California has decided that one Sherman Act is not enough.
On September 30, Gov. Gavin Newsom signed AB 1776, the COMPETE Act, the most significant change to California antitrust law in decades. Beginning January 1, California will have its own prohibition on monopolization and monopsonization. The Cartwright Act has generally required an agreement between two or more parties, so a single dominant firm accused of monopolistic conduct usually had to be pursued under Section 2 of the federal Sherman Act. The new law closes that gap.
Attorney General Rob Bonta calls the law an important new tool against anticompetitive conduct by a single firm, and in principle I have no quarrel with that. Federal law has prohibited monopolization since 1890, and the consumer welfare standard has never given monopolists license to destroy competition. The hard question is which conduct by a successful company the law should forbid, and on that question California is striking out on its own.
Federal courts have spent more than a century trying to tell apart firms that win monopoly power by competing well from those that acquire or preserve it by suppressing competition. It may be the hardest problem in antitrust, because the two often look alike. A company invents a better product and its competitors lose customers. A retailer cuts prices and weaker stores close. A technology company integrates two products, and the businesses that supplied one of them disappear. A manufacturer reaches economies of scale its smaller rivals cannot match. In each case competitors have plainly been hurt, and in each case competition may have worked exactly as it should.
That distinction was at the center of the antitrust revolution associated with my father, Robert Bork: the law protects competition, not competitors. Competition makes businesses fight for customers, and it promises none of them a place in the market.
The final COMPETE Act recognizes much of this and is considerably more restrained than earlier versions. The Legislature dropped the proposed private right of action. Only the attorney general and district attorneys can enforce the new provisions, so there will be no treble-damage suits under them. The law requires proof of “substantial market power.” It no longer contains earlier provisions aimed directly at federal rules on predatory pricing, refusals to deal and multi-sided platforms. And it expressly recognizes that a firm may lawfully obtain and maintain market power through superior products, services or business acumen. Critics of the law, myself included, should acknowledge these improvements.
They also make what remains more interesting.