A COMPETE-ly new single-firm antitrust regime in California

California’s Competition and Opportunity in Markets for a Prosperous, Equitable and Transparent Economy Act (the Act or COMPETE Act) is scheduled to take effect on January 1, 2027. The COMPETE Act extends California’s antitrust regime to single-firm conduct (e.g., monopolization). Its passage comes on the tailwinds of a recent push by states to more aggressively enforce antitrust and competition laws.

The Act is California’s analogue to Section 2 of the Sherman Act, targeting single-firm, monopoly acquisition and maintenance. While comparable to Section 2, the Act has critical nuances that businesses across the United States ought to be aware of, including that it may be interpreted to reach companies and conduct not covered by Section 2. Those nuances and other key takeaways are discussed below.

A COMPETE (Act) overview

The Act broadens California’s antitrust laws, extending California’s reach to single-firm conduct. Until now, California has lacked the statutory authority to pursue single-firm conduct due to the Cartwright Act’s multifirm conduct requirement. Specifically, the Act now makes it unlawful in California to “monopolize or monopsonize,” or attempt, maintain, combine, or conspire with another person to monopolize or monopsonize.¹ Several of the Act’s other provisions are also worth noting. First, the Act follows the same categorical approach (e.g., per se, rule of reason) as the Cartwright Act and federal antitrust laws.² Second, the Act uses an undefined “substantial market power” test.³ Third, the Act’s litigation risk is substantially reduced, limiting enforcement authority to the California attorney general or a district attorney.⁴ These provisions are examined in detail below.

First, the Act applies a familiar analytical framework from Sherman Act Section 1 and Cartwright Act cases, although applying it to single-firm conduct is new. This analytical framework divides firm conduct into the three categories applied in Section 1 and Cartwright Act cases: per se, quick look, or rule of reason analysis.⁵ The Act’s use of these categories places businesses on familiar ground and provides consistency across California antitrust law, even if it introduces a new categorical approach to single-firm conduct. Under federal law, single-firm conduct is solely evaluated under a framework similar to a rule of reason analysis.

Second, the Act articulates a new required market power standard. An enforcer must show “substantial market power, either through direct or indirect evidence.”⁶ Beyond this reference, the Act neither defines nor provides guidance as to what constitutes “substantial” market power. “Substantial” market power presumably requires more market power than mere “market power,” but it is unclear whether “substantial” market power requires more or less market power than “monopoly power.” The Act may be interpreted to reach firms with shares that would be too low to raise Section 2 liability.

Finally, the Act substantially reduces litigation risk by prohibiting private claims. Claims under both the Cartwright Act and Unfair Competition Law (the UCL) may be, and often are, brought by private plaintiffs. That is not the case for the Act, as it only provides for actions brought by the California attorney general or a district attorney. Enforcement is limited to the prosecutorial discretion of those entities. Not only are private plaintiffs prohibited from bringing Act claims, but the Act further clarifies that a violation of it does not constitute a UCL predicate in a private action.⁷ This limitation reduces litigation risk for companies.

A COMPETE (Act) comparison to Section 2

A comparison of the Act to Section 2 provides both assurances and uncertainties. Starting with similarities, both statutes are textually similar. Both statutes prohibit monopolization, attempted monopolization, and conspiracies to monopolize.⁸ Likewise, neither statute prohibits a firm from lawfully obtaining market power through superiority of its products, services, or business acumen.⁹ This critical safe harbor provides businesses with assurances that lawfully obtained market power under federal law will not be subject to scrutiny under the new California law.

However, the statutes differ in substantial ways. By its own text, the COMPETE Act is designed to be “liberally” interpreted with the goal of “maximizing” deterrence of antitrust violations.¹⁰ Further, federal antitrust law is only “at most instructive” when construing California’s antitrust laws.¹¹ The mandated spirit of the Act suggests the intent that it be interpreted as more expansive than Section 2. An earlier version of the bill identified specific interpretations of the Sherman Act that were often viewed as defendant-friendly and specified they were not required to find a violation of the Act.¹² Although the list was removed from the final bill, the general sentiment of that list remains.

Indeed, the differences suggest the Act may reach conduct (or subject some conduct to higher standards) that Section 2 does not. For example, conduct analyzed under an intensive Section 2 test, such as below-cost pricing, may now be subject to a more lenient test. Or, as another example, a refusal to deal claim may require a more searching analysis under the COMPETE Act. The bottom line is that the COMPETE Act introduces new uncertainties associated with single-firm conduct, where Section 2 law is more restrictive to plaintiffs.

Key takeaways

Businesses with operations in the state of California should assess how their market position and business conduct may raise new, enhanced antitrust risk under the Act given its potential to reach beyond conduct liable under Section 2 of the Sherman Act. Specifically, the Act may reach companies that lack traditional monopoly power and conduct not prohibited by Section 2 of the Sherman Act.  For example, courts could interpret the Act to treat below-cost pricing and refusals to deal with less leniency than the Sherman Act.

Endnotes