California DOJ Plans to Use Cartwright Act to Revive Criminal Enforcement Efforts

Blizzard’s announcement addressed the following points:

• The attorney general’s office intends to coordinate with the US Department of Justice (DOJ) Antitrust Division in its criminal enforcement efforts. DOJ’s Acting Chief of Criminal Enforcement Emma Burnham echoed the sentiment and addressed how state and federal agencies may work together in this capacity.
• The Cartwright Act, California’s flagship antitrust statute, was intended to reach anti-competitive conduct beyond its federal counterpart, the Sherman Act. See 15 U.S.C. §§ 1-7. Specifically:
  • Violations of the Cartwright Act carry heavy criminal penalties, up to hundreds of thousands and even millions of dollars for individuals and companies alike.
  • Third parties supplying information in furtherance of a conspiracy may constitute actionable “furnish[ing of] information” under the Cartwright Act.
  • Cartwright Act violations need not meet the heightened pleading standards under Federal Rules of Civil Procedure 9(b) or the enhanced pleading standards for fraud. In Blizzard’s words, “You do not have to be doing the types of things that you do, for instance, in an enhanced pleading for fraud … And according to the [Cartwright Act] I also don’t have to say very much, so we’ll see how that goes.”
  • The act deems noncompetes and no-poach agreements as per se illegal, which was recently codified in state legislation in early 2024. This legislative move parallels DOJ’s enforcement efforts over the last three years targeting nonsolicitation and no-poach agreements as per se illegal under the Sherman Act.

WHAT THIS MEANS

• This announcement represents a significant shift in the attorney general’s enforcement strategies, considering the office has not brought a criminal Cartwright Act action in over 25 years. Given the DOJ’s fervor in increasing its own criminal antitrust prosecution efforts, there is little doubt that both state and federal criminal antitrust enforcement will continue to grow, and so will joint collaborations among state and federal agencies.
• The Cartwright Act’s broader scope will allow the attorney general’s office to condemn a wider range of conduct that might not otherwise violate other states’ or federal antitrust statute counterparts.
• The Cartwright Act’s low pleading standard and the California Unfair Competition Law’s minimum standing requirements open the door to a greater number of follow-on private class actions and civil lawsuits, typically brought in conjunction with criminal indictments, which also might not be pursued in other state and federal jurisdictions.
• Healthcare and Big Tech companies have frequently been the focus of federal enforcement announcements, investigations and litigations, and they are likely to be the focus of the attorney general’s office. In California, these industries may face broader scrutiny than they have under the Sherman Act.
• Blizzard also made specific reference to potential antitrust enforcement related to the substantial number of government contracts in California, particularly given that the California economy is the fourth largest in the world.

WHAT COMPANIES SHOULD DO 

Now, more than ever, companies in all industries – not just those subject to heavy antitrust enforcement actions – need to carefully reexamine their operations to ensure antitrust compliance. Companies are wise to seek experienced antitrust counsel’s advice to minimize the risks of facing possible civil or even criminal lawsuits from both state and federal authorities. In light of DOJ’s revitalized corporate enforcement policy, companies and executives must strengthen, and pay close attention to, their internal compliance controls while proactively considering the implications of greater Cartwright Act-related enforcement by the attorney general. This is particularly true in the healthcare and technology sectors as well as for companies that have government contracts.

McDermott’s California-based antitrust, white-collar and employment teams have comprehensive experience advising and counseling clients facing investigations as well as criminal and civil matters before the California Attorney General’s Office, including with respect to government contracts. The team includes seasoned lawyers who understand the California statutes that the attorney general’s office will use in enforcement proceedings and who have particular knowledge of the healthcare and technology industries. Please reach out to the authors to discuss the potential legal implications for your business and join the next 2024 Enforcement Outlook Webinar Series to learn more about enforcement priorities.