Could California become the Delaware of antitrust?

California moved a step closer this week to becoming a major destination for antitrust litigation.

Hours into an Assembly floor session that went well into Wednesday evening, lawmakers passed AB 1776 on a 44-17 vote. Also known as the COMPETE Act, the bill moved forward despite a major lobbying effort by the California Chamber of Commerce.

"California's Cartwright Act is our state's primary antitrust law," the bill's author, Assembly Majority Leader Cecilia Aguiar-Curry, D-Winters, told her colleagues. "But it contains a major loophole. If two businesses conspire to undercut competition, that's illegal."

She continued, "But if one dominant company takes the same actions and causes the same harm, the Cartwright Act does not cover it."

One or more

The bill's key change would be to insert the words "one or more" into the Cartwright Act.

AB 1776 would bring California antitrust law more firmly into territory traditionally occupied by Section 2 of the federal Sherman Act: single-firm monopolization and monopsonization.

"If passed, this would open up far more antitrust enforcement opportunities in California, and I would expect litigation to rise," said Paul Nolette, a political science professor and antitrust expert at Marquette University.

He added, "This would be a sea change in how California defines antitrust activity."

Gov. Gavin Newsom does not typically announce which pending bills he plans to sign. But he has not exactly been coy either.

Newsom included over $14 million in his revised budget proposal to help California Attorney General Rob Bonta with antitrust enforcement. In March, he called Federal Communications Commission Chair Brendan Carr "a disgrace" for allowing a proposed merger between Nexstar Media Group Inc. and Tegna Inc.

That happened just after Bonta led several other states challenging the deal in federal court in California. A pair of reliably red states, Indiana and Kansas, have since joined that case.

Speed, at a cost

But AB 1776 could push antitrust cases into state courts -- and in front of judges chosen by Newsom and other Democratic governors.

"Antitrust cases will increasingly be brought in state courts for the obvious reason that state courts are more favorable to competition over monopoly," said former Maine Attorney General James E. Tierney, who now lectures at Harvard Law School.

That might be an advantage for litigants who want their case heard while it is still relevant. The U.S. Eastern District of California, where the Nexstar litigation is playing out, has long been one of the most overburdened in the country -- and that was before it was hit with 4,500 immigration habeas cases.

One wild card is how many new cases California might get. A recent analysis by the Assembly Appropriations Committee -- for the uninitiated, that's where expensive bills go to die -- warned of "unknown but potentially significant costs" as the state contends with multibillion-dollar deficits in the coming years.

Tierney noted that antitrust cases are almost always multistate affairs with lots of hands "pitching in."

"AG cases almost always pay for themselves as settlements dwarf litigation costs," Tierney said. "The taxpayers come out way ahead in advance funding for an AG office. It keeps the cases in government lawyer hands and away from contingent lawyers."

Constitutional questions

But just because the current administration is not bringing all the antitrust cases some state AGs would like, it does not mean the feds -- or corporations that want to stay out of court -- will not try to protect that turf.

"I think the biggest challenge for the law would be constitutional challenges arguing that the COMPETE Act violates the so-called dormant Commerce Clause," Nolette said.

He added, "It is very likely that any firms getting sued under the new law would argue that the act unconstitutionally interferes with interstate commerce. ... The sheer scope of the changes under the COMPETE Act would open it to significant challenges."

During Wednesday's debate, Aguiar-Curry said she had already made "significant amendments," including exempting small businesses. She also said she would remove a section of the bill stating several ways in which federal antitrust law should not be considered controlling.

The Chamber has been working to scale back the bill. In a pair of floor alerts urging Assembly members to vote no, it warned AB 1776 would create "legal liability for every business in the state," "increase prices for consumers" as companies deal with the costs of litigation, and even put company loyalty programs at risk.

When reached on Thursday, a spokesperson declined to comment on whether the bill could draw more litigation to California.

Litigation destination?

During the floor debate, Assembly Member Mia Bonta, D-Oakland, noted that most U.S. states already allow single-firm antitrust cases (like the ones her husband will likely file next year, should the bill be signed into law).

Left unsaid: California isn't most states. Nearly all large companies sell products here, and many have locations or employees in the state as well.

Meanwhile, states around the country have made moves in recent years to toughen up their antitrust laws, often focusing on specific industries like healthcare. But only one stands out as a potential all-purpose antitrust venue to rival the federal courts: New York.

A pending bill there, the Twenty-First Century Anti-Trust Act, would modernize New York's Donnelly Act to address unilateral anticompetitive conduct. That did not come up in the floor debate -- but a certain amount of Golden State pride certainly did.

"California honestly should be a leader on this," Assembly Member Ash Kalra, D-San Jose, implored his colleagues.