Industry groups opposing a major expansion of California’s antitrust laws argue the bill is an overreach and could lead to unfair claims of anticompetitive behavior against companies that aren’t close to controlling a market.
The bill would expand the state’s central antitrust law, the Cartwright Act—which targets anticompetitive behavior by two or more companies—to cover actions by individual companies. The measure would also scrap many of the standards that courts have long used to weigh complaints under federal law.
The issue is emerging as one of the most contentious during a legislative session that will continue through August, pitting influential labor and consumer constituencies for the state capitol’s Democratic supermajority against big players in California’s major industries, including Hollywood and Silicon Valley.
What’s a Market?
Demonstrating that a company controls the majority of a market can be key to successful lawsuits under the federal Sherman Act, a landmark law that has guided anticompetition litigation for decades.
As of now, California’s bill (AB 1776) lacks a market share threshold. Supporters say that’s by design and would hold more companies accountable.
The provision would leave California courts unrestrained by decades of court decisions that supporters believe has weakened federal antitrust enforcement, according to labor unions and consumer advocates backing the bill.
For example, large companies, such as pharmacy benefit managers, could still restrain trade without commanding a majority of a market under current law, backers maintain.
“It is a red herring and by defining a market share, it automatically gives large companies an ability to hide,” Abiel Garcia, a partner at Kesselman Brantly Stockinger backing the legislation, said.
Opponents, including the California Chamber of Commerce, counter the market share provision would leave businesses with little guidance on how to follow the law, unmooring the antitrust regime of the world’s fourth largest economy from the rest of the US.
The legislation has “no thresholds whatsoever, meaning that everyday competitive practices, like price cutting and loyalty rewards programs—even by small and medium sized businesses—could be recast as unlawful restraints of trade,” Eric Enson, a partner at Croll representing the California Chamber of Commerce, told the Assembly Judiciary Committee on April 7.
Possible Compromise
Some lawmakers are zeroing in on the market share threshold as a potential point of compromise between the two entrenched sides, signaling that legislators are looking to narrow the sweeping bill. But an agreement remains elusive.
“We got to come up with something, and these people need to be able to sleep at night,” Assemblymember Diane Papan (D) said of business owners during the hearing.
Papan asked supporters and opponents of the bill during the Assembly Judiciary Committee hearing if they might be able to accept a specific market share threshold. No one offered a specific proposal, but the bill’s author, Assembly Majority Leader Cecilia Aguiar-Curry (D), said she was open to more discussions with opponents.
An analysis of the bill from committee staff noted a threshold would be key for future litigants under the proposed measure, as any case would need to define a market that is impacted by anticompetitive business practices.
“Properly pleading and scoping the relevant market is especially important as a firm’s percentage of the market share is likely to indicate just how much power a firm has to manipulate the market and stifle competition,” an analysis of the bill by the Assembly Judiciary Committee said.
The analysis suggested backers should consider amendments to define market share, but noted opponents hadn’t suggested an acceptable threshold.
One model could be legislation filed last year to expand New York’s antitrust laws that included specific thresholds for establishing if a company has a dominant position in a market. The bill passed the New York Senate but stalled in the state Assembly.
The California bill says a court would not need to find a single company has, or might gain, a market share above a federal threshold to make a viable antitrust lawsuit under state law.
Both sides appear far apart, with supporters maintaining that a clear market share threshold would undercut the bill’s enforcement.
“We would be handicapping the ability of the state to advocate for its small businesses,” said Bianca Blomquist, California director for the advocacy group Small Business Majority.
Other Problems
Opponents say adding a market share threshold wouldn’t fix the bill either, as the provision is just one of several that would tell judges what they don’t need to consider when weighing a case.
For example, a court wouldn’t need to require that a company’s risk of harming competition be proven with quantitative evidence or that a company’s conduct makes no economic sense apart from its tendency to harm competition.
“It’s like contemplating the Titanic on course for the iceberg and thinking that the problem is that it’s painted the wrong color,” Daniel Francis, associate professor at New York University and a former FTC deputy director, said of the market threshold debate. “You’ve got to stop the boat, not repaint it.”
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