“An Overview of California’s Cartwright Act” (By William Markham, © 2024)

Other provisions of California’s competition law reach some of these matters,[16]see Cal. Bus. & Prof. Code § 16600 (non-compete covenants); §§ 17000–17101 (certain kinds of price discrimination, predatory pricing, and commercial boycotts but not anticompetitive mergers or any of the unilateral offenses proscribed by section 2 of the Sherman Act.[17]Of note, an eminent former justice on the California Supreme Court, the late Stanley Mosk, memorably explained in a partly dissenting opinion why the Act should be construed to reach anticompetitive … Continue reading

Despite the Act’s limited reach, plaintiffs might find that their claims for unlawful restraint of trade are often better received under the Act in California state court than they might be under section 1 of the Sherman Act in federal court, where many deserving claims fail under one or more of the restrictive doctrines that are part of the consumer-welfare canon.

Other practitioners with different aims might prefer instead to bring actions in federal court to have the Act limited in scope and reach by Congress’s dormant powers under the Commerce Clause of the U.S. Constitution.[18]See Selevan v. New York Thruway Auth., 584 F.3d 82, 90 (2d Cir. 2009) (“In implementing the Commerce Clause, the Supreme Court has adhered strictly to the principle that the right to engage in … Continue reading

The field is open for these challenges and more. This article, however, has only modest aspirations. It aims to provide a useful introductory overview of the Act and practical tips for practitioners.

The Cartwright Act’s Origins

Like all antitrust statutes, the Cartwright Act traces its origins to the common law on restraint of trade, which first emerged in England in the early 1600s.[19]See United States v. E. C. Knight Co., 156 U.S. 1, 25 (1895) (“[A] general restraint of trade has often resulted from combinations formed for the purpose of controlling prices by destroying the … Continue reading Enacted in 1907, the Act closely resembles the original antitrust laws adopted by the federal government and many other states around the turn of the twentieth century (c. 1885 to 1914). Specifically, the Act largely borrows the wording of a draft version of the Sherman Act that Congress rejected, but various states adopted, including Texas and California.[20]See generally State of California ex rel. Van de Kamp v. Texaco, Inc., 46 Cal. 3d 1147, 1153–1169 (1988) (extended explanation of these points with citations to numerous authorities) (superseded by … Continue reading To understand the Act and its proper application, it is necessary to understand the common law on restraint of trade and the origins and evolution of American antitrust law. For a good start, I commend my readers to the original sources cited in the preceding two footnotes.

Practice Pointer: When briefing issues that arise under the Act, you should first look for guidance in the California decisions. If they provide insufficient guidance, or to supplement their guidance, you can cite to precedents established under section 1 of the Sherman Act (15 U.S.C. § 1), so long as you clarify that these federal precedents have only persuasive authority in cases that arise under the Act.[21]See Cellular Plus, Inc. v. Superior Ct., 14 Cal. App. 4th 1224, 1240 (1993) (“F]ederal cases interpreting the Sherman Act are applicable in construing our state laws. Accordingly, the appropriate … Continue reading

The Purpose and Underlying Policy of the Cartwright Act

Despite its limited reach, the Act is an important bulwark in modern antitrust practice. Its intended and only proper aim is to protect the public from cartels, collusion by sellers (against their customers), collusion by buyers (against their suppliers), and dominant firms that use onerous contracts with their counterparties to corner markets and insulate themselves from competition.[22]See Qualcomm, 292 F. Supp. 3d at 979 (“The California Supreme Court has held that the primary concern of the Cartwright Act is the elimination of restraints of trade and impairments of the free … Continue reading

Here is a short explanation of this essential point. In any market, competing sellers are supposed to vie with one another to make sales to customers. Their competitive rivalry is supposed to protect customers from abuse. If a seller offers shoddy products or services, charges excessively high prices, or imposes onerous terms of sale, customers will eventually cease making purchases from it and look instead to purchase the same kinds of products or services from a rival who offers better products, more accommodating services, lower prices, and better terms of sale. In the same vein, sellers will naturally decline to serve a commercial buyer who is too stingy or unreasonably insists on onerous terms and conditions. Instead, sellers will prefer to sell their wares to more reasonable customers. Those are the natural protections of competitive rivalry in free markets. Those protections are undermined when sellers or buyers in a market collude to increase or lower prices or to impose onerous terms of trade.[23]See United States v. Aluminum Co. of Am. (“Alcoa”), 148 F.2d 416, 428 (2d Cir. 1945) (“[T]he vice of restrictive contracts and of monopoly is really one, it is the denial to commerce of the … Continue reading

Equally important, vigorous competition continuously impels sellers to improve their products and services not only to make more sales, but also to avoid being undersold or surpassed by rivals, who by their own efforts might find better ways to make the same products or might even develop new products that better perform the same functions. In short, competition keeps everyone on their toes and honest in their dealings with one another.[24]See Alcoa, 148 F.2d at 427–29 (“The [Sherman] Act has wider purposes…. Many people believe that possession of unchallenged economic power deadens initiative, discourages thrift and depresses … Continue reading

When direct competitors act in concert to insulate themselves from the pressures of competition, they deprive everyone of the benefits of free and open competition. The same occurs when a dominant firm prevails upon its counterparties to accept onerous contractual restrictions that hinder or prevent future competition between the dominant firm and its counterparties or others. Antitrust law therefore condemns contracts, combinations, and conspiracies directed against competitive interplay in our markets. That, at least, is the theory that lies behind all antitrust laws, including the Act.[25]See Line Material, 333 U.S. at 309 (“[O]ur economy is built largely upon competition in quality and prices.”); Alcoa, 148 F.2d at 427–29 (explaining these points at length). 

When litigating a case under the Act, you should always keep these considerations in mind. A plaintiff, who acts as a private attorney-general when litigating a claim under the Act, must show how the challenged combination has not merely harmed its own business, but also hindered or eliminated competitive interplay in a properly defined relevant market. Such harm will be presumed only when the offense constitutes a per se violation. Otherwise, the plaintiff carries the burden of showing how the defendant’s challenged practices have harmed marketwide competition in a properly defined relevant market. Conversely, a defendant will always wish to extol the procompetitive benefits of its challenged practices, explaining how they allow it to improve its own offerings even if they incidentally disfavor one or more direct competitors. That is why antitrust defendants routinely argue that the plaintiff’s claim is untrue, opportunistic, or a mere effort to invoke antitrust law to protect the plaintiff’s inefficient operations from superior competition on the merits.[26]See Asahi, 204 Cal. App. at 20 (“[T]he Cartwright Act, like all antitrust laws, is about the protection of competition, not competitors.”); Cel-Tech Commc’ns, Inc. v. Los Angeles Cellular Tel. … Continue reading

Combinations in Restraint of Trade

Under the Act, a combination in restraint of trade (called an unlawful “trust”) typically refers to a business practice that unduly hinders or prevents marketplace competition in California and is implemented by the concerted activity of two or more independent actors (as opposed to conduct implemented by a corporation and an affiliate that it controls).[27]See Qualcomm, 292 F. Supp. 3d at 974 (quoted above on this point). Of note, the business practice itself or its anticompetitive effects must take place at least in substantial part in California.[28]See AT & T Mobility LLC v. AU Optronics Corp., 707 F.3d 1106, 1112–13 (9th Cir. 2013) (“Applying California law to anticompetitive conduct undertaken within California [that results in harm … Continue reading 

Certain kinds of combinations are deemed unlawful per se, while others are reviewed under more demanding standards, which are explained below.[29]See Marsh v. Anesthesia Servs. Med. Grp., Inc., 200 Cal. App. 4th 480, 493 (2011) (“The Cartwright Act prohibits combinations in unreasonable restraint of trade. Certain restraints which lack … Continue reading In theory, proving a per se violation of the Act requires little or no examination of any “relevant market” or the effect of the challenged conduct on competitive conditions in any such market.[30]See Knevelbaard Dairies v. Kraft Foods, Inc., 232 F.3d 979, 986 (9th Cir. 2000) (“When a per se violation such as horizontal price fixing has occurred, there is no need to define a relevant market … Continue reading Even so, you should always consider and carefully plead the applicable relevant market or markets in any case that you bring under the Act, even if you allege only a per se violation, such as horizontal price-fixing.

Per Se Violations of the Cartwright Act

Unlawful combinations under the Act above all concern the cardinal antitrust offenses, which are agreements or coordinated business practices by which two or more competitors do any of the following:

• Fix or coordinate their respective prices (price-fixing).[31]See Marsh, 200 Cal. App. 4th at 493.
• Allocate customers by name, location, type of contract, type of product, or another such category (horizontal market-allocation).[32]See id.
• Pre-arrange bidding for a contract or asset (bid-rigging).[33]See id.
• Refuse to provide key inputs or necessary commercial arrangements to one or more targeted businesses (horizontal group boycotts).[34]See id.

Horizontal Price-Fixing. Price-fixing is the ultimate antitrust offense. It occurs when two or more ostensible competitors enforce an express or implied agreement to raise or manipulate their prices to avoid price competition. In some instances, offenders literally fix (set) their respective prices. In others, they agree to respect price minimums; or agree to restrict output simultaneously so that customers confronted with scarcity will bid up their prices; or manipulate a pricing formula used to determine prices; or coordinate spot purchases to remove products from the market and thereby contrive scarcity and thereby force customers to bid up market prices; or resort to some other scheme or contrivance to force customers to pay more for their products than could be charged in a competitive market untainted by their collusion. That is price-fixing. It is the principal offense and a per se violation under the Act.[35]See Knevelbaard, 232 F.3d at 986 (“Foremost in the category of per se violations is horizontal price-fixing among competitors…. Under both California and federal law, agreements [between … Continue reading

Horizontal Market Allocation. This offense occurs when two or more ostensible competitors enforce an express or implied agreement by which they allocate their sales to avert competition with one another. Horizontal market allocation can entail divvying up customers by name, territory (e.g., “You take all sales east of Main Street, and I will take all sales west of it.”), contract size (e.g., “You take all jobs that cost more than $50,000, and I will take all those that cost less”), specific products (e.g., “You sell all A-size widgets, and I will sell all B-size widgets”), or some other such allocation. Horizontal market-allocation is treated as a per se offense under the Act.[36]See In re Cipro Cases I & II, 61 Cal. 4th 116, 148 (2015) (Under the Act, “businesses may not engage in a horizontal allocation of markets, with would-be competitors dividing up territories or … Continue reading

Bid-Rigging. This offense occurs when ostensibly independent bidders for a contract or an asset arrange their bids or offers in advance so as to avert competitive bidding. Bid-rigging is likewise treated as a per se offense under the Act.[37]See Knevelbaard, 232 F.3d at 986; Marsh, 200 Cal. App. 4th at 493.

Horizontal Group Boycotts. A group boycott refers to a business practice by which two or more businesses withhold necessary supplies or a necessary commercial facility from one or more targeted customers, thereby impeding or preventing the targets from competing for business in the affected market. A group boycott can refer to direct competitors that control supplies and use coordinated efforts to withhold them from an existing or potential rival. A group boycott can also refer to a dominant firm that prevails on its own suppliers to withhold necessary supplies or facilities from one or more of its rivals, thereby preventing or impeding them from competing against it.[38]See Marsh, 200 Cal. App. 4th at 493; Freeman v. San Diego Ass’n of Realtors, 77 Cal. App. 4th 171, 195 (1999) (“[I]t is a violation of the antitrust laws for a group of competitors with separate … Continue reading Under federal law, proving an unlawful group boycott is more difficult. To do so, a plaintiff must either make an elaborate rule-of-reason showing, or, at a minimum, prove all of the following points: (1) The boycotting companies control a resource, such as supplies, that the targeted company or companies require in order to remain viable competitors in a given line of commerce or market; (2) the boycotting companies act in concert to withhold this resource from the targets, which in consequence cannot remain viable competitors in the line of commerce or market; (3) the boycotting companies occupy a “dominant” position in the line of commerce or market; (4) the boycotting companies lack a necessary business justification for withholding the necessary resource from the targets; and (5) the boycott entails a horizontal arrangement made between direct competitors.[39]See Hahn v. Oregon Physicians’ Service, 860 F.2d 1501, 1509 (9th Cir. 1988) (setting forth the first three of the above four criteria); NYNEX Corp. v. Discon, Inc., 525 U.S. 128, 135 (1998) … Continue reading

Joint Ventures and the Doctrine of Ancillary Restraints

Direct competitors often collaborate with one another in legitimate joint ventures, by which they aim to fulfill customers’ requirements or improve their offerings. Antitrust law offers no reproach of any such venture. On the contrary, it encourages and extols collaborative efforts to innovate, make better products, and offer improved services in response to competitive pressures from other sellers.

At the same time, antitrust law is rightly wary of endeavors jointly undertaken by two or more direct competitors. All too often, joint ventures entail business practices that can be plausibly challenged as price-fixing, market allocation, or some other unlawful combination under the Act. The controlling law in such a circumstance is well-settled. Namely, a practice used in a joint venture undertaken by two or more competitors can be challenged under the doctrine of ancillary restraints, which asks (1) whether the defendants’ challenged practice facilitates the success of their collaboration; and, if so, (2) whether the practice is narrowly tailored for this purpose. If the answer to both queries is “yes,” the practice will almost certainly survive scrutiny and can be challenged, if at all, only under the difficult rule-of-reason standard. But if not, the practice can be condemned as a violation of the Act.[40]See Med. Ctr. at Elizabeth Place, LLC v. Atrium Health Sys., 922 F.3d 713, 724–25 (6th Cir. 2019) (“Because joint ventures often have procompetitive efficiencies, when a joint venture is itself … Continue reading In every instance, a “naked” restraint of competition between independent competitors is always unlawful under the Act, even when it is buried in a contract that memorializes the terms and conditions of a legitimate joint venture. When two direct competitors agree not to compete in some way or other, their restraint is unlawful under the Act if its principal or only purpose is to protect the competitors from one another’s competition. Any such restraint, no matter how clothed, is deemed a “naked” restraint of trade, and as such it is unlawful under the Act.[41]See Polk Bros. v. Forest City Enters., Inc., 776 F.2d 185, 188–89 (7th Cir. 1985) (naked restraints are horizontal covenants between competitors that exist merely to suppress competition; as such, … Continue reading

Vertical Arrangements That Can Unlawfully Restrain Trade 

“Vertical restraints” are contractual or course-of-dealing restrictions that companies impose on their suppliers, contractors, or customers. A vertical restraint can be found to violate the Act, but only if it is used in a way that lacks a redeeming justification and is likely to result in a substantial lessening of competition in a properly defined relevant market.[42]See Theme Promotions, Inc. v. News Am. Mktg. FSI, 546 F.3d 991, 1000 (9th Cir. 2008) (“California courts have determined that vertical restraints of trade … are not per se unreasonable but … Continue reading In particular, the following kinds of vertical restraints can be deemed unlawful combinations under the Act, but only if they lack a redeeming justification and are accompanied by a proper showing of probable and significant harm to competitive interplay in a properly defined relevant market:

• Tying arrangements, whereby a seller with market power over a “tying product” forces its customers to accept another kind of product (the tied product) when purchasing the tying product (e.g., “if you want to purchase our A widgets, which you require and cannot find from another seller, you must also buy our B widgets”). Some sellers with market power use tying arrangements that merely oblige their customers not to purchase the tied product from another seller. Tying arrangements can be accomplished by contract or product design (e.g., selling all A widgets only with separable B widgets attached to them), but proving a tie-in by product design is very difficult under the modern standards. Of note, tying arrangements used to be treated as per se violations under federal law, but now the very definition of an unlawful tying arrangement requires the plaintiff to show that the defendant has market power in the market for the tying product, so that the practice is a per se violation in name only, but for practical purposes is treated more like a rule-of-reason offense.[43]See UAS Mgmt., Inc. v. Mater Misericordiae Hosp., 169 Cal. App. 4th 357, 366 (2009) (“A tying arrangement typically involves a seller with monopoly or other extensive market power in a given … Continue reading
• Exclusive-dealing arrangements, whereby a defendant with market power obliges its suppliers or customers to deal only with it and thereby forecloses a substantial part of all sales in the relevant market for an extended duration, so that no rival can establish a foothold, attain required economies of scale, or impose competitive discipline on the defendant.[44]See Theme Promotions, 546 F.3d at 1001 (“[E]xclusive dealing contracts may harm competition, but may also have the effect of enhancing competition. Under the rule of reason analysis, an exclusive … Continue reading
• Product-bundling, whereby a seller with market power that sells many products gives large discounts on “bundles” of separate products, so long as the customer buys from the seller most or all of its requirements for each bundled product.[45]See In Cascade Health Solutions v. PeaceHealth, 515 F.3d 883, 897 (9th Cir. 2008) (“[B]undled discounts, while potentially procompetitive by offering bargains to consumers, can also pose the threat … Continue reading
• Standard-setting fraud, whereby (1) the defendant convinces a standard-setting organization to adopt its patented product or technology as a standard feature in an entire industry (e.g., the cellphone industry); (2) to this end, the defendant specifically and formally agrees to sell or license the product or technology to all comers on “FRAND” terms (i.e., terms and conditions that are “fair, reasonable, and non-discriminatory”); and (3) the defendant thereafter breaches its promise and refuses to sell or license the product or technology on commercially viable terms to any rival, or it sells or licenses the product or technology to its captive customers only at extortionate prices or on onerous terms and conditions that they would never accept in a competitive market.[46]See Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297, 314 (3d Cir. 2007) (“We hold that (1) in a consensus-oriented private standard-setting environment, (2) a patent holder’s intentionally false … Continue reading
• Patent misuse, whereby one or more patentees with market power use licensing agreements, cross-licensing agreements, or covenants not to sue in order to extend the duration or scope of their exclusive concessions beyond those conferred by the patents themselves.[47]See Princo Corp. v. Int’l Trade Comm’n, 616 F.3d 1318, 1321 (Fed. Cir. 2010) (“[T]he doctrine [of patent misuse] limits a patentee’s right to impose conditions on a licensee that exceed the … Continue reading
• Most-favored pricing provisions (sometimes called “most-favored nation” clauses or “MFNs”), whereby (1) a defendant with market power requires its suppliers to give it the best prices or terms of sale that they offer to any other customer, and (2) the purpose or effect of the defendant’s MFN is to inhibit competition on price or quality by preventing the defendant’s rivals from offering better terms to suppliers in exchange for their lower prices.[48]See United States v. Apple, Inc., 791 F.3d 290, 320 (2d Cir. 2015) (“MFNs, though surely proper in many contexts, can be misused to anticompetitive ends in some cases.”); Blue Cross & Blue … Continue reading
• Countless other vertical business arrangements, which defendants with market power use with their counterparties primarily to insulate themselves from competition rather than to improve their offerings.[49]See generally Phillip Areeda & Herbert Hovenkamp, Antitrust Law: An Analysis of Antitrust Principles and Their Application (Wolters Kluwer online, 2024), ¶¶ 1600–1823. 

Contracts in Restraint of Trade

The Act reaches contracts in restraint of trade and is directly complemented by California’s statutes on non-compete covenants, which appear at sections 16600–16602.5 of California’s Business & Professions Code.

First, contracts in restraint of trade can be challenged directly under the Act, which at a minimum codifies the common-law doctrines on restraint of trade.[50]See Fisherman’s Wharf, 114 Cal. App. 4th at 317 (“The Cartwright Act targets contracts in restraint of trade and promotes a free market by proscribing trusts.”); Alfred M. Lewis, Inc. v. … Continue reading The Act therefore reaches a defendant with market power that obliges its counterparty to accept unlawful non-compete covenants or other restrictions that impede competition and are not narrowly drafted merely to facilitate the successful performance of a joint-venture or transaction. The combination is formed by the defendant and its unwilling abettor (the counterparty). On this basis, the counterparty itself or other harmed parties can challenge the contract or business arrangement and obtain relief from the defendant under the Act.[51]See Kolling v. Dow Jones & Co., 137 Cal. App. 3d 709, 720 (1982) (“[T]he ‘conspiracy’ or ‘combination’ necessary to support an antitrust action [under the Act] can be found where a … Continue reading

Second, section 16600 of California’s Business & Professions Code complements the Act by declaring null and void any contractual provision, however entitled, that operates in practice to impede or prevent a natural person or company from practicing a lawful trade or operating a lawful business in California.[52]See Cal. Bus. & Prof. Code § 16600 (subject to specific exceptions set forth at sections 16601–16602.5, “every contract by which anyone is restrained from engaging in a lawful profession, … Continue reading There are limited statutory exceptions to section 16600, which appear at sections 16601–16602.5. These exceptions codify longstanding common-law doctrines and permit sellers of a business, partnership stake, or membership stake in an LLC to accept certain limitations on their ability to compete against their former business, partnership, or LLC.[53]See Cal. Bus. & Prof. Code §§ 16601–16602.5. Of note, a former, current, or prospective employee who is harmed by a violation of section 16600 can recover damages and attorney’s fees under section 16600.5(e)(2).[54]See Cal. Bus. & Prof. Code § 16600.5(e)(2) (“…a prevailing employee, former employee, or prospective employee in an action based on a violation of this chapter shall be entitled to … Continue reading

The Judicial Tests Used to Decide Claims under the Cartwright Act

The Act condemns concerted conduct by two or more actors that unduly restrains marketplace competition. Conduct challenged under the Act is often treated in accordance with federal precedents established under a closely analogous federal law called section 1 of the Sherman Act (15 U.S.C. § 1) (“Section 1”). At a minimum, the federal precedents offer guidance and a suggested approach in the case at hand. A practitioner who brings or opposes a claim under the Act must therefore be well-versed in the law on restraint of trade developed under Section 1, as well as the common-law of restraint of trade, which gave rise to both Section 1 and the Act.[55]See Marin Cnty. Bd. of Realtors, Inc. v. Palsson, 16 Cal. 3d 920, 925 (1976) (“A long line of California cases has concluded that the Cartwright Act is patterned after the Sherman Act and both … Continue reading

The federal courts in turn have developed a series of judicial tests for deciding whether a contract, combination, or conspiracy violates Section 1. These tests are best termed as follows: (1) per se condemnation; (2) quick-look condemnation; (3) condemnation or absolution under the structured rule of reason; and (4) quick-look absolution.

Per Se Condemnation. Since the enactment of the Sherman Act in 1890, the federal courts have always condemned certain practices, such as horizontal price-fixing, as unquestionable restraints of trade that, as such, violate Section 1. To prove that the defendants engaged in the alleged conduct is to prove their violation of section 1. The conduct, having been shown, is said to be unlawful per se under Section 1.[56]See Nat’l Collegiate Athletic Ass’n v. Bd. of Regents of Univ. of Oklahoma, 468 U.S. 85, 100 (1984) (“Horizontal price fixing and output limitation are ordinarily condemned as a matter of law … Continue reading

Historically, the federal courts treated all other alleged violations of Section 1 as “rule-of-reason” offenses: to be found unlawful, a challenged contract or combination must have been shown to impose undue restrictions on competition in a distinct line of commerce. If so, the contract or combination could be condemned under an ill-defined, amorphous “rule of reason.”[57]See Nat’l Soc. of Pro. Eng’rs v. United States, 435 U.S. 679, 692 (1978) (“There are, thus, two complementary categories of antitrust analysis. In the first category are agreements whose … Continue reading

Quick-Look Condemnation. More recently, the federal courts have been willing to find violations of Section 1 under a “quick-look” standard, which applies to contracts and combinations that cannot be deemed unlawful per se, but nonetheless appear to be obviously anticompetitive in purpose and effect and therefore require little inquiry before being condemned as unlawful restraints of trade.[58]See Law v. Nat’l Collegiate Athletic Ass’n, 134 F.3d 1010, 1020 (10th Cir. 1998) (a quick-look review is used when a trade restraint is not unlawful per se, but “has obvious anticompetitive … Continue reading

The Structured Rule of Reason. The federal courts have also adopted an elaborate three-part test for proving an offense under a “structured rule of reason,” which was originally developed by Professors Areeda and Hovenkamp in their authoritative treatise on antitrust law, which is called Antitrust Law: An Analysis of Antitrust Principles and Their Application (available online on Wolters Kluwer’s site).[59]See United States v. Am. Airlines Grp. Inc., 121 F.4th 209, 220 (1st Cir. 2024) (“A rule-of-reason analysis requires a fact-specific assessment of the restraint’s actual effect on competition. … Continue reading

Quick-Look Absolution. Most recently, the federal courts have declared that certain business practices can be deemed lawful after a “quick look” at them reveals that they cannot plausibly impair competitive interplay in a relevant market.[60]See Nat’l Collegiate Athletic Ass’n v. Alston, 594 U.S. 69, 88 (2021) (“At one end of the spectrum, some restraints may be so obviously incapable of harming competition that they require little … Continue reading

The Judicial Tests Serve as Guideposts, not Inflexible Rules. The above standards for evaluating claims under Section 1 should not be treated as hard-and-fast rules that must be applied mechanically and without reflection. Rather, they constitute different possible ways to answer the same query—which is whether a defendant’s contracts, combinations, or concerted activity with others unduly restrains trade in a distinct line of commerce. That question typically turns on whether the challenged business practices are intended to improve the defendant’s offerings or shield it from competitive pressures; if the latter, and if the challenged practices threaten to impair marketwide competition, they can be condemned as unlawful restraints of trade. The different standards—per se condemnation, quick-look condemnation, the structured rule of reason, and quick-look absolution—are meant only to help the courts to answer these essential queries.[61]See California Dental Ass’n v. F.T.C., 526 U.S. 756, 758 (1999) (“There is generally no categorical line between restraints giving rise to an intuitively obvious inference of anticompetitive … Continue reading

How the Structured Rule of Reason Works. The structured rule of reason, being a little complicated, requires further explanation to be intelligible. To prove an offense under the structured rule of reason, a plaintiff must first carry its initial burden. To this end, the plaintiff must define a plausible relevant market, then show that two or more independent actors have formed a contract, combination, or conspiracy that is likely to result in reduced marketwide output, supracompetitive prices, inferior offerings, or the removal of distinct kinds of offerings from the market entirely. Any such anticompetitive outcome need not be immediate, but its tendency and eventual likelihood must be clear. To make this showing, the plaintiff can show that the challenged trade restraints are binding on a large percentage of sellers or transactions, or that the seller who imposes them has strong market power in the relevant market, and that the challenged trade restraints appear likely to impair interbrand competition rather than lower prices or improve the quality or variety of products or services in the market. If the plaintiff can make these showings, it has met its burden of proving a prima facie claim under the structured rule of reason.[62]See Bhan v. NME Hosps., Inc., 929 F.2d 1404, 1413 (9th Cir. 1991) (“To meet his initial burden [for a rule-of-reason challenge under Section 1], plaintiff must show that the activity is the type … Continue reading

Once a plaintiff makes this prima facie showing, the burden passes to the defendant, which must justify its use of the challenged trade restraints, explaining why they improve its offerings without unduly restraining others from competing against it. The plaintiff can thereafter show that the defendant’s pro-competitive justifications are a mere pretext, or that the defendant could readily accomplish its claimed pro-competitive aims by using far less restrictive business practices with its counterparties. The finder of fact must then decide on balance whether the challenged trade restraints are pro-competitive (and therefore lawful) or anticompetitive (and therefore unlawful under Section 1).[63]See Bhan, 929 F.2d at 1413 (“Should the plaintiff satisfy his initial burden, the defendant must offer evidence of pro-competitive effects. The plaintiff, driven to this point, must then try to … Continue reading

The Modern Approach to Deciding Claims for Restraint of Trade. Broadly speaking, the following standards have emerged from the many cases that have arisen under Section 1, and these standards have persuasive authority in cases that arise under the Act: 

• First, per se standards are used to condemn the cardinal sins of antitrust law: horizontal price-fixing, horizontal market allocation, bid-rigging, and certain kinds of group boycotts, as well as naked restraints of trade by which direct competitors suppress their own direct competition or exclude rivals.
• Second, a quick-look approach can be used to condemn a dominant defendant’s contractual and course-of dealing arrangements with others or a trade association’s rules that (a) obviously impair competitive interplay in a line of commerce and (b) appear to lack a reasonable pro-competitive justification.
• Third, a dominant defendant’s contractual and course-of-dealing arrangements can be condemned after thorough review under the structured rule of reason when they apparently tend to restrain competitive interplay, but also have plausible pro-competitive justifications.
• Lastly, joint-ventures and contractual arrangements that plainly aim to improve a defendant’s offerings rather than impair competition can be quickly pronounced blameless after a mere “quick look.”

That is the modern law under Section 1. Analogous standards are used to determine whether a monopolist’s unilateral conduct violates section 2 of the Sherman Act (15 U.S.C. § 2).[64]See United States v. Microsoft Corp., 253 F.3d 34, 58–59 (D.C. Cir. 2001). These same standards can be invoked for claims that arise under the Act.[65]See Marin Cnty. Bd. of Realtors, 16 Cal. 3d at 925.

Expect Pro-Active Enforcement in the California Courts. The California courts treat the above precepts and judicial tests as persuasive authority in cases that arise under the Act. But the California courts seem more willing to enforce the above standards in accordance with common-law doctrines on restraint of trade, while some federal jurists have seemed reluctant during the consumer-welfare era to condemn even conduct that appears plainly anticompetitive in spirit, intended purpose, and likely or actual effect. Even so, the federal courts have been slowly reviving classical antitrust doctrines, and the pendulum, having swung so far away from classical antitrust during the consumer-welfare era, has finally begun to swing back towards more pro-active antitrust enforcement. 

At all events, a plaintiff that brings a claim under the Act should usually be prepared to prove that the challenged combination or contract constitutes a violation under the structured rule of reason. Often, a plaintiff will allege in the alternative that the defendant’s challenged practices are per se violations of the Act, or can be condemned after a “quick look,” or should be condemned under the structured rule of reason. A plaintiff that has done its homework will be prepared to make all three showings before filing suit against a powerful defendant or cartel.

Defining the Relevant Markets

For most claims asserted under the Act, a plaintiff should or must define one or more relevant markets in which the defendant or defendants are said to have committed the alleged antitrust violation.[66]See Theme, 546 F.3d at 1001 (to prove a rule-of-reason violation of the Act, the plaintiff usually “must first define the relevant market and then show that the defendant plays enough of a role in … Continue reading

Many antitrust cases largely turn on whether the plaintiff’s proposed markets are sound and should be adopted: the question is whether the plaintiff’s proposed market accurately describes a line of commerce that can be unlawfully restrained under the Act.[67]See Fed. Trade Comm’n v. Qualcomm Inc., 969 F.3d 974, 992 (9th Cir. 2020) (“A threshold step in any antitrust case is to accurately define the relevant market, which refers to the area of … Continue reading

Never underestimate the importance of this task.[68]See Dang, 964 F. Supp. 2d at (“While the definition of a relevant market for antitrust purposes is typically a factual inquiry, certain legal principles govern the definition, and antitrust claims … Continue reading Before filing a claim under the Act, you should (must) confer with an expert antitrust economist to help you to identify, analyze, and define the relevant markets in which the defendant or defendants have committed their challenged practices.

A relevant market is an antitrust concept. There is rarely a “correct” market definition, but only a plausible one that accurately captures the underlying commercial realities, can withstand the defendant’s objections, and is more convincing than the defendant’s own proposed market definition (if the defendant offers one).[69]See United States v. Rockford Mem’l Corp., 898 F.2d 1278, 1285 (7th Cir. 1990) (“It is always possible to take pot shots at a market definition (we have just taken one), and the defendants do so … Continue reading

Broadly speaking, a relevant market consists of a relevant product market and a relevant geographic market.[70]See Fed. Trade Comm’n v. Penn State Hershey Med. Ctr., 838 F.3d 327, 338 (3d Cir. 2016) (In antitrust cases, “[t]he relevant market is defined in terms of two components: the product market and … Continue reading A relevant product market, in turn, is the category of products or services that customers use or contemplate using to fulfill specified functions (e.g., cellophane wrapper, aluminum foil, wax paper, paper bags, plastic bags, and hard plastic containers for storing perishable food). A product market consists only of products that serve as reasonable substitutes for one another, or, as economists sometimes say, products that have a high cross-elasticity of demand, so that if the price of one such product increases in relation to the others, demand for the others increases.[71]See Exxon, 51 Cal. App. 4th at 1682 (“The United States Supreme Court has declared that the relevant market is determined by considering ‘commodities reasonably interchangeable by consumers for … Continue reading A relevant geographic market is the region where customers look to purchase the relevant products or services, or, what is the same thing, where sellers compete to make sales to them.[72]See Penn State Hershey, 838 F.3d at 338 (“The relevant geographic market is that area in which a potential buyer may rationally look for the goods or services he seeks. Determined within the … Continue reading

The courts, public antitrust enforcers, and the antitrust bar have worked out a series of complicated doctrines and economic tests for defining and opposing proposed relevant markets. The most important and widely adopted test is called the hypothetical monopolist test: it asks whether a hypothetical monopolist (a firm that makes all sales in a proposed market) could profitably impose a non-cost justified, substantial price hike for an extended duration. The shorthand term for such a price is a “SSNIP”—i.e., a “statistically significant, non-transitory increase in price.” If the hypothetical monopolist can profitably impose a SSNIP, then the proposed market is properly defined and should be used for purposes of antitrust review—i.e., it accurately describes a line of commerce that can be unlawfully restrained or monopolized. If however customers would avert the monopolist’s SSNIP by purchasing different kinds of products, or by purchasing the same kind of products from sellers located outside the market, it means that the market is too narrowly defined and does not constitute a relevant market for antitrust purposes. The hypothetical monopolist test should be performed to ascertain both the relevant product market and the relevant geographic market.[73]See Penn State Hershey, 838 F.3d at 338 (“A common method employed by courts and the FTC to determine the relevant geographic market is the hypothetical monopolist test. Under the Horizontal Merger … Continue reading

Do not attempt this experiment on your own (“don’t try this at home”). Practically speaking, expert testimony is required to support a proposed market definition. Your expert should excel at using plain English to clarify issues, not take pains to obscure his meaning hopelessly by uttering impenetrable jargon in response to all questions.

Ultimately, a relevant market must describe the underlying commercial realities. What products or services does the defendant sell? What other products or services can be used instead for the same purposes? Who sells them? Who buys them? How and where are these products or services sold and delivered? Does the defendant face or fear meaningful competition from an existing competitor or a potential rival that might enter the market to compete against the defendant? In this environment, could a hypothetical monopolist profitably impose a SSNIP? Or would customers render a SNNIP unprofitable by turning to a different product or service or by purchasing the same product or service from some other seller located outside the proposed market?[74]See Eastman Kodak Co. v. Image Tech. Servs., Inc., 504 U.S. 451, 482 (1992) (“The proper market definition in this case can be determined only after a factual inquiry into the ‘commercial … Continue reading

Once you have defined the relevant market, you have laid the foundation for showing how the defendants’ business practices have undermined or substantially lessened competition in the market in a way that violates the Act.[75]See Theme, 546 F.3d at 1002 (Under the Act, “[a] relevant market is identified by considering commodities reasonably interchangeable by consumers for the same purposes. Put another way, the … Continue reading

Without a relevant market, you must depend on proving a per se violation, and if you cannot do so, your claim under the Act will fail.[76]See In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 317 (3d Cir. 2010) (“While pleading exclusively per se violations can lighten a plaintiff’s litigation burdens, it is not a riskless … Continue reading

Antitrust Injury: a Limiting Doctrine

A defendant’s liability under the Act is subject a limiting doctrine known as the requirement of “antitrust injury”: namely, the plaintiff bears the burden of showing that an anticompetitive feature or consequence of the defendant’s violation was a substantial cause of the plaintiff’s losses.[77]See Brunswick Corp. v. Pueblo Bowl–O–Mat, Inc., 429 U.S. 477, 489 (1977) (An antitrust injury is one that “should reflect the anticompetitive effect either of the violation or of … Continue reading

To make the required showing, a plaintiff-customer must demonstrate that, because of the defendant’s violation of the Act, she paid higher prices, received inferior goods or services, or was deprived of a distinct product or service previously available in the market.[78]See Clayworth v. Pfizer, Inc., 49 Cal. 4th 758, 787 (2010) (“[I]n an antitrust price-fixing case, the presumptive measure of damages is the amount of the overcharge paid by the plaintiff.”); Glen … Continue reading

A plaintiff-supplier can make the showing by demonstrating that it received lower prices because of the defendants’ challenged conduct (e.g., because of the acts of a buyers’ cartel).[79]See Knevelbaard, 232 F.3d at 988 (9th Cir. 2000) (Plaintiffs, who supplied milk to cheese producers, stated actionable antitrust injury under the Act by plausibly alleging that these producers had … Continue reading

A competitor (existing or potential) or other market participant can meet the requirement by showing that the defendant employed its challenged practices not to improve its own offerings, but instead to hinder or prevent one or more competitors from competing in the relevant market.[80]See Catch Curve, Inc. v. Venali, Inc., 519 F. Supp. 2d 1028, 1035-36 (C.D. Cal. 2007) (A competitor suffers antitrust injury if the defendant uses wrongful exclusionary conduct to hinder or prevent … Continue reading

If a cagey plaintiff spots an arguable violation of the Act, he cannot challenge it unless it caused him “cognizable antitrust injury.” Speculative, remote, and tenuous claims typically result in dismissal on the pleadings or in summary judgment for the defendant after arduous discovery. A plaintiff must therefore assess at the outset whether the defendant’s challenged conduct caused him to suffer antitrust injury. This is a threshold inquiry in any antitrust claim, including one brought under the Act.

The specific test is whether the plaintiff’s claimed losses were caused by an anticompetitive feature or consequence of the defendant’s violation of the Act.[81]See W. Penn Allegheny, 627 F.3d at 101 (“The antitrust-injury requirement helps ensure that the harm claimed by the plaintiff corresponds to the rationale for finding a violation of the antitrust … Continue reading

Civil and Criminal Penalties under the Cartwright Act

In a suit under the Act, a prevailing plaintiff can obtain expansive declaratory and injunctive relief (including decrees of dissolution), treble damages, attorney’s fees, and costs of suit, as well as prejudgment interest upon a showing that the defendant employed dilatory or abusive litigation tactics.[82]See Cal. Bus. & Prof. Code §§ 16750(a), 16761; Borgeson v. Archer-Daniels Midland Co., 909 F. Supp. 709, 717 (C.D. Cal. 1995) (“In addition to establishing a public cause of action (enforced … Continue reading

The Act also authorizes California’s Attorney General and District Attorneys to bring civil proceedings on behalf of the public, the State of California, or any political subdivision or public agency of California for any violation of the Act or a comparable federal law.[83]See Cal. Bus. & Prof. Code §§ 16750(c)–(g), 16754, 16760. For civil violations, a public prosecutor can obtain the same remedies as a private litigant.[84]See Cal. Bus. & Prof. Code § 16750(a), (c).

In theory, the Act imposes stiff criminal penalties for violations, which include prison terms of up to three years for individuals as well criminal fines of either $1 million or double damages/double disgorgement, whichever is greater.[85]See Cal. Bus. & Prof. Code § 16755(a). These penalties have been deemed to satisfy the constitutional requirements of fair notice and due process.[86]See F. & A. Ice Cream Co. v. Arden Farms Co., 98 F. Supp. 180, 190–191 (S.D. Cal. 1951) (confirming this point). In fact, California’s public authorities have rarely pursued criminal prosecutions under the Act and have not done so at all during the past twenty-five years, but they retain the authority to do so. In March, 2024, the chief antitrust prosecutor at California’s Department of Justice announced that California’s Attorney General would revive its authority to investigate and prosecute criminal violations of the Act.

Of note, federal authorities sometimes bring criminal prosecutions under a comparable provision of federal antitrust law, section 1 of the Sherman Act (15 U.S.C. § 1), but only for egregious instances of horizontal price-fixing, horizontal market-allocation, and bid-rigging.[87]See, e.g., United States v. Aiyer, 33 F.4th 97, 109 (2d Cir. 2022) (a recent, successful criminal prosecution for price-fixing and bid-rigging); see also U.S. Dept of Just., Just. Manual § 7-1.100 … Continue reading Nothing prevents California’s prosecutors from doing the same for like violations of the Act.[88]See Cal. Bus. & Prof. Code §§ 16750(c)–(g), 16754, 16755(a).

An Antitrust Defendant’s Remedies

In nearly all antitrust cases, a prevailing defendant merely averts liability and can recover only its taxable costs of suit, but not attorney’s fees.[89]See Cal. Bus. & Prof. Code §§ 16750(a); Carver, 119 Cal. App. 4th at 503 (“The Cartwright Act contains a unilateral fee–shifting provision that allows an award of attorney fees to a … Continue reading

Monetary Sanctions for Baseless Claims and Litigation Misconduct. There is an exception to this rule: if a plaintiff asserts or continues litigating a claim under the Act without probable cause, or if the plaintiff uses bad-faith tactics when litigating his claim, the defendant can apply for monetary sanctions under California law if the case is litigated in California state court, or under federal law if the case is litigated in federal court.[90]See Cal. Code Civ. Proc. § 128.5(a) (“A trial court may order a party, the party’s attorney, or both, to pay the reasonable expenses, including attorney’s fees, incurred by another party as a … Continue reading Motions for these kinds of sanctions should be made only in egregious cases.[91]See Kumar v. Ramsey, 71 Cal. App. 5th 1110, 1120–21 (2021) (“Like its federal counterpart … rule 11 of the Federal Rules of Civil Procedure, Code of Civil Procedure section 128.7 should be … Continue reading

Sequel Suits for Malicious Prosecution. When an antitrust claim is egregiously baseless, a successful defendant has a further remedy, which it can pursue after obtaining the dismissal of a claim that manifestly and obviously lacked merit. Under California law, a litigant that defeats a frivolous claim can bring a sequel suit for malicious prosecution and thereby recover damages and punitive damages. The principal compensatory damages in such a case are usually the attorney’s fees that the plaintiff incurred to oppose the malicious litigant’s baseless claim. In any sequel suit for malicious prosecution, the plaintiff must prove that (1) in the earlier suit, the malicious litigant or his attorney filed or maintained a claim under the Act “without probable cause;” (2) the claim was decided against the malicious litigant (or would have been if the malicious litigant had not dismissed the claim while a motion for its dismissal was pending); and (3) the malicious litigant or his attorney asserted the baseless claim for an improper purpose, such as procuring an unjustified settlement in exchange for dismissing the claim.[92]See Bertero v. Nat’l Gen. Corp., 13 Cal. 3d 43, 50 (1974) (“To establish a cause of action for the malicious prosecution of a civil proceeding, a plaintiff must plead and prove that the prior … Continue reading In an action for malicious prosecution, malice can be inferred when the malicious litigant sought to obtain a valuable settlement in exchange for dismissing his baseless claim.[93]See Albertson v. Raboff, 46 Cal. 2d 375, 383 (1956) (“The malice required in an action for malicious prosecution is not limited to actual hostility or ill will toward plaintiff but exists when the … Continue reading

In California, a claim for malicious prosecution is “disfavored” and difficult to prove on policy grounds.[94]See Jay v. Mahaffey, 218 Cal. App. 4th 1522, 1539 (2013) (“[M]alicious prosecution is a disfavored action. The elements of malicious prosecution have historically been carefully circumscribed so … Continue reading Broadly speaking, a claim for malicious prosecution can succeed only if the malicious litigant or his attorney obviously and demonstrably lacked probable cause either to bring the claim in the first place, or to continue litigating the claim after it was rendered untenable by unambiguous evidence.[95]See Sycamore Ridge Apartments, LLC v. Naumann, 157 Cal. App. 4th 1385, 1402 (2007) (“A litigant will lack probable cause for his action either if he relies upon facts which he has no reasonable … Continue reading

The Limited Reach of the Cartwright Act

The Act is limited to defendants who commit their challenged business practices at least in substantial part in California, as well as those whose practices cause substantial antitrust injury to plaintiffs located in California.[96]See AT & T Mobility, 707 F.3d at 1112–13 (“Applying California law to anticompetitive conduct undertaken within California [that results in harm to consumers in another state] advances the … Continue reading Given the breadth and importance of California’s economy, the Act reaches a very broad swathe of American commerce, but unless the challenged conduct has a significant nexus to California, it does not fall within the purview of the Act.

Also, the Act reaches only concerted conduct undertaken by two or more independent actors.[97]See Qualcomm, 292 F. Supp. 3d at 974 (“The Cartwright Act proscribes ‘a combination of capital, skill or acts by two or more persons’ for an unlawful purpose. By its terms, the Act does not … Continue reading The Act therefore does not govern a monopolist’s unilateral conduct[98]See Dimidowich v. Bell & Howell, 803 F.2d 1473, 1478 (9th Cir. 1987), opinion modified on denial of reh’g, 810 F.2d 1517 (9th Cir. 1987). or anticompetitive mergers or acquisitions.[99]See Texaco, 46 Cal. 3d at 1168. Concerted conduct, however, includes contractual and course-of-dealing arrangements by which a defendant with market power prevails on its counterparties to accept anticompetitive restraints.[100]See Kolling, 137 Cal. App. 3d at 720.

How The Dormant Commerce Clause Limits the Cartwright Act

The Act has not been preempted (supervened) expressly or impliedly by any federal law.[101]See California v. ARC Am. Corp., 490 U.S. 93, 102 (1989) (“[F]ederal antitrust laws do not pre-empt state law.”); see also Redwood Theatres, Inc. v. Festival Enterprises, Inc., 908 F.2d 477, 480 … Continue reading But the Act’s reach and enforcement must be limited so that it neither discriminates against interstate commerce (by favoring California commerce), nor imposes excessive burdens on interstate commerce.[102]See Selevan, 584 F.3d at 90 (“In implementing the Commerce Clause, the Supreme Court has adhered strictly to the principle that the right to engage in interstate commerce is not the gift of a … Continue reading

How The Cartwright Act Differs From Federal Antitrust Law

The Act Does Not Reach Unilateral Conduct. As noted above, the Act forbids trade restraints of every variety enforced by two or more independent actors.[103]See SC Manufactured Homes, 162 Cal. App. 4th at 84 (“The [Act] prohibits conspiracies that unreasonably restrain trade.”); Asahi, 204 Cal. App. at 11 (2012) (“[A]n indispensable element of any … Continue reading The Act’s prohibitions usefully encompass anticompetitive contractual provisions that a defendant wrongly imposes on a counterparty, including exclusive-dealing contracts and tying arrangements.[104]See Fisherman’s Wharf, 114 Cal. App. 4th at 317 (“The Cartwright Act targets contracts in restraint of trade and promotes a free market by proscribing trusts.”); Kolling, 137 Cal. App. 3d at … Continue reading In addition, the Act permits an indirect purchaser or class of indirect purchasers to seek redress for harm caused by wrongful combinations in restraint of trade, such as a sellers’ conspiracy to fix prices or allocate markets.[105]See Cal. Bus. & Prof. Code § 16750(a); Stanislaus, 782 F. Supp. 2d at 1080 (“Unlike the federal Sherman Act, the Cartwright Act grants indirect purchasers standing to sue, as well as direct … Continue reading

That is as far as the Act goes.

Unlike federal antitrust law, the Act does not reach either unilateral conduct committed by a monopolist or mergers and acquisitions that are likely to result in a substantial lessening of competition in a properly defined relevant market.[106]See Texaco, 46 Cal. 3d at 1168 (the Act does not govern anticompetitive mergers or acquisitions); Qualcomm, 292 F. Supp. 3d at 974; (“The Cartwright Act proscribes ‘a combination of capital, … Continue reading

The Act thus prohibits the same offenses as do section 1 of the Sherman Act (15 U.S.C. § 1) and section 3 of the Clayton Act (15 U.S.C. § 14), but it has had a more expansive application in actual cases (e.g., claims made by indirect purchasers). But the Act does not reach either the monopolization offenses governed by section 2 of the Sherman Act (15 U.S.C. § 2) or anticompetitive mergers and acquisitions that can be challenged under section 7 of the Clayton Act (15 U.S.C. § 18). Nor does the Act reach unlawful price discrimination or commercial bribery that can be challenged under the Robinson-Patman Act (15 U.S.C. §§ 13–13c), although some kinds of price discrimination and predatory pricing can be challenged under California’s Unfair Practices Act, which is codified at sections 17000–17101 of California’s Business & Professions Code.

The Act Is Enforced More Expansively Against Concerted Conduct That Impedes Competition. Perhaps the most important difference between the Act and analogous provisions of federal antitrust law lies in their differing interpretation in the modern era, when federal courts have largely embraced the very narrow reading of the Sherman Act imposed by “consumer-welfare’ jurisprudence. Indeed, the California Supreme Court recently re-affirmed that “the Cartwright Act is broader in range and deeper in reach than the Sherman Act.” In re Cipro Cases I & II, 61 Cal. 4th 116, 160 (2015) (quoting Cianci, 40 Cal.3d at p. 920).

More generally, the California courts have taken pains to confirm that precedents established under the Sherman Act have only persuasive or “instructive” authority in cases that arise under the Act, so that the California courts are not confined by the restrictive doctrines favored by the federal courts in recent times.[107]See id. This point is not an unfounded contrivance. Rather, the Act is derived from an antitrust law adopted by Texas, which in turn traces its original wording to a proposed draft of the Sherman Act that was ultimately rejected by Congress. The Texas law and the draft bill that inspired it were supposed to be more sweeping and all-encompassing than the language ultimately used in the Sherman Act, but only as to those matters that they reached.[108]See Texaco, 46 Cal. 3d at 1153–1169 (extended explanation of these points with citations to numerous authorities); Cipro, 61 Cal. 4th at 142 (“Interpretations of federal antitrust law are at most … Continue reading Here is how the California Supreme Court stated the matter in one of its landmark rulings on the Act:

“While no direct sources for the legislative history of the Cartwright Act exist, we may reasonably assume that the Legislature’s intent was substantially similar to that of United States Senator John Reagan, who authored an unsuccessful bill offered as a substitute for what became the Sherman Act; the Cartwright Act is a near carbon copy of the Reagan bill. At the very least, the Sherman Act codified the common law. The Reagan bill was intended to reach further. The record of congressional debates reveals that the Reagan bill was designed not to narrow the scope of the Sherman Act but to broaden it.”
Cianci v. Superior Ct., 40 Cal. 3d 903, 919 (1985) 

This distinction matters. A skillful, diligent advocate who is well-versed in the doctrines of restraint of trade can bring challenges under the Act in California state court that might be rejected under the narrow consumer-welfare doctrines that have been used since the late 1970s to decide and reject cases brought under section 1 of the Sherman Act.

There is another important difference. Section 1 has been explained and applied in thousands of decisions as well as numerous learned treatises, including Areeda and Hovenkamp’s authoritative treatise, Antitrust Law: An Analysis of Antitrust Principles and Their Application (now available online on Wolters Kluwer’s site). In contrast, there is a dearth of case law on the Act. The existing law on point is perhaps best described as a hodgepodge of inconsistent decisions, written by jurists who seem perhaps to have talked past one another, and who have not yet reached a clear understanding of the full reach and meaning of the law. Skillful advocates can and should help to cure this gap, bearing in mind that California courts have not fully embraced the restrictive doctrines used to decide and reject countless antitrust cases in the modern era (c. 1975 to the present).

Although the California courts acknowledge that antitrust law is intended to promote consumer welfare, they have not systematically embraced the full panoply of consumer-welfare doctrines that have greatly limited federal antitrust law since the late 1970s. Rather, the courts here appear to have reconciled the modern consumer-welfare doctrines with the Act’s common-law roots. Here is how the California Supreme Court stated the matter in a landmark ruling in 1985:

“Consumer welfare is a principal, if not the sole, goal of antitrust laws. In other words, antitrust laws are designed primarily to aid the consumer. They rest on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest material progress, while at the same time providing an environment conducive to the preservation of our democratic political and social institutions.”

Cianci v. Superior Ct., 40 Cal. 3d 903, 918–19 (1985)

Conclusion

As a practitioner of antitrust law for the length of my career, I urge you to examine the foregoing passage and allow it to serve as your guiding light in all cases that you bring under the Act. Lastly, and most important, I hope that this article and its references provide helpful guidance on the Act and the law on restraint of trade. Good luck to all of you in your cases, except those in which we might oppose one another!

By William Markham (© 2024).