The Legislature returns this week from its summer recess, kicking off one more month of lawmaking. One proposal that’s expected to draw heavy fire is a bill that beefs up the state’s antitrust law, which is already so harsh that it’s not fit to be copied elsewhere.
Assembly Bill 1776, known as the COMPETE Act, has been pitched by its author, Assembly Majority Leader Cecilia Aguiar-Curry, as an update to the state’s existing antitrust laws. She promises an environment in which business competition will be fair, ideas are allowed to succeed, “and Californians aren’t stuck with higher prices and fewer options.” It’s a path, she claims, to “clear, predictable standards that support innovation, responsible growth, and fair competition,” which is all anyone should ask for. No economy can thrive when rules are murky, innovation is hog-tied and policymakers protect politically favored companies.
The question then is will AB 1776 perform as advertised?
The answer is no, not in a state where antitrust law is too irrational to be allowed to spread to other states.
Aguiar-Curry’s bill would weaponize antitrust law, based in the Cartwright Act, that the state’s own Supreme Court has said “is broader in range and deeper in reach” than the federal Sherman Act. Yet Cartwright lacks a prohibition on single-company conduct. AB 1776 would give enforcers the leverage to harass single firms that unilaterally determine how much they produce and at what prices they sell their goods. The fact is that applying the restraint-of-trade doctrine to single companies makes the bill dangerous. It opens a new and large pool of businesses that can be victimized and forced to pass on any litigation costs to consumers.
The bill will also be a target for court challenges itself, since no court has ever defined how restraint-of-trade allegations can be wielded against single-firm conduct.
The California Chamber of Commerce argues that opening single firms to enforcement means the legality of common business practices we’re all familiar with, from unilateral price cuts to loyalty programs, rebates, “and efforts to undercut rivals” can be called into question.
Isn’t this simply competition, in which businesses attempt to attract customers with benefits that are more consumer-friendly than their rivals?
Apparently Washington thinks so, because those practices are not prohibited by federal law.
Aguiar-Curry boasts that her bill is the product of “unanimous recommendations of the California Law Revision Commission,” as well as “three years of expert study, public input, and 17 public meetings.” That’s not a compelling argument. History is a far better guide.
“Trustbusting” has never yielded more competitive markets, but it has punished economically benign practices and produced unintended consequences that have yielded outcomes that were the exact opposite of the intended consequences, and tends to presume guilt.
Antitrust law also causes price increases, as companies have had to hire expensive lawyers to defend themselves and keep a highly paid stable of attorneys on board to steer them clear of yesterday’s lawful business conduct that will tomorrow be considered illicit. It has often been used as a political truncheon to both stir up populist approval and force conformity or even submission. Businesses have used antitrust law as a vehicle to hurt rivals rather than promote competition.
If lawmakers want to increase competition and boost innovation, they need to look hard at the state’s tax code and regulatory framework — and then make the necessary changes. It would require heavy work and naturally be far more difficult than passing new bills that will create more problems than they solve. There’s not nearly enough time left in the session to make needed changes, but the business community would take note, and even sense a little hope, if they at least got started.
Kerry Jackson is the William Clement Fellow in California Reform at the Pacific Research Institute, and co-author of The California Left Coast Survivor’s Guide.