Articles Posted in California Law

Can States Grant Federal Antitrust Immunity? Part 2 : The Sherman Act vs. Sacramento: Why AB 1340 Is Preempted by Federal Law

October 20, 2025 | Bona Law PC

In my last post, I discussed how California’s newly enacted AB 1340—which allows independent contractor gig drivers to form a “union” and engage in sectoral bargaining against rideshare companies such as Uber and Lyft—likely does not provide the federal antitrust immunity that it purports to provide. This week, I’d like to discuss the other problem with AB 1340: it is likely unconstitutional.

In 2018, the Ninth Circuit decided Chamber of Commerce v. City of Seattle, striking down a Seattle ordinance that authorized rideshare drivers to engage in collective bargaining with Uber and Lyft.

So why did California just enact essentially the same law? AB 1340 revives nearly the same structure—and the same constitutional defect—under a new label, in a different locale.

Now, there is a key factual difference between the Seattle ordinance and AB 1340. Can you spot it?

The difference is that California is a state, and Seattle is a mere political subdivision. And that difference matters, because we have a dual federalist system: states on the one hand, and the federal government on the other. Cities? They are not sovereign and are irrelevant for federalism purposes. (But don’t shed any tears for municipalities: they get an ill-reasoned exemption from the active supervision prong set forth in Town of Hallie v. City of Eau Claire, plus the Local Government Antitrust Act of 1984, which immunizes them from antitrust damages and fees, thus freeing them to pursue all sorts of anticompetitive schemes with reckless abandon.)

Still, this factual difference does not save AB 1340 from the same fate as Seattle’s ordinance.

The problem is that California’s AB 1340 is not a genuine act of state regulation, but merely an attempt to declare private coordination immune from federal law.

Under Supreme Court precedent, naked attempts to immunize anticompetitive conduct are foreclosed not only by the state-action immunity doctrine. They are also subject to federal preemption.

From Seattle to Sacramento

Seattle’s ordinance authorized “qualified representatives” of for-hire drivers—eventually, the Teamsters—to bargain collectively with companies such as Uber and Lyft. Everyone agreed the ordinance facilitated private price-fixing, and the city defended it on state-action grounds. The Ninth Circuit rejected that defense.

The court held that Washington’s general authorization to regulate for-hire transportation did not clearly articulate a policy to displace competition in the ride-referral market, and that a statutory declaration purporting to exempt local regulation from the Sherman Act was not a policy to displace competition—it was an impermissible attempt to exempt municipal conduct from federal law altogether. Finally, the court confirmed that the “municipal exception” to active supervision is narrow: when private actors participate in the restraint, active state supervision is required, and cities are not “the state itself.”

The Ninth Circuit emphasized that “authority to regulate a market is not the same as authority to authorize anticompetitive conduct.” That observation speaks directly to the structure of AB 1340, even if California, unlike Seattle, acts here as the sovereign rather than its subdivision.

What the Ninth Circuit Actually Held

Two features of Chamber v. Seattle are particularly relevant.

First, the Ninth Circuit drew a sharp line between a policy to regulate and a policy to displace competition. The state statute there authorized municipalities to regulate for-hire transportation for safety and reliability reasons, but said nothing about replacing market competition with collective bargaining. The resulting ordinance therefore lacked the “clear articulation” required by Midcal.

Second, the court rejected the notion that the legislature could “immunize” municipalities from the Sherman Act by fiat. Citing Parker v. Brown, it reiterated that “states cannot give immunity to those who violate the Sherman Act by authorizing them to violate it.” A declaration of exemption, even one framed as explicit legislative intent, is not a substitute for a true regulatory program.

And in footnote 9, the court made a related and important point:

“The City’s argument that the presumption against preemption applies here is misplaced. State-action immunity is a defense to preemption.”

That is, the doctrines are not separate. If state-action immunity fails, federal law preempts.

AB 1340 and the Limits of State Sovereignty

California’s position differs from Seattle’s in one respect: a state itself has enacted the challenged framework. That distinction matters under Parker, which recognizes that the Sherman Act does not bar a state acting as sovereign from imposing market restraints “as an act of government.” But AB 1340’s flaw is not that it delegates authority to a city; it’s that it authorizes private competitors to collude and then declares their collusion immune from federal scrutiny.

That structure is inconsistent with Parker and a number of subsequent Supreme Court cases. The statute’s declaration that the “state-action antitrust exemption shall apply” does not transform private collusion into sovereign regulation. It is simply a legislative announcement that California intends to exempt certain conduct from federal law—something it cannot do. The Constitution allows states to regulate, but not to negate federal statutes.

The Federal Boundary

The Ninth Circuit’s footnote in Seattle captured the relationship succinctly: state-action immunity is a defense to preemption. When the defense fails, federal supremacy governs. The result is not a close call. AB 1340 does not replace competition with regulation; it replaces it with private collusion, then declares that collusion lawful. That is precisely the type of state-created conflict the Supreme Court’s preemption jurisprudence forbids.

A facial challenge to AB 1340 before implementation would thus rest on solid ground. The statute’s structure and purpose conflict directly with the Sherman Act and the Supremacy Clause. As Chamber v. Seattle illustrates, courts remain willing to enforce that boundary when governments—state or local—attempt to erase it.

From Seattle to Sacramento

The Seattle ordinance was straightforward. It allowed independent drivers to “collectively bargain” against app-based “driver coordinators” such as Uber and Lyft. The City appointed the Teamsters as the designated representative to negotiate rates and terms. Everyone agreed that this amounted to private price-fixing—a per se violation of the Sherman Act—but the City argued it was immune because Washington law allowed municipalities to regulate for-hire transportation services.

The Ninth Circuit rejected that argument on every front. The court held that:

Washington’s general authorization to regulate for-hire transportation did not clearly articulate a policy to displace competition in the ride-referral market.
A statutory declaration purporting to exempt local regulation from federal antitrust law was not a policy to displace competition—it was an invalid attempt to exempt state and local conduct from federal law.
The “municipal exception” to the active-supervision requirement is narrow: when private actors participate in the restraint, state supervision is required.

As the court put it, state law authority “to regulate a market is not the same as authority to authorize anticompetitive conduct.”

That reasoning applies squarely to AB 1340. California’s statute authorizes the same kind of horizontal coordination and then declares the result immune. It is, in substance, Seattle 2.0—a legislative replay of a theory the Ninth Circuit has already rejected.

Why AB 1340 Raises the Same (and Worse) Problems

Like Seattle’s ordinance, AB 1340 authorizes private competitors—rideshare drivers—to coordinate on pricing and output decisions. And, just as Seattle did, California attempts to pre-emptively declare that conduct exempt from federal scrutiny: “the state-action antitrust exemption shall apply.”

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Can States Grant Federal Antitrust Immunity? Part 1: Why California’s New Gig-Driver Law Won’t Survive Parker

October 8, 2025 | Bona Law PC

Author: Aaron Gott

California Governor Gavin Newsom recently signed AB 1340 into law, a bill that purports to give more than 800,000 California rideshare drivers the right to unionize and bargain collectively over pay and working conditions. Some are celebrating the statute as a political and policy breakthrough.

In press statements, supporters called the measure a victory for “dignity and fairness” and proof that government can “deliver” where federal leaders cannot. Governor Gavin Newsom framed it as an antidote to “chaos,” praising California for “giving drivers the power to unionize.” Some might call it political theater. Others, compromise.

The Deal Behind the Law

AB 1340 emerged from a late-summer negotiation among Uber, Lyft, Governor Newsom, and organized labor. The companies backed the bill as part of a broader package that also reduced their insurance obligations. In exchange, the state created a legally sanctioned structure for “sectoral bargaining” among app-based drivers.

Beneath that compromise lies a legal problem that could, and likely should, prove fatal: the law is an attempt by one state to exempt a specific cartel of competitors from federal antitrust liability. But that is not something any state has the power to do.

What AB 1340 Does

The new law creates a sector-wide bargaining framework for app-based drivers. Drivers remain classified as independent contractors under California’s voter-approved Proposition 22, but AB 1340 allows them to elect a union-like representative to negotiate with Uber, Lyft, and other platforms.

The Public Employment Relations Board (PERB) oversees the process: it will certify representatives, set ground rules for bargaining, facilitate mediation, and approve final agreements. The bill expressly states that this system is intended to displace competition among drivers and “the state action antitrust exemption shall apply.”

In short, California has authorized independent centers of decisionmaking in the market to coordinate on price and output—the very conduct that, absent a special exemption, is per se illegal under Section 1 of the Sherman Act.

Why did lawmakers believe such a statute was necessary? Because everyone in the room—union leaders, legislators, and company executives—understood that a “union” of independent contractors is, in the eyes of federal law, just another word for a cartel. Without some form of immunity, sectoral bargaining among gig drivers would expose everyone involved in this horizontal cartel to treble damages and potential criminal liability. AB 1340 tries to solve that problem by legislating immunity.

That strategy faces serious constitutional limits—and might even be subject to a facial constitutional challenge. But, at a minimum, a federal court properly applying the law is unlikely to find that state action immunity applies to a gig-drivers’ cartel that seeks protection under AB 1340.

The Purpose of the State Action Immunity Doctrine

Since Parker v. Brown (1943), the Supreme Court has recognized that the Sherman Act does not apply to restraints imposed directly by a state acting as sovereign. The reasoning is grounded in federalism: Congress did not intend to subject state legislation itself to antitrust review.

But when a state authorizes others to restrain trade, the exemption applies only if two demanding conditions are met under California Retail Liquor Dealers Ass’n v. Midcal Aluminum Inc. (1980):

The state must clearly articulate and affirmatively express a policy to displace competition; and
The conduct must be actively supervised by the state itself.

As the Court later explained in FTC v. Phoebe Putney Health System (2013), these safeguards ensure that the restraint “is truly the action of the State,” not the product of private choice.

North Carolina State Board of Dental Examiners v. FTC (2015) tightened the second requirement further: supervision must be substantive. The state must actually review the competitive merits of the conduct and have authority to veto or modify it if inconsistent with state policy.

Why AB 1340 Fails the Test

AB 1340’s declaration that “the state action antitrust exemption shall apply” may seem to check the box for “clear articulation,” but it totally misses the point. As the Court explained in the OG state action immunity case of Parker v. Brown—all the way back in 1943—states cannot “give immunity to those who violate the Sherman Act by authorizing them to violate it”. The Court’s most recent foray into the doctrine, in NC Dental (2015), reaffirmed this principle: a state cannot simply grant market participants a free pass to commit antitrust violations, as states’ “power to attain an end does not include the lesser power to negate the congressional judgment embodied in the Sherman Act.”

Put another way, a clearly articulated policy to displace competition means a policy that displaces competition with regulation, not a policy that purports to displace antitrust law with an exemption.

AB 1340 also likely fails the active-supervision requirement. PERB’s role is to certify, mediate, and formalize collective agreements. Nothing in the statute directs the Board to analyze whether an agreement advances state policy or to assess its competitive effects. There is no requirement that PERB determine whether proposed wage scales or contract terms are consistent with any articulated state goal. The Board’s authority is procedural, not substantive.

Under NC Dental, that is not “active supervision.” The Court was explicit: a supervisor must review the substance of anticompetitive decisions, not merely the procedures that produce them, and must exercise power to ensure the conduct serves the state’s own policy rather than private interests. AB 1340 offers none of that.

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Best Practices for Merger Reviews before the Federal Agencies and the California Attorney General’s Office

February 5, 2024 | Bona Law PC

Author: Paul Moore²

Introduction

Over the past several decades State Attorneys General have become increasingly involved in merger reviews in tandem with the Federal Trade Commission and/or the U.S. Department of Justice’s Antitrust Division (the Regulatory Agencies). This increase in state merger reviews has been in parallel with states raising their merger and non-merger profile and general antitrust enforcement efforts statewide and nationally. This trend has occurred, in part, as Attorneys General expanded their staffs and have become increasingly experienced in antitrust enforcement efforts and merger analysis. While many states, including California, do not have statutes mandating proposed merger registration, Attorneys General have statutory authority to investigate conduct to ensure no laws have been violated³. This means that an Attorney General can decide to review a proposed merger whenever they think it may violate a state’s antitrust laws. Therefore, it makes sense to notify an Attorney General when a proposed merger may have a competitive impact in a specific state and is likely to trigger an in-depth analysis at the federal level. Some examples might be a merger between two competitors who have substantial overlapping retailing assets, service routes, or service areas in one state. Such a notification to a state allows parties to avoid duplicative and possibly successive investigations. Best practices have emerged around how to conduct a merger investigation with a Regulatory Agency and tandem with the California Attorney General’s office.

Best Practices When Cooperating with Staff

Contacting the federal agency likely to review a transaction before submitting an HSR filing is increasingly becoming part of merger review practice. Since there is no statutory requirement to seek regulatory authority to merge at the state level in California a best practice is to invite the Attorney General to participate in the review process to avoid subsequent investigations that could have been run in parallel with other agencies and possibly avoid efforts by the staff ex-post to unwind a transaction⁴. Contacting the California Attorney General (Cal-AG) before an HSR is filed is generally well-received by staff and is typically considered a smart strategy because it allows the staff assigned to the transaction the ability to begin reviewing the transaction before the 30-day statutory clock has started. This extra time allows staff more time to conduct a review before any enforcement decisions need to be made and in some cases provides the time necessary to avoid one altogether. In addition, a pre-filing notification to both staffs permits the two agencies to interact freely since there is no HSR confidence to maintain.

We are in an era where many meetings are conducted over video. Generally, saving time and client resources is a good thing; however, visiting a State Attorney General’s staff in their office at the beginning of a merger can pay significant dividends. An in-person visit can establish the foundation for a positive working relationship, allow for clear communications⁵ and most importantly, communicate to the staff and Attorney General that you are aware of the importance of their involvement and welcome their participation. The in-person visit makes a significant first-step in ensuring that things start off on the right foot.

Once the HSR is submitted, the Cal-AG is able to file her Form 712 and to continue the interagency dialogue with the benefit of the documents and filings the parties have made. The Cal-AG’s staff can also begin to reach out to third parties and seek waivers that permit the FTC/DOJ to share what is produced with the states. This is more efficient for the producing parties as well, as they can make what amounts to a single production to satisfy both reviewing agencies⁶. Securing these waivers early in the process also allows the staffs to communicate freely, to share economic analyses based on produced information, and for the CAL-AG staff to join party meetings with the FTC/DOJ⁷. This level of cooperation benefits all involved as it prevents parties from making the same presentation twice and it allows both regulatory agencies to hear the same information simultaneously.

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California Gets Even Tougher on Non-Competes

September 18, 2023 | Bona Law PC

Author: Molly Donovan & Luis Blanquez

California continues to lead the trend away from non-competes with a new law that packs yet another punch against employers’ use of these very common contractual restrictions on employee mobility.

Non-competes—also called restrictive covenants—typically prohibit an employee from taking employment with a rival firm once their current employment has ended. Their enforceability largely depends on their scope and the applicable state law.

In California, existing law already provides that, with few exceptions, “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” And, existing law also prohibits employers from trying to skirt the ban by trying to using forum-selection and choice-of-law provisions against California residents who work in California.

The new law goes even further. It states that non-competes are void regardless of where and when they were signed. It prohibits employers from attempting to enforce unlawful non-competes even if the employment occurred outside California. And finally, the law makes it a civil violation for an employer to enter into a prohibited non-compete. Employees can bring private actions against employers who violate the laws against non-competes, and prevailing employees are entitled to attorney’s fees.

The law was drafted by Orly Lobel, Warren Distinguished Professor of Law and Director of the Center for Employment and Labor Policy at the University of San Diego. Her research reveals that California employers still require employees to sign non-competes even when they are unenforceable under California law. Professor Lobel also found that non-competes continue to “stifle economic development, limit firms’ ability to hire,” “depress innovation and growth,” and are “associated with suppressed wages and exacerbated racial and gender pay gaps, as well as reduced entrepreneurship, job growth, firm entry, and innovation.”

Bona Law has extensive experience counseling companies and former employees about non-competes—an area that is increasingly dangerous under many states’ laws and can also draw scrutiny under federal antitrust law.

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Minnesota is the New California for Non-Compete Agreements

June 5, 2023 | Bona Law PC

Author: Aaron Gott

In May of 2023, Minnesota enacted a new law that broadly bans employee non-compete agreements with few exceptions and also limits the use of forum-selection and choice-of-law clauses in employment agreements. You can read that law here (jump to 66.12).

Note: the Federal Trade Commission is also contemplating a ban on employee non-compete agreements, but we don’t know what that will look like until the final rule is published. We’ve written about the FTC’s proposed rule here and here.

In other words, Minnesota is the new California, which already broadly bans non-competes and prevents employers from getting around California law with forum-selection and choice-of-law clauses to obtain a more favorable law or a more receptive judicial audience outside the state. We’ve been advising both employers and employees on California’s non-compete law for almost a decade.

That isn’t to say Minnesota’s law is now exactly the same as California’s, which we’ve discussed at length in the past. Here’s a quick and dirty run-down of Minnesota’s new law.

Minnesota’s new non-compete law becomes effective July 1, for new agreements only

Minnesota’s new non-compete law becomes effective July 1, 2023. But it only applies prospectively, i.e. to agreements executed on July 1, 2023 or later. This means that employers can still seek to enforce their existing employment non-compete provisions.

It’s important to keep in mind, though, that a sea change in legislative policy like this can often affect judicial decisions relating to the old policy (i.e. existing agreements) down the road. When the Minnesota courts get used to the new paradigm, their view of the old paradigm is likely to change.

Minnesota’s new non-compete ban is broad

The ban is quite broad—it prohibits all non-compete agreements between employers and employees, including executives, those who otherwise have access to trade secrets and other proprietary information, and those who could take considerable customer goodwill with them when they leave.

It also applies to workers, whether they are employees or independent contractors.

There are two direct exceptions: non-competes in connection with the sale of a business, and non-competes in connection with the dissolution of a business.

But Minnesota’s new non-compete ban has limits

The new law is quite specific in two ways: it applies to “covenants not to compete” that apply to an employee’s conduct “after termination of the employment.”

Since the new law only covers “covenants not to compete,” it applies only to (1) “work for another employer for a specified period of time,” (2) “work in a specified geographical area” and (3) work for another employer in a capacity that is similar to the employee’s work for the employer that is party to the agreement”. Further, the law specifically excludes some other types of agreements: nondisclosure agreements and other agreements to protect trade secrets, as well as nonsolicitation agreements.

And since the law only covers work “after termination of the employment,” it does not apply to agreements not to compete during employment. Minnesota’s law allows garden leave arrangements, which means employees remain employees for a certain amount of time, during which they are paid but do not work, and cannot compete.

Minnesota’s new non-compete law grants fees to prevailing employees

This is one area where Minnesota is doing something different than California: employees who prevail in enforcing their rights under the new law can recover attorney’s fees from the employer. This means greater risk and a changed playing field for employers who seek to protect their business interests.

Under Minnesota’s new non-compete law, an unenforceable non-compete doesn’t void the entire contract

Even if a provision of an employment agreement is found unenforceable as a prohibited non-compete, only the prohibited non-compete is void—not the entire contract.

Minnesota businesses should act quickly

Minnesota businesses need to act quickly for a couple of different reasons. The first is that they need to bring their current agreements and templates into compliance with the law in less than 30 days.

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Choice of Law, Antitrust Class Actions, and the Value of State Inaction

January 11, 2022 | Bona Law PC

Author: Jarod Bona

When you defend antitrust class actions in federal court like we do, you often see a long list of state antitrust claims brought by what are called indirect purchasers. That is because the federal antitrust laws have this strange quirk that usually forbids federal antitrust claims for damages by indirect purchasers.

As sometimes happens when the US Supreme Court changes federal antitrust law, politicians melt down and some state governments pass reactive legislation altering their state antitrust statutes. If you are an armchair antitrust litigator, you might recall that after the Supreme Court announced its resale-price-maintenance decision in Leegin, some state governments responded with legislation so these vertical agreements would hold their per-se-violation status, at least under certain state laws.

After the Supreme Court eliminated most indirect-purchaser damage actions (see here for the co-conspirator exception), many states began allowing them under their own antitrust laws. So even though federal law bars these claims, class-action defendants still face them when a separate group of indirect-purchaser class plaintiffs sue in federal court under a hodgepodge of state antitrust laws. And it’s a little messy.

For background, the states that allow indirect purchaser damage actions are called repealer states and those that don’t are called non-repealer states. And the repealer states themselves vary in the scope of what they permit.

So, faced with this mess of conflicting state antitrust laws, class counsel will do what they can to streamline the applicable-law analysis for the presiding judge. Indeed, to achieve class certification, the plaintiff class must show not only that there is commonality among the class members, but also (for most actions) that the common questions predominate over the individual questions. A defendant might defeat class certification by showing that conflicting applicable laws overwhelm common issues of fact and law.

Until recently, it was not uncommon for a plaintiff class to sue a California-based defendant for damages in California federal court, on behalf of indirect purchasers from all the states—repealer and non-repealer alike. Their argument was that under California choice-of-law doctrine, California’s antitrust law—the Cartwright Act—applies to all of the claims because the “bad acts” were done in California, even though many class members experienced the injury outside of California. California, you might have guessed, is a repealer state that allows indirect purchaser damages under its antitrust law.

You can see what a luxurious solution this is for the indirect purchaser class plaintiffs: They can expand their total damages, even to potential class members in non-repealer states and the court need only analyze one jurisdiction’s law, California. And they can avoid writing the tedious briefs canvassing the laws of many different states. I can tell you, first-hand, that this briefing is monotonous for the defense side too—and probably the court.

Choice of Law and Stromberg v. Qualcomm

Of course, this “solution” assumes that it is proper under choice-of-law analysis to apply California law to all of the claims. This issue arose in the Ninth Circuit in 2021, in Stromberg v. Qualcomm, and Judge Ryan D. Nelson, writing for the Court, analyzed it marvelously.

This isn’t an article analyzing this Qualcomm decision, but I’ll tell you about what the court did on choice of law, the implications of that decision, and its broader lesson.

Important Note: Bona Law filed an amicus brief in a different, but potentially related, case in the Ninth Circuit supporting Qualcomm in an antitrust case brought by the FTC. So, based upon that appellate brief, the fact that we represent defendants in antitrust class actions, and that I generally like and respect Qualcomm, which is a San-Diego-based company, you should assume that I am biased. Indeed, if you are a sophisticated reader, you should always try to understand the writer’s perspective and potential biases because they affect the writing, even unintentionally.

Anyway, similar to the scenario above, this was a case in which the plaintiff class convinced the district court to apply California law to indirect purchaser claims from all over the country—both repealer and non-repealer states. In doing so, the court granted class certification, and Qualcomm appealed that grant under Rule 23(f) of the Federal Rules of Civil Procedure.

The Ninth Circuit ultimately condemned the district court’s choice-of-law analysis as faulty. Instead of California law applying to all claims, the laws of each of the other states should have applied to their respective resident plaintiffs.

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Are Resale-Price-Maintenance Agreements Per Se Illegal Under California Antitrust Law?

September 21, 2020 | Bona Law PC

Author: Jarod Bona

In an earlier article, we discussed Leegin and the controversial issue of resale-price maintenance agreements under the federal antitrust laws. We’ve also written about these agreements here. And these issues often come up when discussing Minimum Advertised Price (MAP) Policies, which you can read about here.

As you might recall, in Leegin Creative Leather Products, Inc. v. PSKS, Inc. (Kay’s Closet), the US Supreme Court reversed a nearly 100-year-old precedent and held that resale-price maintenance agreements are no longer per se illegal. They are instead subject to the rule of reason.

But what many people don’t consider is that there is another layer of antitrust laws that govern market behavior—state antitrust law. Many years ago during my DLA Piper days, I co-authored an article with Jeffrey Shohet about this topic. In many instances, state antitrust law directly follows federal antitrust law, so state antitrust law doesn’t come into play. (Of course, it will matter for indirect purchaser class actions, but that’s an entirely different topic).

For many states, however, the local antitrust law deviates from federal law—sometimes in important ways. If you are doing business in such a state—and many companies do business nationally, of course—you must understand the content and application of state antitrust law. Two examples of states with unique antitrust laws and precedent are California, with its Cartwright Act, and New York, with its Donnelly Act.

California and the Cartwright Act

This blog post is about California and the Cartwright Act. Although my practice, particularly our antitrust practice, is national, I am located in San Diego, California and concentrate a little extra on California. Bona Law, of course, also has offices in New York office, Minneapolis, and Detroit.

As I’ve mentioned before, the Supreme Court’s decision in Leegin to remove resale-price maintenance from the limited category of per se antitrust violations was quite controversial and created some backlash. There were attempts in Congress to overturn the ruling and many states have reaffirmed that the agreements are still per se illegal under their state antitrust laws, even though federal antitrust law shifted course.

The Supreme Court decided Leegin in 2007. It is 2020, of course. So you’d think by now we would have a good idea whether each state would follow or depart from Leegin with regard to whether to treat resale-price maintenance agreements as per se antitrust violations.

But that is not the case in California, under the Cartwright Act. Indeed, it is an open question.

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California Supreme Court Confirms Independent Wrongfulness Requirement for Certain Tortious Interference Claims and Clarifies Section 16600 Standard

August 18, 2020 | Bona Law PC

Author: Jarod Bona

Competitors battle in the marketplace and sometimes battle in the courts. Bona Law is an antitrust and competition boutique law firm, but most people think of the “competition” part of that description as redundant to the antitrust label. That is not a surprise because outside of the United States, most people refer to antitrust law as competition law.

But I view it differently: Antitrust Law is the literal collection of state and federal antitrust laws, including those involving restraints of trade, monopolies, mergers, criminal antitrust, and others. But Competition Law incorporates a wide range of business torts and statutes that make up the practical reality of competitor and marketplace court battles. These include, for example, the Lanham Act, patent laws, unfair competition statutes, tortious interference and others.

Indeed, you will notice that many antitrust complaints also include one or more additional non-antitrust claims. The players in these disputes can sometimes include consumers, for a class action lawsuit. But, for our purposes, we will primarily discuss business players within competition, either competitors or entities up and down the vertical chain of distribution of products or services. So, a court battle could match up two competitors, or perhaps a wholesale distributor and a retailer, for example.

Our job, as antitrust and competition attorneys, is to help clients solve legal problems involving any type of competition issue.

To that end, let me tell you about an important new competition decision. On August 3, 2020, the California Supreme Court issued its decision in Ixchel Pharma, LLC v. Biogen, Inc. that made law for certain tortious interference claims and for California Business and Professions Code section 16600 (which is mostly associated with prohibitions on certain non-compete agreements in California).

Tortious Interference

Tortious interference divides into two different claims: (1) tortious interference with contract and (2) tortious interference with prospective economic relationship (no contract, but maybe one was on the horizon).

For more detail, we describe the elements of tortious interference in California here.

The law (and California Supreme Court) consider tortious interference with contract as a bigger deal than the other kind of tortious interference—they don’t like the idea of breaking up existing contracts. So, in its wisdom, it requires an additional element for tortious interference that doesn’t involve a contract (the prospective-economic-relationship kind): The act of interference must be independently wrongful in some way. Interference by itself is not sufficient—there must be something else wrong with the interference act besides the interference.

But what does it mean for an act to be independently wrongful?

According to the California Supreme Court, “an act is independently wrongful if it is unlawful, that is, if it is proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard.” (p. 9, quoting Korea Supply Co. v. Lockheed Martin Corp, 29 Cal.4^th 1134, 1159 (2003)).

A plaintiff need not plead an “independently wrongful act” for a tortious interference with contract, except—for the holding in this new California Supreme Court case (Ixchel).

You can read the decision for the facts, but the question in dispute is whether a plaintiff asserting a claim for tortious interference with contract has to plead an independently wrongful act, if the contract is an at-will contract. An at-will contract is one that either side can terminate at any time, for any or no reason.

The California Supreme Court—in deciding the issue for the first time—acknowledged that a “number of states have adopted” the independent wrongfulness requirement for tortious interference with at-will contracts. (14). And they ultimately agreed with these states.

An at-will contractual relationship is one that has no assurance of future economic relations—because either side may terminate it for any or no reason. That is, neither party has a “legal claim to the continuation of the relationship.” (17). And even though the parties to such a deal may expect it to continue, from the perspective of third parties, “there is no legal basis in either case to expect the continuity of the relationship or to make decisions in reliance on the relationship.” (17).

Just as importantly, the California Supreme Court expressed worry that allowing claims for tortious interference of at-will contracts without an independent wrongfulness requirement would chill legitimate business competition (also a common concern of judges interpreting antitrust laws). The Court didn’t want to create a cause of action for typical aggressive competition.

As a result, the Court held that “to state a claim for interference with an at-will contract by a third party, the plaintiff must allege that the defendant engaged in an independently wrongful act.” (18).

California Business and Professions Code Section 16600

Section 16600: “Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”

This is the famous California law that invalidates most non-compete agreements. Indeed, oftentimes, the most difficult question with these cases is whether California or some other law applies.

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California Rarely Enforces Non-Compete Clauses Against its Residents and Sometimes Won’t Even Enforce Out-of-State Forum Selection and Choice-of-Law Clauses

June 15, 2020 | Bona Law PC

Author: Luis Blanquez

California’s long-standing public policy in favor of employee mobility over an employer’s ability to prohibit any worker from going to work for a competitor is included in California Business & Professions Code Section 16600. So how do employers outside of California try to get around this powerful public policy?

First, employers in states where non-competes are still enforceable have attempted to implement choice-of-law clauses in employment agreements with California employees––requiring disputes between the parties to be governed not by California law, but rather by the law of a state more favorable to the enforcement of non-competes. But, as a general rule, California courts refuse to enforce such clauses. This is because California courts will not apply the law of another state where that law is “contrary to a fundamental public policy of the State of California.” In this case, the fundamental policy is open competition and employment mobility.

Conflict-of-law rules vary from state to state. Most states will not enforce a choice-of-law provision that violates the public policy of a state with a “materially greater interest” in the dispute or where the parties enjoy a “substantial relationship” with such state––i.e. where (i) the employee performs his/her work, (ii) the employee’s residence is, (iii) the contract was negotiated and formed, or (iv) the headquarters of the company is, among other factors.

Second, an employment agreement may also include a forum selection clause. In most cases it’s the employer––who sees one of its key employees leave to work for a competitor––who brings the case in the state court of the choice-of-law clause. When that happens, there is not much an employee can do, unless the case is moved to federal court and then transferred to another state. And even then, unless the case ends up in California federal court, the employee will have to rely on the courts of that other state to apply California choice-of-law principles to find the non-compete provision invalid.

To avoid such a hostile scenario, employees in California try to engage in what is called a “race to the courthouse.” They do so in the hope to effectively void their non-compete agreements under California law, before their former employers outside California enforce the non-compete agreement in a different state. This strategy sometimes works, but not always. For instance, the California Supreme Court has held that while California has a strong public policy against enforcing non-competition agreements, it’s not so strong as to warrant enjoining an employer from seeking relief in another state.

In any event, employers outside California have systematically struggled to enforce non-compete agreements in the past. And now it is even more complicated for them. For agreements entered into after January 1, 2017, California Labor Code Section 925 clarifies that employers may not require employees––who primarily work and reside in California––to agree to forum-selection and choice-of-law clauses that select non-California forums and/or laws, unless such employee is “individually represented by legal counsel in negotiating the terms of an agreement.”

RESTRICTIVE COVENANTS

Usually the way employers try to restrict their workers from going to work for a competitor is by including in the employment contract a so-called “restrictive covenant.”

A restrictive covenant is an agreement between an employer and employee that limits an employee’s ability to compete after leaving the employer. The most common and restrictive type of agreement is a non-compete agreement. It prohibits the employee from offering its services within the agreement’s geographic scope for a period of time after leaving the employer. Other types of restrictive covenants may also limit an employee’s ability to solicit the employer’s customers or employees for a period of time.

They are, unquestionably, restraints on trade. But are they unreasonable restraints on trade? In many states outside California that is the issue—if they are reasonable, a court will enforce them. And what does reasonable mean? Again, it depends. But typically, like other restraints on trade, they must usually be narrowly tailored to serve their purpose. They should contain “reasonable” limitations as to time, geographic area, and scope of activity. The laws, of course, vary from state to state. But as a practical matter, most judges are skeptical. Some courts will actually rewrite the agreements to make them reasonable.

Is My Restrictive Covenant Legal Under California Law?

In California, however, the law does not allow employers to enforce a restrictive covenant against their former employees, particularly when it takes the form of a non-compete agreement.

NON-COMPETE CLAUSES

These clauses usually have two primary purposes.

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An Antitrust Fight Between the Talent Agencies and the Writers About How Hollywood Does Business

May 7, 2020 | Bona Law PC

Author: Jarod Bona

As an antitrust lawyer, I find it interesting to see the inner workings of different types of markets—how people and companies buy and sell things. And the entertainment industry is one of the more fascinating ones.

The entertainment industry includes an interesting mix of concentrated players at various levels of production and distribution, often vertically integrated. Streaming services like Netflix have brought on changes that the coronavirus pandemic will likely accelerate.

Indeed, the federal government is even ending the old Paramount Antitrust Consent Decree, which governed the motion-picture industry for decades. You can read about that from our attorney, Steven Madoff, who was a top-level lawyer for Paramount for years, and an expert (literally) in the entertainment and media industry.

If the entertainment market or Hollywood itself interests you, there is a federal antitrust case in the Central District of California that you should follow: William Morris Endeavor Entertainment, LLC. v. Writers Guild of America, West, Inc.

This is a lawsuit by the major Hollywood agencies against the Writers’ unions, along with a counterclaim by the Writers’ union against the agencies. Labor unions, of course, create some unique antitrust issues, which you can read about here.

On April 27, 2020, the Court granted in part and denied in part a motion to dismiss by the agencies.

What I found interesting about this case, among other items, is that it attacks a practice developed by Michael Ovitz and his Creative Artists Agency firm called “packaging.”

Before I dig into packaging, I have to recommend that you read Michael Ovitz’s autobiography: Who is Michael Ovitz? In his book, he is open about his successes and excesses. If you are building a professional services firm, like I am, you will particularly appreciate riding along as Michael Ovitz builds a talent agency that changes the way business is done in Hollywood. You hear some “inside baseball” about Hollywood and learn how to build a business from scratch, all at once. Indeed, you learn how to change an industry. Seriously, it’s a good read.

Back to “Packaging.” Instead of letting the studios take the lead in building movie or television projects and hiring the writers, actors, and directors that the agencies represented, the agencies would create their own project proposals for the studios. Not surprisingly, in doing so, they would “package” together a group of people, in different roles and positions, that they represent.

As part of the cost of this packaging service, the talent agencies would receive a fee from the studio. Before packaging, talent agencies were compensated by commissions as a percentage of their clients’ compensation.

The writer unions asserted that these packaging services harmed both writers and the guilds themselves and created conflict of interests for the agencies between their writer-clients and the production studios.

The complaint also alleged that the talent agencies price-fix the fees for these packages and exchange competitive sensitive information with each other about their packaging fee practices.

I won’t get into all the details here—my purpose is merely to whet your appetite to follow the case—but the writer guilds took certain actions that the talent agencies didn’t like, who then took their own actions, and eventually they all sued each other, leaving a California federal judge to sort it out.

As I mentioned above, the Court issued a motion to dismiss ruling, which allowed some claims, while dismissing others. I am not going to go into the details, but I will point out one interesting aspect of the ruling: The Court dismissed the federal antitrust price-fixing claims for lack of standing because the injured parties didn’t participate in the market that was competitively harmed. But the Court allowed a price-fixing claim under the same facts to go forward under the California antitrust statute—the Cartwright Act—because this statute doesn’t have the more restrictive definition of antitrust standing that the federal antitrust laws have.

For antitrust attorneys, this is particularly interesting because in most cases in which a plaintiff includes both federal and state antitrust claims, they rise and fall together. Here, the California antitrust claims (under the Cartwright Act) survived while the federal ones fell.

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