California Democratic lawmakers have taken the next step toward rewriting the state’s antitrust law, potentially setting up a vote in the state Assembly on a measure that business leaders and other observers warn would stifle innovation and harm people and the economy by allowing trial lawyers seeking big paydays to drag companies from throughout the U.S. into California courts.
On May 14, the California State Assembly’s Appropriations Committee advanced to the full Assembly the legislation known as Assembly Bill 1776. The vote came as part of the committee’s so-called suspense calendar hearing, which is essentially a “speed round” hearing in which committee members quickly voted on whether to hold or advance more than 660 bills in a single afternoon, without any debate or discussion.
AB1776 was advanced and recommended for approval on a party line vote, with all Democrats voting to advance the bill and all Republicans voting to hold it in committee.
The measure was discussed at an Assembly Judiciary Committee hearing in early April, when it was recommended for approval on a party line vote and sent to the Appropriations Committee for a decision on whether to advance it to the full Assembly for a possible vote.
AB1776’s author and lead sponsor, Assembly Majority Leader Cecilia Aguiar-Curry, D-Winters, specially participated in the Appropriations Committee suspense calendar hearing, even though she is not a member of the committee.
Known by supporters as the COMPETE Act, AB1776 would greatly expand the ability of both state regulators and trial lawyers to pursue antitrust actions against businesses under California’s state antitrust law known as the Cartwright Act.
Currently, the Cartwright Act permits antitrust lawsuits only in cases in which two or more companies or people work together to restrict economic competition.
However, the new law would change the definition of antitrust conduct to include so-called single firm conduct.
But AB1776 would go much further still, decoupling California state antitrust law from its federal counterpart, the Sherman Act, and rejecting more than 100 years of U.S. legal precedent governing how to apply antitrust law.
The new legislation, for instance, would allow lawsuits against companies accused of so-called “restraint of trade.”
AB1776 includes a section identifying 10 categories of conduct that “may constitute evidence” of anticompetitive conduct, but none of which the law says are required to demonstrate a violation of the Cartwright Act.
The categories that “may constitute evidence” include claims that a defendant business “has or might achieve a market share or has market power” at or above levels required to find a violation of the Sherman Act.
These changes would create massive legal uncertainty for companies operating in California — not just those based in the state — and potentially massively drive up litigation costs by significantly lowering the standards of evidence needed to maintain a Cartwright Act violation claim, opponents of the legislation have argued.
The new law, for instance, would allow state regulators and trial lawyers to bring antitrust actions in court for supposed monopolistic actions against companies with market shares as low as 20-30 percent, not only those operating as traditionally defined monopolies that dominate a particular market.
The measure has attracted a large and growing opposition, as business groups from virtually all sectors line up to oppose a measure they say will cost the California economy trillions of dollars over the years and destroy millions of jobs by pushing companies out of the Golden State and causing businesses to pull back on research and other beneficial projects for fear of triggering antitrust actions.
The pharmaceutical advocacy group, California Life Sciences, for instance, has indicated AB1776 will lead to the reduction in clinical trials for medicine, health equity programs and patient assistance programs, which provide free or steeply discounted medicines and health care services, because such programs rely on exclusive arrangements.
California Life Sciences has warned such arrangements could be defined as illegal “price-setting,” “restraints on trade” or other kinds of “anticompetitive behavior.”
“A small or mid-size company that gains market share through better pricing, a strong exclusive partnership, or a successful distribution arrangement is just as exposed under this bill as a dominant platform,” California Life Sciences wrote in a letter to lawmakers in opposition to AB1776.
“The legal costs of defending even a weak antitrust claim are substantial. For a large company, those costs are a significant burden. For a startup or growing company, they can be existential.
“AB1776 is a deeply flawed approach that recklessly expands antitrust liability without demonstrating that our current antitrust laws (federal & state) are not working in the life sciences. It discards the analytical standards courts need to function, invites opportunistic litigation, and would impose irreparable harm on California’s life sciences ecosystem — penalizing exactly the conduct that lowers costs, expands patient access, and accelerates the path from scientific discovery to treatment.”
Likewise, a group of California university professors of antitrust law, economics and business recently joined their voices in opposing AB1776.
In a letter to lawmakers, they warned the legislation would not protect consumers in any meaningful way. Rather, they warned, it would lead to lawsuits against companies “for a wide range of ordinary business practices.”
“These include decisions that often lead to lower prices, improved quality or greater innovation: discounting, product design, and distribution strategies that have long been considered lawful under antitrust law,” the professors wrote. “This proposed legislation risks creating substantial legal uncertainty, encouraging costly litigation, and discouraging investment in California.”
The professors warned the legislation would be particularly harmful to consumers in California and beyond, leading to “higher prices, reduced product offerings, or slower innovation.”
“This bill would deter expansion, reduce job creation, and ultimately harm the very competitive dynamism the bill seeks to promote,” the professors said.
The letter was signed by 25 professors from the University of Southern California, Pepperdine University, Santa Clara University, the University of California at Berkeley, UCLA, and other California state public universities.
AB1776 has not yet been set on a calendar for a vote in the Assembly. It would also need to pass the state Senate and secure a signature from Gov. Gavin Newsom before it could become law.
Newsom has not yet expressed a public opinion on the measure.
