Antitrust fight heats up ahead of appropriations hearing

Twenty-five professors representing eight California universities recently wrote Assemblymember Cecilia Aguiar-Curry (D-Winters) to oppose legislation she’s carrying to expand the state’s primary antitrust law, the Cartwright Act.

“While we share the goal of promoting competitive markets, this proposal would constitute a severe and untested departure from established antitrust principles,” wrote the professors of antitrust law, economics and business from Pepperdine, Santa Clara University, UC Berkeley, UC Davis, UC Riverside, UC Irvine, UCLA and USC.

“It would expand restraint of trade liability from agreements to single-firm conduct and explicitly reject decades of federal precedent that provided stability and predictability to businesses and courts alike. This hurts consumers and businesses both large and small, posing a particular threat to the price competition necessary to help Californians with affordability.”

The professors were referring to AB 1776, otherwise known as the Competition and Opportunity in Markets for a Prosperous, Equitable and Transparent Economy (COMPETE) Act, which seeks to expand the scope of the Cartwright Act to include the conduct of a single business to restrain trade.

The bill would represent a dramatic change for the 119-year-old law, which currently only applies to the conduct of two or more colluding businesses. Supporters of the proposal argue it’s necessary in a modern world where online marketplaces and other technology platforms can create virtual monopolies.

“Just look at delivery services,” said Samantha Gordon, chief advocacy officer for TechEquity. “The same meal costs 80% more delivered than picked up and even if you never use one of these apps all of us consumers are paying more for food. Why? Because delivery platforms charge 15 to 30% per order just to list on their apps and two companies control 90% of that market and they prohibit restaurants from charging dine-in customers less than what they charge on the app.

“Meaning restaurants raise prices for all of us. So, all of us consumers are paying more to eat out because of this lack of competition within the delivery market. And the costs don’t stop at food.”

Before the late 1980s, California courts, including the state Supreme Court, repeatedly held that the Cartwright Act was patterned after the federal Sherman Act, which explicitly outlaws monopolies by single companies in its second section.

In 1978, for example, the First Appellate District Court of Appeal held that even though it’s not specifically listed, “monopoly is a prohibited restraint of trade” under the Cartwright Act.

A decade later, however, the Supreme Court re-examined the law and concluded that the Carwright Act was not in fact derived from the Sherman Act, therefore limited its scope to only multi-firm conduct.

In 2022, former Assemblymember Jordan Cunningham authored ACR 95, which directed the California Law Revision Commission to study whether the Cartwright Act should be expanded to outlaw monopolies in the same way as Section 2 of the Sherman Act.

Cunningham’s proposal had no opposition four years ago. Aguiar Curry’s on the other hand faces steep resistance from the California Chamber of Commerce, which has labeled the proposal as both “extreme” and “rushed and reckless.”

“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,” the chamber said in a February statement.

The chamber highlighted the academics’ letter on Monday.

“In practical terms, the bill would expose companies to liability for a wide range of ordinary business practices,” the professors wrote. “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. This proposed legislation risks creating substantial legal uncertainty, encouraging costly litigation, and discouraging investment in California.”

Supporters of AB 1776 countered these arguments at a virtual press conference on Tuesday hosted by the assemblymember’s office.

“This is the chamber’s talking points wrapped up with the professors,” said Abiel Garcia, an antitrust lawyer and member of one of the California Law Revision Commission working groups.

“There are six economic experts at the CLRC—you can look up their credentials—that all decided we needed a [a law on] single-firm conduct and they decided to work on different language and different points to try and get at the best way to tackle this concentration problem. And while they are claiming that we are throwing away a hundred years of case law, they haven’t been able to point out how we’re doing that.”

Said Robert Herrell, the executive director of the Consumer Federation of California, “I think if you want to get into sort of a dueling professors thing, I think there’s plenty of professors who have been looking at antitrust law, who’ve been looking at the problems here who are aligned with us. I wouldn’t put too much stock … into a letter probably helped curated by the Chamber of Commerce and opponents to the bill of professors who I’m guessing many of them wind up being expert witnesses on behalf of monopolists, oligopolists and their apologists as I like to call them on those types of cases.”

Aguiar-Curry’s virtual press conference was held at the same time legal experts and small business leaders opposed to AB 1776 spoke at the Sutter Club in Sacramento about why they believe the proposal represents “bad policy with consequences,” according to a press release.

The bill is expected to be heard by the Assembly Appropriations Committee on Thursday.