A proposed one-word change to California’s powerful state antitrust law has produced an avalanche of opposition, from Silicon Valley and other capitals of California commerce, as business groups warn the change could trigger a fresh wave of new lawsuits from state regulators and politically powerful private trial lawyers, aimed at extracting payouts from many of the companies that drive the Golden State’s massive economy.
This spring, California state lawmakers are considering legislation to revise the state’s famous antitrust law, the Cartwright Act.
Docketed as Assembly Bill 1776, the legislation would specifically amend the Cartwright Act to allow the law to be used to underpin enforcement actions against businesses for alleged anti-competitive conduct by just one company.
Up to now, the law would only allow actions if alleged anti-competitive collusive conduct involved at least two businesses.
While nominally only changing one word in the law, the revision could create massive new risks and economic harm for companies throughout the country, business groups and opponents warn, as the state rolls out a host of associated changes not only in the wording of the law, but how it is enforced.
For decades, the Cartwright Act has been deployed by the California Attorney General’s office to enforce the state’s prohibitions against collusive conduct by businesses operating in the state.
The law has been on the books since 1907, when it was enacted by progressives at the time to attempt to curb what they viewed as anti-competitive monopolistic trusts among businesses, harming consumers and the economy in the process. From the start, the law was designed to be broader and stronger than the federal antitrust law, the Sherman Act.
While the law allows for criminal prosecutions, its primary purposes have been achieved through civil enforcement actions, either through the California Attorney General’s office or, more famously, through lawsuits filed by trial lawyers, either on behalf of purported competitors locked out of a particular market, or for classes of consumers allegedly harmed by the antitrust conduct.
The law in its current form, for instance, has already spawned hundreds of lawsuits annually, as trial lawyers have targeted companies in technology, agriculture and other industries.
Through the decades, the law’s reached has been mitigated by its requirement that the alleged anti-competitive behavior involve at least two “persons.”
But the law has remained a popular vehicle for trial lawyers, thanks to its explicit “right of private action,” which allows individuals other than the state to sue in court to enforce claims under the law, and its lucrative so-called treble damages provisions, which can turn those claims into big money jackpot settlements or judgments.
However, in recent years, lawmakers and Gov. Gavin Newsom have explored ways to give the Cartwright Act even more teeth and a much bigger reach.
The California Law Revision Commission, a standing commission whose members are mostly appointed by Newsom, issued a report in early 2024 containing recommendations designed specifically to widen the scope of the law to address “single firm conduct.”
Even more specifically, the CLRC’s recommendations have alarmed the business community by clarifying an intent to allow the Cartwright Act to be applied in a way that goes far beyond federal antitrust law and legal guidelines for antitrust enforcement long settled in federal courts.
The new standards recommended by the CLRC, for instance, would particularly allow enforcement actions accusing of antitrust violations against single companies holding as little as a 20 percent share of a particular market. Currently, under federal law, that threshold sits at least at 50%.
The CLRC further recommends California law be changed to toss aside federal standards on refusal to deal or predatory pricing, and even dispensing with the so-called consumer welfare standard, established in rulings from the U.S. Supreme Court.
Instead, under the proposed recommendations, a revised Cartwright Act would frame antitrust enforcement in a way to allow trial lawyers and state regulators to work with plaintiffs to tailor legal actions against industry leaders, “first movers” and other companies that have succeeded in particular markets or industries.
Supporters of the measures California should enact the CLRC recommendations to increase competition and help consumers deal with rising prices by addressing “market consolidation” and “exclusionary practices,” which currently are not addressed under the Sherman Act or existing federal antitrust case law.
Assembly Majority Leader Cecilia Aguiar-Curry, D-Winters, said the reform under AB 1776 “updates our antitrust laws so businesses can compete fairly, ideas can succeed, and Californians aren’t stuck with higher prices and fewer options.”
Officials with California labor unions, fellow Democratic state lawmakers and other activists echoed Aguiar-Curry’s sentiment in support of the measure.
Samantha Gordon, chief advocacy officer at TechEquity, said the measures, which notably would be aimed at large companies, amount to “a common-sense step to rein in anti-competitive conduct and ensure competition creates opportunity for everyone.”
But Vidushi Dyall, director of legal analysis for the Chamber of Progress, which advocates for big tech companies, said the changes actually serve only to “really lower the bar” to make it far easier for “disgruntled lesser efficient competitors” and trial lawyers to bring potentially lucrative class actions against companies that may be deemed too successful.
She noted the potential for companies that are not monopolies under any established market-share based definition to still be treated as such in California courts.
Dyall noted her organization and its members are particularly concerned about the potential for trial lawyers and state regulators to take aim at large tech companies over bundling, integration and other key elements of the modern tech ecosystems.
For instance, she noted large numbers of consumers currently use Gmail credentials or Apple IDs to gain access to “all sorts of related products.”
“All of this integration is going to come under scrutiny,” said Dyall, opening companies up to potentially massive lawsuit risks.
And the resulting fallout could ultimately harm consumers by limiting options and increasing customer inconvenience and frustration.
Defense law firms have also issued dire public warnings to their clients and others, saying the proposed change will almost certainly result in a surge of new lawsuits in California’s already overburdened and famously plaintiff friendly courts.
Sean McDowell, an attorney who leads the Antitrust and Competition practice at the firm of Duane Morris, told The Record that businesses need to be aware of the potential need to defend a new litigation front, should AB 1776 and the CLRC recommendations become law in California.
He said the proposed single firm conduct changes “could open the door to a wave of monopolization and exclusionary-conduct claims.”
“Conduct previously analyzed primarily under federal standards could be subject to broader or more plaintiff-friendly theories under state law. Because the Cartwright Act’s treble-damages provision and California’s more liberal class-action procedures … tend to make California a preferred forum for antitrust plaintiffs, AB 1776 would almost certainly amplify the volume and scope of class action filings,” McDowell said.
And the risk, he said, could be enormous and broad, cutting across industries.
McDowell noted technology companies could be obvious targets. But others targeted under the law could include “pharmaceutical and healthcare companies, agriculture and food processing, entertainment and media, real estate and housing, financial services and insurance, and retail and e-commerce.”
He said potential payouts under the law are already steep and attractive to trial lawyers, thanks to its potential for treble damages. But under the new standards and new, broader potential “theories of liability,” the potential damage and risk is difficult to calculate. In addition to payouts, McDowell warned of economic damage resulting from businesses suffering reputational damage and significant operational disruption merely from responding to antitrust investigations and lawsuits.
He further noted that companies also shouldn’t expect geography to shield them from the law’s reach. Any company that does business in California could end up swept into court under expanded Cartwright Act claims, McDowell warned.
“Under established California jurisdictional principles, any company whose conduct has a substantial effect on California markets or California consumers could be subject to suit,” McDowell said. “… Given California’s enormous economy—it would be the fifth-largest in the world if it were an independent country—virtually any major company doing business nationally or globally likely has sufficient contacts with California to be subject to the Cartwright Act.”
The recommended changes are not yet explicitly included in the language of AB 1776. But the legislation is viewed by the business community as merely the opening salvo in the campaign to advance the CLRC recommendations.
In mid-February, the California Chamber of Commerce joined with more than two dozen other groups, representing businesses and industries in California and beyond, to call on lawmakers to abandon legislation aimed at enshrining the CLRC Cartwright Act single firm conduct recommendations.
“AB 1776 would enshrine in state law the rushed and reckless proposals brought forward by the California Law Revision Commission,” the California Chamber wrote. “These changes would impact nearly every business across the state, regardless of size, imposing sweeping ideas to solve problems never actually identified after months of Commission work.”
They added: “AB 1776 would significantly deepen California’s affordability crisis, driving costly and unnecessary litigation and consumer costs ever higher and decimating the state’s innovation economy and the jobs that depend on its success.”
