CLRC Staff Releases Recommendations for California Antitrust Law Reforms

The California Law Revision Commission (CLRC or Commission) staff on January 13, 2025 published its recommendations to the Commission regarding potential reforms to the state’s existing antitrust laws.

The recommendations are the product of Study B-750, which is a 2022 directive of the California State Legislature that directed the CLRC to study opportunities to clarify and expand the state’s antitrust law (i.e., the Cartwright Act) and its enforcement. Additional background on the study can be found here.

CLRC staff has now made the following three recommendations to the Commission for further consideration:

1. Revise California’s existing antitrust laws to adopt a single-firm conduct provision
2. Adopt an abuse of dominance standard for assessing single-firm conduct claims
3. Adopt merger approval and premerger notification laws, including adopting the “appreciable risk” standard of proof for harm in merger review

CLRC staff did not recommend that California revise its existing antitrust laws to treat “Big Tech” differently than it treats purported dominant firms in other sectors because staff concluded that “exclusionary practices by dominant companies in every industry have the capacity of harming competition.” Additionally, while one of the CLRC expert working groups issued a report on proposed legislation to regulate artificial intelligence (AI) companies, the staff report does not include any AI-specific recommendations.

RECOMMENDATION ONE: CALIFORNIA SHOULD ADOPT A SINGLE-FIRM CONDUCT PROVISION

CLRC staff found that unlike Section 2 of the Sherman Act, California’s Cartwright Act generally does not apply to single-firm anticompetitive conduct, and that California’s Unfair Practices Act (UPA) and the Unfair Competition Law (UCL) are inadequate enforcement mechanisms due to their unique limitations, defenses, and remedies.

However, instead of proposing legislation that mirrors federal antitrust law (i.e., Section 2 of the Sherman Act), CLRC staff recommended “a hybrid approach” that “selectively draws from” Section 2 of the Sherman Act and establishes a new California standard that emphasizes California enforcement interests over the federal jurisprudence that the staff stated “diluted” Section 2’s scope and strength. The recommendation contemplates potentially including language clarifying the scope of single-firm conduct to include monopsony and language explicitly rejecting federal principles on predatory pricing, unilateral refusals to deal, market definitions, and multi-sided platforms.

RECOMMENDATION TWO: CALIFORNIA SHOULD ADOPT AN ABUSE OF DOMINANCE STANDARD

CLRC staff recommended integrating elements of an abuse of dominance (AOD) standard into existing law. As proposed, the AOD standard would make it unlawful for a dominant entity to abuse that position to its competitive advantage. CLRC staff stated that while Section 2 of the Sherman Act is used to challenge exclusionary conduct, it found that “in practice it has proven relatively ineffective for that purpose.”

However, while staff thus concluded that adoption of an “AOD-like” or “misuse of market power” approach could more readily meet the enforcement challenges raised by dominant companies, the recommendation did not include any specifics as to how an AOD standard would be implemented. The staff noted that there is no “specific formulation for this approach” and stated that there was an “array of options to identify dominant actors” such as “using specific percentages of market shares based on detailed consideration of direct and indirect evidence” and “vesting an agency with the task.”

RECOMMENDATION THREE: CALIFORNIA SHOULD ADOPT ITS OWN MERGER APPROVAL AND PREMERGER NOTIFICATION LAWS

CLRC staff determined that merger review at the federal level limits California’s ability to protect its own interests and concluded that California “should not be reliant on the federal merger regime and should have the legal power to police competition and mergers within [its] own borders.” To that end, staff recommends that California should have its own merger approval and premerger notification laws requiring “prompt notification of any merger affecting the state.”

CLRC staff also recommend adopting an “appreciable risk” standard for proof of harm in the context of merger review. Under this standard, California would prohibit mergers whose effect may be “to create an appreciable risk of materially lessening competition.” This contrasts with the federal standard, which prohibits mergers whose effect “may be substantially to lessen competition or tend to create a monopoly,” which CLRC staff found imposed a “high evidentiary burden” that has deterred the government from taking action to challenge proposed mergers. CLRC staff’s stated goal is to make it easier for the state to challenge anticompetitive mergers than it would be under the federal standard and to allow for a greater focus on nonprice effects of mergers (e.g., labor).

NEXT STEPS

CLRC staff will present its memorandum to the Commission, and the Commission will make provisional decisions about the recommendations. Staff will then draft and release for public review and comment tentative recommendations, and the Commission will ultimately submit its final recommendations to the legislature.

CONCLUSION

While CLRC staff’s recommendations provide insight into where the CLRC may ultimately land, it remains to be seen how the Commission decides to proceed based on these recommendations. Morgan Lewis is actively monitoring developments related to Study B-750 and is available to counsel you or your company on the implications of the proposed changes to your business or discuss opportunities to provide public comment once the tentative recommendations are issued.