California is expanding and clarifying the tools available to tackle anticompetitive conduct in the era of artificial intelligence. Governor Gavin Newsom approved legislation banning the use of pricing algorithms to facilitate collusion and increasing penalties for violations of the Cartwright Act, the state’s primary antitrust law.
California is expanding and clarifying the tools available to tackle anticompetitive conduct in the era of artificial intelligence with two new laws. In October, Governor Gavin Newsom signed bills that not only ban the use of pricing algorithms to facilitate collusion but also increase criminal penalties and add civil penalties for violations of the Cartwright Act, the state’s primary antitrust law.
Along with targeting pricing algorithms, Assembly Bill 325 revises the pleading standard for violations of the Cartwright Act — a change that could lead to more antitrust lawsuits alleging price-fixing, and more claims that survive motions to dismiss.
Under Senate Bill 763, companies and individuals who violate California’s antitrust law are facing stiffer penalties.
Together, the measures help advance a goal repeatedly emphasized by state antitrust officials: developing and understanding the reach of California’s competition laws (see here).
AB 325 also puts California out in front of other states and the US Congress in addressing, through legislation, how the use of AI and pricing algorithms can harm competition.
Algorithms have never been allowed to be used to collude, but the bill shows that California is thinking about how they work, is focusing on the kinds of information that go into an algorithm, and is being “a lot more specific” in terms of what it sees as an antitrust violation, said Kate Patchen, a partner at Covington & Burling.
Lawmakers in multiple states this year also targeted the use of pricing algorithms and dynamic pricing, a practice amplified by AI’s scale and speed that’s also raising concern about discrimination, misuse of personal data and anticompetitive behavior.
But most of the proposals focused specifically on using algorithms to set rental prices. More than 50 bills were introduced by lawmakers in 23 states this year targeting the use of algorithms to set rents, according to research by government affairs firm Multistate.
They’ve had mixed success. Colorado Governor Jared Polis vetoed a bill that would have, in most cases, blocked the use of algorithmic pricing tools to set residential rents (see here).
New York also passed legislation (SB 7882) that would bar residential housing managers from using software to collude on rental prices. The bill was officially sent to the governor for approval this month (see here).
Other state proposals addressed dynamic pricing more broadly, also with limited success, even in California. A California bill (AB 446) that prohibited pricing based on personal information obtained through “electronic surveillance technology” died in committee. Another California bill (SB 384) that prohibited “price-setting algorithms” used by competitors in the same market if they use “nonpublic input data” suffered a similar fate.
But the ongoing debate over whether existing consumer protection and anti-discrimination frameworks adequately address the risks of algorithmic pricing isn’t over yet. State lawmakers are expected to reintroduce similar bills next year.
– AB 325 –
California’s AB 325 doesn’t just focus on using algorithms to set rents like other state AI price-fixing proposals: It aims to make clear that California antitrust law applies to AI tools.
Under AB 325 — also known as “the Preventing Algorithmic Price Fixing Act” — a person or company that uses or provides access to a “common pricing algorithm” as part of an agreement or conspiracy to restrain trade would violate the Cartwright Act.
Such algorithms include software that sets or recommends prices — tools that have recently drawn scrutiny in antitrust cases brought by the US Department of Justice, state attorneys general and private plaintiffs (see here).
At an event* on Oct. 7, Emily Curran, a deputy attorney general with the California Department of Justice, said the legislation doesn’t “really make much new substantive law as applied to AI, but it will clarify and bolster the principle that competition principles apply to AI tools.”
Another piece of AB 325 “worth paying attention to,” Curran said, “addresses the standard for pleading conspiracy in a Cartwright Act case.”
The bill provides “that in a complaint for any violation of the Cartwright Act, it is sufficient to contain factual allegations demonstrating that the existence of a contract, combination in the form of a trust, or conspiracy to restrain trade or commerce is plausible.”
A lawsuit accusing a defendant of a Cartwright Act violation now only needs to allege facts demonstrating the existence of a contract, combination, or conspiracy to restrain trade is plausible.
The change lowers barriers to filing antitrust lawsuits, and more cases are expected to survive dismissal at the pleading stage.
“The bill would provide that a complaint for any violation of the Cartwright Act is not required to allege facts tending to exclude the possibility of independent action,” the legislation says.
By contrast, under the federal standard established in the US Supreme Court’s Bell Atlantic Corp. v. Twombly decision, plaintiffs must plead facts that tend to exclude the possibility of independent action.
“You’re more likely to get to discovery than if in California under this new legislation than if you were suing under the Sherman Act in federal court,” Patchen said.
— SB 763 —
Not only are companies facing the possibility of more lawsuits, but they could also face costly penalties for Cartwright Act violations.
Before Newsom signed SB 763 last week, the penalties for violations of the Cartwright Act hadn’t been updated in decades, and the California AG’s office deemed them insufficient to deter anticompetitive activity in the current market.
The bill raises criminal fines for corporate violators from $1 million to $6 million per violation, and criminal fines for individual violators are now $1 million per violation, up from $250,000. Courts can also impose civil penalties of up to $1 million per violation based on factors such as the nature, seriousness, and persistence of the misconduct.
“California took action and increased penalties for wealthy corporations looking to illegally profit at the expense of workers, consumers, and honest businesses,” Attorney General Rob Bonta said in a statement after Newsom approved the bill (see here).
“As the fourth largest economy in the world, and home to some of the wealthiest corporations, California knows that a fair and competitive marketplace should work to benefit everyone, not just a select few,” Bonta said.
Bonta sponsored the bill along with State Senator Melissa Hurtado.
Eleanor Blume — special assistant attorney general at the California Department of Justice — previously told MLex that she viewed the legislation as part of broader efforts to “put more teeth into our antitrust laws” and “to revive criminal prosecution under the Cartwright Act” (see here).
Still, the new penalties enacted aren’t as high as Bonta and Hurtado were originally seeking in some areas. For example, a previous version of the bill sought to increase criminal fines from $1 million to $100 million per corporate violation of the Cartwright Act.
This suggests a more incremental approach to changing penalties.
The governor-approved amendments to the Cartwright Act might not be the last. The California Law Revision Commission is currently considering changes to the state’s antitrust law.
In September, the CLRC voted to have staff agency staff draft a tentative recommendation for addressing “single-firm conduct” that harms competition (see here).
*2025 Antitrust Plaintiffs’ Roundtable, ABA Antitrust Law Section, San Francisco, Oct. 7, 2025
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