This isn’t the sort of insanity of doing the same thing over and over and expecting a different result, but the type of insanity that doesn’t care what the outcome is.
California’s Cartwright Act is the state’s primary antitrust law. It allows both government and private actors to make antitrust claims against businesses.
A California Supreme Court ruling described the Cartwright Act as “broader in range and deeper in reach” than the federal Sherman Antitrust Act. It carries not just monetary fines but criminal penalties for violations. Cartwright was amended last year to punish companies for distributing a “common pricing algorithm” among competitors and increased the severity of criminal penalties.
But it applies only to the conduct of two or more businesses. So the Assembly felt it necessary to pass, by a 44-17 margin, the COMPETE Act (Assembly Bill 1776), which outlaws “anti-competitive conduct by single companies.”
The bill’s language includes the familiar phrase “restraint of trade.” This is alarming, because “no court has ever defined how that terms applies to single-firm conduct, and the bill does not do so,” says international law firm Crowell & Moring. Restraint of trade typically refers to at least two companies colluding
This oversight, or maybe the intentional ambiguity, has the potential to create “a world,” as described by former Federal Reserve Chairman Alan Greenspan, “in which the law is so vague that businessmen have no way of knowing whether specific actions will be declared illegal until they hear the judge’s verdict — after the fact.”
According to another law firm, the bill, now headed to the Senate, “could make it easier for plaintiffs to bring antitrust claims under the Cartwright Act” and take companies to trial. It might also “subject businesses to liability for certain conduct that has long been considered lawful under federal antitrust law.”
Crowell & Moring also note that AB 1776 could target businesses that have neither a large portion of the market nor hold inordinate market power. The legislation makes it clear that “a single firm or person” that “has or might achieve a market share” could be caught up in the grind.
Yet another law firm warns California companies to be prepared for “the potential for increased and prolonged antitrust litigation.”
In the name of fairness, competitiveness and affordability, Sacramento is adding poison to an already toxic business environment. Thousands of companies have, in one way or another, abandoned California because they had been crushed by layers of public policy that obstruct their freedom to do business. Thousands have fled the state over the last two decades, looking for the golden opportunities and promise that California once offered.
Should AB1776 be signed into law, it would do both immediate and long-term harm. An analysis from the Computer & Communications Industry Association says it “could reduce California’s GDP by nearly 1.6% in its first year alone.” That would be roughly “$67 billion in lost economic output and 180,000 fewer full-time equivalent jobs.”
If only the damage would stop there. But it won’t. That same analysis found that “over time, those impacts are projected to compound dramatically.” By the 10th year, the law could cause a loss of as much as $1 trillion in GDP and destroy 1.6 million jobs “compared to a baseline scenario without the legislation.”
Businesses need clear rules, and as few of them as possible, if they are to succeed. This isn’t the treatment they’re getting in California. Policymakers regard them as nuisances that have to be reined in and endless fonts of revenue to fund their projects and boost their political ambitions
If this continues to be case in California, established companies and innovators starting new ventures will continue to relocate to states where doing business isn’t choked by government.
Kerry Jackson is the William Clement Fellow in California Reform at the Pacific Research Institute.