“The Cartwright Act, like the Sherman Antitrust Act, was enacted to promote free market competition and to prevent conspiracies or agreements in restraint or monopolization of trade.” (Exxon Corp. v. Super. Ct. (1997) 51 Cal.App.4th 1672, 1680-1681.) Antitrust laws were enacted for the protection of competition, not competitors. (Marsh v. Anesthesia Services Medical Group, Inc. (2011) 200 Cal. App. 4th 480, 495.) They do not require the Court to protect small businesses from the loss of profits due to continued competition, but only against the loss of profits from practices forbidden by the antitrust laws. (Id.) Injury to a competitor is not equivalent to injury to competition; only the latter is the proper focus of antitrust laws. (Id.)

The Complaint must allege facts from which injury to market-wide competition can be inferred. (Id.) An antitrust injury must be proved; that is, the type of injury the antitrust laws were intended to prevent, and which flows from the invidious conduct which renders Defendant's acts unlawful. (Id.)

Federal antitrust cases interpreting the Sherman Act are helpful in interpreting the Cartwright Act (Corwin v. Los Angeles Newspaper Service Bureau, Inc. (1971) 4 Cal.3d 842, 852), but, because of the history of the Cartwright Act, California law may be different from federal antitrust law (Cal. ex rel. Van De Kamp v. Texaco (1988) 46 Cal.3d 1147, 1168).

The focus of the Cartwright Act is on protecting the process of competition not the result of competition; the same conduct that is legal when accomplished by those acting independently may be illegal when accomplished by the same parties acting in concert. (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 49.)

The Cartwright Act provides that “a combination of capital, skill or acts by two or more persons” for the purpose of creating or carrying out “restrictions in trade or commerce” is “unlawful, against public policy and void.” (Bus. & Prof. Code, §§ 16720, subd. (a), 16726.) Like its federal counterpart, section 1 of the Sherman Act (15 U.S.C. § 1), the Cartwright Act is expressed in absolute terms, but has been interpreted to make unlawful only unreasonable restrictions in trade or commerce. (Macmanus v. A. E. Realty Partners (1983) 146 Cal.App.3d 275, 285; see also Bus. & Prof. Code, § 16725.)

To state a Cartwright Act claim, plaintiff must allege “[t]he formation and operation of the conspiracy; the illegal acts done pursuant thereto; a purpose to restrain trade; and the damage caused by such acts.” (G.H.I.I. v. MTS, Inc. (1983) 147 Cal.App.3d 256, 265.) Although the prohibitions of the Cartwright Act are framed in superficially absolute language, deciding antitrust illegality is not as simple as identifying whether a challenged agreement involves a restraint of trade. (In re Cipro Cases I & II (2015) 61 Cal. 4th 116, 145, 146.) Instead, the Act retains the common law understanding that only unreasonable restraints of trade are prohibited. (Id. at 136.) Under the traditional rule of reason, inquiry is limited to whether the challenged conduct promotes or suppresses competition. (Id. at 146.) To determine whether an agreement harms competition more than it helps, the Court may consider the facts peculiar to the business in which the restraint is applied, the nature of the restraint and its effects, and the history of the restraint and the reasons for its adoption. (Id.) In a typical case, this may entail expert testimony on such matters as the definition of the relevant market and the extent of Defendant's market power. (Id.)

Pleading a Cartwright Act claim requires a high degree of particularity. (G.H.I.I. v. MTS, Inc. (1983) 147 Cal.App.3d 256, 265; Chicago Title Ins. Co. v. Great Western Financial Corp. (1968) 69 Cal.2d 305, 326-328.) “‘[C]ontracts, combinations, or conspiracies in restraint of... trade or commerce cannot be alleged generally in the words of the statute but... facts must be set forth which indicate the existence of such contracts, combinations or conspiracies.’ Thus, general allegations of a conspiracy unaccompanied by a statement of facts constituting the conspiracy and explaining its objectives and impact in restraint of trade will not suffice.” (G.H.I.I, supra, 147 Cal.App.3d at 265-266.)

Sherman Act

The similar language of the two acts reflects their common objective to protect and promote competition. (State of California ex rel. Van de Kamp v. Texaco, Inc. (1988) 46 Cal.3d 1147, 1153; Business Electronics v. Sharp Electronics (1988) 485 U.S. 717, 726 [108 S.Ct. 1515, 1520-1521].) Since the Cartwright Act and the federal Sherman Act share similar language and objectives, California courts often look to federal precedents under the Sherman Act for guidance. (Morrison v. Viacom, Inc. (1998) 66 Cal.App.4th 534, 541, fn. 2.)

Although the Sherman Act, by its terms, prohibits every agreement “in restraint of trade,” this Court has long recognized that Congress intended to outlaw only unreasonable restraints. (Arizona v. Maricopa County Medical Soc., 457 U.S. 332, 342-343, (1982).) Restraints of trade violate the Sherman Act if they are unreasonable per se or unreasonable under the “rule of reason.” (Fisher v. City of Berkeley, (1984) 37 Cal.3d 665.) Per se liability is reserved for only those agreements that are “so plainly anticompetitive that no elaborate study of the industry is needed to establish their illegality.” (Texaco Inc. v. Dagher, (“Texaco”) (2006) 547 U.S. 1, 5.) Under the rule of reason, the factfinder weighs all of the circumstances of a case in deciding whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition. (Leegin Creative Leather Products, Inc. v. PSKS, Inc., (2007) 551 U.S. 877, 885-86.) Appropriate factors to take into account include specific information about the relevant business; the restraint’s history, nature, and effect; and whether the businesses involved have market power. (Leegin Creative Leather Products, Inc. v. PSKS, Inc., (2007) 551 U.S. 877, 885-86.) In its design and function, the rule of reason distinguishes between restraints and anticompetitive effect that are harmful to the consumer and restraints stimulating competition that are in the consumer’s best interest. (Leegin Creative Leather Products, Inc. v. PSKS, Inc., (2007) 551 U.S. 877, 885-86.)

“Contracts, combinations and conspiracies in restraint of trade covered by Section 1 of the Sherman Act are of two types, horizontal or vertical. Horizontal combinations are cartels or agreements among competitors which restrain competition among enterprises at the same level of distribution. They are ordinarily illegal per se. Vertical restraints are imposed by persons or firms further up the chain of distribution of a specific product (or in rare cases, further down the chain) than the enterprise restrained. Vertical non-price restraints are tested under the rule of reason; that is, the plaintiff must prove that the restraint had an anticompetitive effect in the relevant market in order to prevail.” (Exxon Corp. v. Super. Ct. (1997) 51 Cal.App.4th 1672, 1680-1681; Marin County Bd. of Realtors, Inc. v. Palsson (1976) 16 Cal.3d 920, 930-931; Chavez v Whirlpool Corp (2001) 93 CA 4th 363, 369.)