California's Cartwright Act, enacted in 1907, is one of the state's key antitrust laws designed to preserve free and fair competition in the marketplace. It operates similarly to federal antitrust laws like the Sherman Act but focuses specifically on trade practices within California.
Its primary goal is to foster fair and healthy competition in the marketplace, thereby promoting innovation, fair pricing, and consumer welfare.
While the Cartwright Act is a potent tool for safeguarding competition in California's marketplace, its extensive reach means that businesses and individuals can find themselves accused of violations, whether intentionally or unintentionally.
Anyone who might face such allegations must comprehend the law, its prohibited activities, and the potential penalties.
California Business and Professions Code 16720 BPC says, "A trust is a combination of capital, skill, or acts by two or more persons for any of the following purposes:
(a) To create or carry out restrictions in trade or commerce. (b) To limit or reduce the production or increase the price of merchandise or of any commodity. (c) To prevent competition in manufacturing, making, transportation, sale, or purchase of merchandise, produce, or any commodity.
(d) To fix at any standard or figure, whereby its price to the public or consumer shall be in any manner controlled or established, any article or commodity of merchandise, produce, or commerce intended for sale, barter, use, or consumption in this State.
(e) To make or enter into or execute or carry out any contracts, obligations, or agreements of any kind or description, by which they do all or any or any combination of any of the following:
(1) Bind themselves not to sell, dispose of, or transport any article or any commodity or any article of trade, use, merchandise, commerce, or consumption below a common standard figure or fixed value. (2) Agree in any manner to keep the price of such article, commodity, or transportation at a fixed or graduated figure.
(3) Establish or settle the price of any article, commodity, or transportation between them or themselves and others so as directly or indirectly to preclude unrestricted competition among themselves or any purchasers or consumers in the sale or transportation of any such article or commodity.
(4) Agree to pool, combine, or directly or indirectly unite any interests that they may have connected with the sale or transportation of any such article or commodity that its price might in any manner be affected."
Overview of the Cartwright Act
The Cartwright Act is codified in the California Business and Professions Code (16720-16770). It targets agreements or arrangements between businesses that restrain trade or competition.
Unlike federal antitrust law, which focuses primarily on monopolistic behavior, the Cartwright Act has a broader reach. It applies to both horizontal agreements (between competitors) and vertical agreements (between suppliers and distributors) that may potentially harm competition.
The Act empowers the California Attorney General, district attorneys, and private parties to take legal action against those accused of violating its provisions. This can lead to civil damages and criminal penalties, highlighting the serious consequences of non-compliance and the importance of strict adherence to the law.
What are Prohibited Activities?
The Cartwright Act specifically prohibits several practices, all of which involve some form of anti-competitive behavior. The following are some of the most common violations addressed:
Price-Fixing
Price-fixing occurs when competitors conspire to set prices rather than allowing market forces to determine them. For instance, two businesses agreeing to maintain a minimum price for a product violates the Act.
Market Allocation
Market allocation involves competitors agreeing to divide territories, customers, or markets to avoid competing with each other. For example, two companies agreeing not to sell in each other's designated regions constitute market allocation.
Bid-Rigging
Bid-rigging is a collusive practice where competitors conspire to influence the outcome of a bidding process to their advantage.
Typically, this involves submitting deliberately high or non-competitive bids to ensure a predetermined result, often leading to inflated prices for the buyer. By manipulating the bidding process, the involved parties prevent other potential bidders from winning the contract, thus securing profits for themselves at the expense of market integrity and fairness.
Tying Arrangements
Tying occurs when a company requires a customer to buy one product as a condition for purchasing another. This practice restricts consumer choice and may lead to an unfair market advantage for the company enforcing the tie-in.
For example, forcing a buyer to purchase an unrelated product, such as requiring the purchase of software to access a popular electronic device, may violate the Act.
Group Boycotts
This refers to agreements among competitors to refuse to do business with a specific entity, often with the intent of eliminating that entity from the market. Group boycotts often target new or smaller businesses that pose a perceived threat to larger, established companies.
Prosecution of Cartwright Act Violations
Violations of the Cartwright Act are pursued rigorously to uphold fair competition and may result in civil and criminal charges. The California Attorney General and private parties play critical roles in enforcing the Act.
The California Attorney General's office is empowered to investigate and prosecute violations of the Cartwright Act. The office can initiate investigations based on complaints or evidence of anti-competitive practices.
If a violation is found, the Attorney General can file a lawsuit to seek injunctions, financial penalties, and corrective actions to restore competitive conditions.
Private parties harmed by anti-competitive practices can also file lawsuits under the Cartwright Act. These lawsuits can lead to monetary compensation for damages incurred due to violations.
Successful plaintiffs may recover treble damages, which means they could receive three times the actual damages, along with attorney fees. This would empower individuals and businesses to uphold fair competition.
While civil enforcement is more common, violations of the Cartwright Act can also result in criminal prosecution. Criminal cases are usually pursued when there is clear evidence of intentional, fraudulent, or egregious anti-competitive behavior, highlighting the serious consequences of violating the Act.
Prosecutors may bring charges in conjunction with multiple state criminal statutes, resulting in either misdemeanor or felony charges that result in further fines or jail or prison time. For additional information, contact our California criminal defense lawyers, Eisner Gorin LLP, based in Los Angeles.
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