- California’s amended antitrust statute features increased criminal penalties and civil fines, highlighting the state’s efforts to invigorate antitrust enforcement and a willingness to seek higher penalties in forthcoming Cartwright cases involving collusion facilitated by pricing algorithms.
- California has been successful at bringing antitrust cases under the Cartwright Act as separate violations from the federal Sherman Act. These amendments continue to emphasize the importance of state-specific compliance measures for companies that operate in California and participate in Californian commerce.
- Companies should reassess their use of pricing software to determine whether it relies on competitors’ data when recommending or setting pricing or other commercial terms.
- Corporate compliance policies and training materials should be updated to reflect the increased penalties for California State antitrust violations, which now may include utilizing or developing pricing algorithms based on competitors’ data, as well as coercing others to adopt algorithm-recommended pricing or commercial terms.
In more detail
This week, Governor Newsom signed into law two bills – AB 3252 and SB 7633 – amending the state’s primary antitrust law, the Cartwright Act. AB 325 is intended “to provide clarity in the Cartwright Act’s application to algorithmic collusion,” which can be used to facilitate tacit collusion without explicit agreements to fix prices.
AB 325 amends the Cartwright Act by explicitly prohibiting the use or distribution of a common pricing algorithm when it is used to coordinate prices or commercial terms among competitors. A “common pricing algorithm” is defined broadly to include “any methodology, including a computer, software, or other technology, used by two or more persons, that uses competitor data to recommend, align, stabilize, set, or otherwise influence a price or commercial term.” “Price” includes not only consumer-facing pricing, but also employee or independent contractor compensation. The legislation targets both the developers of such algorithms and the businesses that knowingly use them to engage in collusion.
Additionally, AB 325 prohibits pressuring another party to adopt an algorithm-recommended price or other commercial term, including the level of service of output, for the same or similar products or services.
As amended, under the Cartwright Act, plaintiffs also no longer need to allege facts that exclude the possibility of independent action; instead, it is sufficient for plaintiffs to present plausible allegations of a contract, combination, or conspiracy to fix prices or commercial terms using a common pricing algorithm. This aspect of the amendment may induce an increase in private litigation alleging collusion through the use of common pricing algorithms across industries.
The second of the two bills, SB 763, dramatically increases the maximum penalties that may be imposed for Cartwright Act violations. In connection with the Bill, California Attorney General Rob Bonta released a statement noting that “too many wealthy corporations see penalties for breaking the law as simply the cost of doing business. SB 763 would sharpen the teeth of a century-old law.”4
The changes to the criminal and civil penalties include:
- Corporate fines: Increased from $1 million to $6 million per violation.
- Individual fines: Raised from $250,000 to $1 million.
- Civil penalties: Up to $1 million per violation, based on severity and persistence.
Collectively these amendments underscore the state’s efforts to prioritize its antitrust and unfair competition law enforcement. These moves mirror a growing state-level trend to regulate algorithmic pricing and strengthen antitrust enforcement. Notably, New York has enacted a law requiring disclosure of algorithmic pricing based on personal data, while Colorado, Massachusetts, Ohio, Illinois, Hawaii, Maine, and Vermont have proposed their own laws taking aim at various uses and forms of algorithmic pricing.
With respect to California law, clients should recognize that both California State Courts and federal district courts have recognized the extraterritorial reach of the Cartwright Act, meaning Carwright Act claims can be brought against companies headquartered or doing business outside of California as long as there is a sufficient nexus to the state. In previous interpretations of the Cartwright Act, the Ninth Circuit has stated that the Cartwright Act can be lawfully applied where more than a “de minimis” amount of the defendant’s alleged conspiratorial activity took place in California.5 Specifically, clients should be aware that having offices in California, entering into commercial agreements in California, or having employees in California that are connected to the use of pricing algorithms may create a sufficient nexus under the new amendments to sustain a Cartwright Act claim.
