egotistical, if unattended by circumstances of dishonesty, intimidation, molestation, or such illegalities gives rise to no cause of action at common law.

Facts.

Defendants are a number of ship-owners who formed themselves into a league or conference for the purpose of ultimately keeping the control of the tea carriage from certain Chinese ports and for the purpose of driving Plaintiffs and other competitors from the field. Defendants accomplished their goals by offering local shippers very low rates thus rendering it unprofitable for Plaintiffs to send their ships there. Furthermore they also offered a 5 percent rebate to all local shippers and agents who would deal exclusively with them with a penalty of forfeiture of that rebate for the entire year if any straying occurred. Defendants had no personal ill-will to the Plaintiffs, nor any desire to harm them except such as is involved in the wish and intention to discourage by such measures the Plaintiffs form sending rival vessels to such ports.

Issue.

Is there a cause of action for unfair competition when that competition complained of consists of a price confederation that wants to control shipping of goods by lowering prices?

Held.

No. Judgment for Defendant.
* Intentionally to do that which is calculated in the ordinary course of events to damage, and which does, in fact, damage another in that other person’s property or trade, is actionable if done without just cause or excuse. The acts of Defendants, which are complained of here, were intentional and were also calculated to do Plaintiffs damage in their trade. But in order to see whether they were wrongful depends whether or not they were done without just cause of excuse.
* Defendants have done nothing more against Plaintiffs than pursue to the bitter end a war o competition waged in the interest of their own trade. There is no authority for the doctrine that such a commercial motive deprives of “just cause or excuse” acts done in the course of trade which would but for such a motive be justifiable. To say that a man is to trade freely, but that he is to stop at any act which is calculated to harm other tradesmen, and which is designed to attract business to his own shop, would be a strange and impossible counsel of perfection.
* It is urged that Plaintiffs have been injured by an illegal conspiracy. Illegal conspiracy is an agreement by one or more to do an unlawful act, or to do a lawful act by unlawful means. Of the general proposition, that certain kinds of conduct not criminal in any one individual may become criminal if done by combination among several, there can be no doubt. However, it is necessary to be very careful not to press the doctrine of illegal conspiracy beyond that which is necessary for the protection of individuals or of the public. The combination of capital for purposes of trade and competition is a very different thing from such a combination of several persons against one, with a view to harm him, as falls under the head of an indictable conspiracy.
* Competition, however severe and egotistical, if unattended by circumstances of dishonesty, intimidation, molestation, or such illegalities gives rise to no cause of action at common law.

Dissent.

(Lord Esher, M.R.) The act of Defendants in lowering their freights far beyond a lowering for any purpose of trade – that is to say, so low that I they continued it they themselves could not carry on trade – was not an act done in the exercises of their own free right of trade, but was an act done evidently for the purpose of interfering with, i.e. with intent to interfere with, Plaintiffs’ right to a free course of trade.

Discussion.

This case is one of the first cases in which Defendants have been sued for entering into a scheme of predatory pricing, i.e., a practice of selling below cost in the short run in hope of obtaining monopoly gains later, after driving the competition from the market. The Court held for Defendants because their practices did not involve the use of forbidden means, fraud, misrepresentation, intimidation, obstruction, or molestation. The modern view of predation asks the further question of whether predation constitutes an activity that is likely to cause social losses, and, if so, whether a court is capable of distinguishing between the predation and ordinary competition. Predation is not an effective way for a company to gain market power.