California Expands Antitrust Law to Reach Single-Firm Conduct: What Businesses Should Know About the COMPETE Act
On September 30, 2026, Governor Gavin Newsom signed the Competition and Opportunity in Markets for a Prosperous, Equitable and Transparent Economy (COMPETE) Act into law, which expands California's antitrust law, called the Cartwright Act, to prohibit monopolization, monopsonization and related conduct, bringing California antitrust law more in line with federal antitrust law under the Sherman Act. This is part of a broader trend of California updating its antitrust law, including by adding requirements for certain merging parties to provide notice to the state attorney general and instituting prohibitions on the use of certain algorithmic pricing software.
The COMPETE Act goes into effect on January 1, 2027, and is narrower than earlier proposals of the law. Enforcement of the COMPETE Act is limited to the California Attorney General and district attorneys. The law nevertheless creates a new state-law avenue for challenging single-firm conduct and raises questions about how California courts will apply it independently of federal precedent under the similar provisions of Section 2 of the Sherman Act. The California Attorney General's office has long been and continues to be a hotbed of antitrust enforcement, and the violations of the Cartwright Act can be punishable as a crime. Consequently, businesses with significant market power should ensure that they understand the parameters of the new law and take appropriate action to mitigate risk of any potential violation before January 1, 2027.
A New Prohibition on Single-Firm Conduct
Federal antitrust law under the Sherman Act has two broad categories of prohibitions: (1) Section 1, which prohibits anticompetitive conduct that involves more than one party (such as price fixing or market allocation), and (2) Section 2, which prohibits anticompetitive conduct by a single firm (such as monopolization or attempted monopolization). While many states have antitrust laws that closely mirror both Section 1 and Section 2 of the Sherman Act, California's Cartwright Act has historically had only prohibitions that mirror Section 1. The new COMPETE Act expands the Cartwright Act to include prohibitions that mirror Section 2 of the Sherman Act by making it unlawful "for every person to monopolize or monopsonize, attempt to monopolize or monopsonize, maintain a monopoly or monopsony, or combine or conspire with another person to monopolize or monopsonize any part of trade or commerce."
By addressing monopsonization explicitly, the law makes it clear that it reaches not only seller-side market power, but also buyer-side market power, including practices affecting suppliers and labor markets. The new law states that protecting competition includes protecting competition between businesses for workers, an acknowledgment that the law is meant to address certain types of employer conduct.
Requirement of Substantial Market Power. The COMPETE Act requires a plaintiff to allege and ultimately prove "substantial market power," through direct or indirect evidence. The statute does not define the term or set a market-share threshold. Federal monopolization claims under Section 2 of the Sherman Act ordinarily require "monopoly power," which is an individualized determination. Courts often find monopoly power when a firm's market shares is within a range of at least 70 to 80 percent of the market or higher. That said, the new law cites "lower actionable market shares" as one way the Cartwright Act departs from the Sherman Act, and the use of the term "substantial market power" rather than "monopoly power" may lead courts to conclude that the California law reaches conduct by firms whose market shares are below traditional federal thresholds.
Additional Differences from Federal Law. The new law codifies California precedent that the Cartwright Act is "broader in range and deeper in reach" than the Sherman Act (not just in the context of single-firm conduct) and that federal interpretations are "at most instructive." The COMPETE Act directs courts to interpret California's antitrust laws liberally and to favor "maximizing" effective deterrence. Consequently, while the new law adds Section 2-type prohibitions to the Cartwright Act, the extent to which federal Section 2 principles will inform the analysis in California courts is uncertain.
California's Analytical Framework. The COMPETE Act directs courts to use "the analytical framework and guidance of the California Supreme Court in the manner described in In re Cipro Cases I & II (2015) 61 Cal.4th 116, 146–147." In that opinion, the court explained that only unreasonable restraints of trade are prohibited, treated the per se, "quick look," and rule-of-reason approaches as a continuum rather than rigid categories, and held that courts may devise rules of proof, or even presumptions where justified, to distinguish anticompetitive from procompetitive conduct. Because Cipro applied that structured approach to reverse-payment patent settlements between drug manufacturers (i.e., conduct that involves multiple parties), it remains to be seen how courts will adapt it to unilateral conduct.
What the COMPETE Act Does Not Do
It Does Not Prohibit Successful Competition. Section 16730(e) of the COMPETE Act affirms that, as referenced in Cipro, 61 Cal.4th at 148, "a business may lawfully obtain and maintain market power or monopoly power through the superiority of its products, services, or business acumen." Market leadership alone is not a violation.
It Does Not Create a Private Right of Action. Under Section 16731(f), only the Attorney General or a district attorney may bring an action, and private plaintiffs cannot use an alleged violation as a predicate for a claim under California's Unfair Competition Law. These limits do not affect claims brought under other provisions, so existing private rights of action under the Cartwright Act remain available to private plaintiffs.
It Does Not Prohibit All Unilateral Restraints of Trade. Earlier versions of the new law would have prohibited single-firm conduct in "restraint of trade" (which was not defined) and barred offsetting harm in one market with benefits in another. That language was removed. The final statute targets monopolization and monopsonization (including attempts and maintenance) but does not prohibit all conduct merely because it creates some limitations on unbounded competition.
It Does Not Apply to Qualifying Small Businesses. Section 16731(d) of the Act exempts independently owned and operated businesses whose principal office is in California, whose officers are domiciled in California, and which, together with affiliates, have 100 or fewer employees and average annual gross receipts of $10 million or less over the three years before the complaint is filed.
It Does Not Reach Government-Supervised Conduct. Section 16731(e) of the Act excludes exclusive franchises, contracts, licenses, or permits granted and supervised by a local, state, or federal governmental agency; conduct authorized by state or federal law and that is within the scope of the authorization and supervised by the government or an entity authorized by the government. This exclusion is an attempt to codify a similar concept developed by the courts under federal law called the state-action doctrine.
Enforcement, Penalties, and Procedure
Section 16731(g) of the Act clarifies that the Cartwright Act's relaxed pleading and proof rules for alleged combinations and conspiracies do not apply to purely unilateral claims.
Exposure under the Cartwright Act, including for the new provisions, is significant. Criminal fines for Cartwright Act violations can be up to $6 million for corporations and $1 million for individuals or, if greater, twice the gross gain or loss. In addition, there is a recently added civil penalty of up to $1 million per violation in actions brought by the Attorney General or a district attorney. These remedies are cumulative with other remedies under state law.
Practical Implications for Businesses
Businesses with significant California operations or market positions should consider the following before the January 1, 2027, effective date:
Review Competitive Arrangements. Exclusive dealing, distribution restrictions, loyalty incentives, pricing arrangements, and refusals to deal may warrant assessment. These practices are not automatically unlawful; liability requires substantial market power and an analysis of competitive effects.
Consider Buyer-Side and Labor-Market Practices. Businesses with substantial purchasing power, including in concentrated labor markets, should review procurement and employment practices.
Update Compliance Policies and Document Justifications. Compliance programs should address California's single-firm provisions, and businesses should document legitimate objectives such as efficiencies, product improvements, and customer benefits.
Confirm Exemption Status. Smaller California businesses should confirm they satisfy every element of the small-business exemption, and regulated businesses should evaluate whether their conduct falls within the scope of government authorization.
Looking Ahead
The COMPETE Act's impact will depend on how California courts interpret the substantial-market-power requirement, adapt the Cipro framework to unilateral conduct, and reconcile California's independent antitrust principles with federal jurisprudence. Stinson attorneys will continue to monitor developments and are available to assist businesses in evaluating the law's implications.
For more information on the COMPETE Act, please contact Jeetander Dulani, Dan Goldfine, William Greene, Joseph Saleh, Vicki Smith, Nicci Warr or the Stinson LLP contact with whom you regularly work.
