California's Antitrust Reform Plans Create Business Complications

California is moving forward with antitrust reforms that could reshape competition law enforcement under state law. Proposals addressing monopolistic practices, tightening merger oversight, and imposing harsher penalties for antitrust violations would make California’s laws broader than existing federal antitrust laws.

While these reforms aim to enhance competition and protect consumers, they may present new challenges for businesses operating in California. Among other things, such reforms likely would require businesses to expand antitrust compliance and training, expose businesses to increased scrutiny when merging or relying on pricing algorithms, and encourage litigation given the expanded scope of unlawful conduct and increased penalties.

The potential impact on innovation, business practices, and the overall economic landscape remains a subject of debate. But if adopted, these reforms could chill reliance on emerging technologies—such as algorithms and artificial intelligence—and discourage potential deals and acquisitions.

Findings and Recommendations

The California Law Revision Commission, or CLRC, has been at the forefront of these antitrust reform efforts through its Study B-750, authorized in 2022 by the California Legislature. The CLRC was directed to examine California antitrust laws and ask whether the law should be revised:

• To outlaw monopolies by single companies under Section 2 of the Sherman Act
• To reflect competitive benefits such as innovation and permitting the personal freedom of individuals to start their own businesses, not solely whether such monopolies act to raise prices
• In any other fashion, such as for mergers and acquisition approval and to promote and ensure the tangible and intangible benefits of free market competition

Several significant initial recommendations have emerged from the CLRC’s work. One notable proposal would expand the Cartwright Act to regulate single-firm conduct, diverging from its current focus on concerted actions. The law currently focuses only on collusive conduct between competitors, leaving single-firm anticompetitive behavior largely unaddressed.

There was “broad consensus of academic and enforcement communities” to adopt this proposal, the CLRC found, adding that the proposed change was needed to reduce “reliance on federal enforcers who have their own resource constraints and enforcement priorities.”

The CLRC voted for adopting a California merger approval law but directed staff to provide additional information on the current standard and burdens of proof, in the context of merger laws, before taking further action.

The CLRC will need to finalize its recommendations into a comprehensive proposal. The recommendations will need to undergo a period of public comment, and the legislature will ultimately need to act.

Historically, the CLRC’s recommendations have achieved over a 90% enactment rate when submitted to the legislature. This suggests a high likelihood that the CLRC’s proposed antitrust reforms may become state law.

Antitrust Legislation

Meanwhile, lawmakers are advancing legislation to strengthen California’s antitrust criminal framework.

Senate Bill 763, introduced in February, proposes significant increases in criminal penalties under the Cartwright Act. Corporate criminal fines would rise from $1 million to $100 million per violation, while individual fines would increase from $250,000 to $1 million. Prison sentences for felony violations would also be extended to a maximum of five years. Fines would be deposited into an attorney general antitrust account, presumably to increase revenue for antitrust enforcement.

Senate Bill 25, introduced in December 2024, would require companies filing federal premerger notifications under the federal Hart-Scott-Rodino Act to also provide copies to the state attorney general if they have a “principal place of business” in California or have annual net sales of at least 20% of the Hart-Scott-Rodino filing threshold. This measure would give California greater oversight over certain mergers and acquisitions.

In addition to these measures, Senate Bill 295, also introduced in February, addresses algorithmic pricing and artificial intelligence. The bill would “prohibit a person from using or distributing any pricing algorithm that uses, incorporates, or was trained with, competitor data.” The bill authorizes the attorney general or a district attorney to recover penalties or to seek “other appropriate relief” in civil court.

It also requires companies with $5 million or more in annual revenue to disclose whether they use a pricing algorithm to recommend or set prices or commercial terms before a customer makes a purchase. The bill authorizes the attorney general to bring a civil action if they violate these disclosure provisions.

Outlook

Counsel should be proactive about discussing these proposed reforms—and their potential impacts—with California companies. In the near term, counsel should consider whether it would be advantageous to submit a public comment to the CLRC or legislature as they are evaluating these proposals.

Advisers also should have candid conversations with clients regarding the likelihood these reforms will lead to an aggressive antitrust enforcement environment in California, where novel standards and theories may produce inconsistent outcomes under federal and state antitrust laws.

Further, companies should understand that these reforms may increase the cost of doing business in California. If adopted, businesses should expect to face increased burdens and costs related to antitrust compliance, litigation, and merger filings and reviews.

The coming months will be critical in determining the final form and extent of these reforms, and their ultimate impact on California’s business environment and consumers.