For more than a century, California’s principal antitrust statute, the Cartwright Act, has targeted agreements among two or more businesses that restrain trade. It has not reached a single company who acts alone to acquire or protect a monopoly. That gap closed on September 30, 2026, when Governor Gavin Newsom signed California Assembly Bill 1776 (Stats. 2026, ch. 826). The new law adds sections 16730, 16731, and 16732 to the California Business and Professions Code and, for the first time, makes monopolization or monopsonization by a single firm a violation of California law. AB 1776 is rare in California legislative history, but it is not unique nationally. It is the first time in the Cartwright Act’s 119 years (enacted 1907) that California law has reached a single firm acting alone.
The enacted bill is fortunately narrower than earlier drafts. Only the Attorney General and county district attorneys may sue under the new prohibitions in the law, and many smaller California businesses are exempt. But the law introduces a new and undefined “substantial market power” threshold, reaches conduct in labor markets, and tells courts that federal antitrust precedent is, at most, instructive. Mid-sized and larger companies that hold strong positions in a local, regional, or specialty market should understand where they stand before the law takes effect on January 1, 2027.
The Gap that AB 1776 Was Written to Fill
Federal law has long addressed single-firm conduct. Section 2 of the Sherman Act (15 U.S.C. § 2) prohibits monopolization, attempted monopolization, and conspiracies to monopolize. The Cartwright Act, by contrast, prohibits “trusts,” which it defines as combinations of capital, skill, or acts by two or more persons for anticompetitive purposes (Bus. & Prof. Code, § 16720). As the Senate floor analysis of AB 1776 explains, the Cartwright Act did not reach unilateral conduct by a company with monopoly power, so challenges to that conduct had to proceed under federal law.
In 2022, the Legislature directed the California Law Revision Commission to study reforms to the Cartwright Act (Assem. Conc. Res. No. 95, Stats. 2022, res. ch. 147). After a multi-year study, the Commission recommended adding a single-firm conduct prohibition, and AB 1776 implements that recommendation. It follows two 2025 statutes that already made the Cartwright Act more potent: Chapter 338 (AB 325), which adopted a plausibility pleading standard for Cartwright Act conspiracy claims and addressed common pricing algorithms, and Chapter 426 (SB 763), which raised criminal fines and added a civil penalty of up to $1 million per violation in government enforcement actions.
What the New Law Provides
1. A New Prohibition on Monopolization and Monopsonization
New section 16731, subdivision (a), makes it unlawful to monopolize or monopsonize, attempt to monopolize or monopsonize, maintain a monopoly or monopsony, or combine or conspire with another person to monopolize or monopsonize any part of trade or commerce. The statute reaches monopsony, meaning dominant buying power, including a company’s power as a purchaser of labor, materials, or services. It also expressly reaches the maintenance of a monopoly, not just its acquisition.
2. “Substantial Market Power” as the Threshold
A plaintiff must allege and, to prevail at trial, prove “substantial market power, either through direct or indirect evidence.” (Bus. & Prof. Code, § 16731, subd. (c).) The statute does not define the term. Federal monopolization law generally requires monopoly power, or a dangerous probability of achieving it in an attempt case. The Legislature’s own findings note that California courts have recognized lower actionable market shares than federal courts. (§ 16730, subd. (c), citing Fisherman’s Wharf Bay Cruise Corp. v. Superior Court (2003) 114 Cal.App.4th 309, 326.)
3. The Cipro Analytical Framework
Courts adjudicating claims under AB 1776 must use the analytical framework and guidance of the California Supreme Court described in In re Cipro Cases I & II (2015) 61 Cal.4th 116, 146-147. (§ 16731, subd. (b).) Cipro adopted a structured rule-of-reason analysis, developed in the context of a pharmaceutical patent settlement, that allocates burdens between the parties. How a framework built for agreements will translate to unilateral conduct is one of the first questions courts will have to answer.
4. A Small-Business Exemption
The prohibition does not apply to a “small business,” defined as an independently owned and operated business whose principal office is in California, whose officers are domiciled in California, and which, together with affiliates, has 100 or fewer employees and average annual gross receipts of $10 million or less over the three years before the complaint is filed. (§ 16731, subd. (d).) Every element must be met. For example, a $6 million company with its principal office in Nevada, an officer who lives in Arizona, or a corporate parent that pushes combined headcount above 100 does not qualify.
5. Government-Supervised Conduct
The section does not prevent any exclusive franchise, contract, license, or permit that is granted and supervised by a local, state, or federal governmental agency, or conduct required or authorized by state or federal law that is so granted and supervised, and it imposes no liability for conduct within the scope of that authority. (§ 16731, subd. (e).)
6. Public Enforcement Only
An action under section 16731 may be initiated only by the Attorney General or a district attorney. (§ 16731, subd. (f)(1).) Except in a government action, an alleged violation of the section cannot serve as a predicate violation under the Unfair Competition Law, Business and Professions Code section 17200 et seq. (§ 16731, subd. (f)(2).) Actions must be filed as complex cases. (§ 16731, subd. (h).) The Cartwright Act’s existing pleading and proof provisions for trusts, sections 16756, 16756.1, and 16757, apply only where the claim alleges a combination or conspiracy to monopolize. (§ 16731, subd. (g).)
7. Findings and an Interpretive Directive
New section 16730 declares that protecting competition includes protecting competition among businesses for workers; that the Cartwright Act is “broader in range and deeper in reach” than the Sherman Act (Cianci v. Superior Court (1985) 40 Cal.3d 903, 920); and that interpretations of federal antitrust law are “at most instructive.” Section 16730(e) also affirms that a business may lawfully obtain and maintain market power or monopoly power through the superiority of its products, services, or business acumen. New section 16732 directs courts to liberally interpret California’s antitrust laws to best promote free and fair competition, citing Clayworth v. Pfizer, Inc. (2010) 49 Cal.4th 758.
Analysis: How the Law Is Likely to Operate
Effective date. AB 1776 is not an urgency measure. Under article IV, section 8, subdivision (c) of the California Constitution, a statute enacted at a regular session takes effect on January 1 following a 90-day period from the date of enactment. The new sections should therefore take effect January 1, 2027. Because the statute prohibits maintaining a monopoly, conduct that continues after that date may be challenged even if the market position was built earlier.
Remedies and penalties. AB 1776 does not create its own penalty scheme. It sits within the Cartwright Act, which already authorizes the Attorney General and district attorneys to bring civil actions and criminal proceedings (Bus. & Prof. Code, § 16754) and, after SB 763, provides for a civil penalty of up to $1 million for each violation in a government civil action (§ 16755.1). The Legislative Counsel’s Digest states that the bill expands the scope of conduct prohibited by the Cartwright Act, “the violation of which is punishable as a crime.” Businesses should assume that civil penalties, injunctions, and potentially criminal exposure are in play, along with parens patriae claims that the Attorney General may bring on behalf of California residents (§ 16760).
Private litigation is limited, not foreclosed. Competitors and customers cannot sue under section 16731 and cannot plead a violation of it as a predicate for a UCL claim. But the statute also provides that the enforcement limitation does not create or extinguish a defense to, or limit the scope of, any action not brought under the section. (§ 16731, subd. (f)(3).) Private plaintiffs can still bring traditional Cartwright Act claims, now aided by the 2025 plausibility pleading standard, including claims that two or more parties conspired to monopolize. Competitor plaintiffs may also invoke the UCL’s “unfair” prong, which the California Supreme Court has tied to conduct that threatens an incipient violation of an antitrust law or violates the policy or spirit of one. (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 187.) Whether a private plaintiff may rely on section 16731’s policy under that prong, however, is an open question we expect to see litigated.
Labor markets are squarely in view. The monopsony language, read with the finding in section 16730, subdivision (b), signals that enforcers will examine how dominant employers recruit, compensate, and retain workers. That focus builds on existing California law, which already voids most employee noncompetition agreements. (Bus. & Prof. Code, §§ 16600, 16600.5.)
Concerns from the Business Perspective
A broad coalition of business organizations, led by the California Chamber of Commerce, opposed AB 1776. Even in its narrowed final form, the law raises legitimate concerns.
1. An Undefined and Potentially Lower Threshold
“Substantial market power” has no settled meaning in federal or California case law. Opponents warned that the term will generate satellite litigation over where ordinary market power ends and “substantial” market power begins, and that it could reach firms that would never face liability under Section 2 of the Sherman Act. Until courts supply guidance, companies with strong regional or niche positions cannot be confident whether they are covered by the Sherman Act or the Cartwright Act.
2. Narrow Markets and Mid-Sized Companies
Antitrust exposure turns on market definition. A distributor, manufacturer, or service provider with a modest statewide share may hold a large share of a narrowly defined product or geographic market. The small-business exemption ends at $10 million in average gross receipts and 100 employees, measured together with affiliates. That leaves many mid-market California companies, and every company with an out-of-state headquarters or officer, potentially within reach.
3. Diminished Weight of Federal Precedent
Decades of Sherman Act Section 2 case law give businesses workable rules on predatory pricing and refusals to deal, but the new findings make federal precedent at most instructive. Earlier versions of the bill contained provisions that opponents said would have rejected specific federal doctrines on below-cost pricing, duties to assist rivals, and two-sided markets. Those provisions do not appear in the enacted text, which is a meaningful improvement. Still, the liberal-construction directive in section 16732 invites California courts to chart their own course, and businesses cannot assume that conduct lawful under the Sherman Act is lawful under the Cartwright Act.
4. 58 Separate Potential Enforcers
Enforcement is not limited to the Attorney General. Each of California’s 58 county district attorneys may initiate an action, which raises the prospect of inconsistent enforcement priorities and of investigations prompted by complaints from competitors. Mandatory complex-case designation will also add to the cost of defense.
5. Uncertainty in Ordinary Business Decisions
Exclusive dealing, loyalty discounts, bundled pricing, aggressive price competition, and decisions about whom to supply are routine commercial choices. Under an untested standard, each may draw scrutiny. Opponents of AB 1776 argue that this uncertainty could discourage legitimate competition, particularly price cutting, and raise compliance costs.
Steps Businesses Can Take Now
With the law expected to take effect January 1, 2027, we recommend that companies with significant positions in any California market consider the following steps.
1. Determine Whether the Small-Business Exemption Applies
Document headcount and three-year average gross receipts on a combined basis with all affiliates, the location of the principal office, and each officer’s domicile. Revisit the analysis annually and before any acquisition or executive hire, because growth or a single out-of-state officer can end the exemption.
2. Map Your Markets, Including Labor Markets
Identify the product, service, and geographic markets in which you hold a large share or in which customers or suppliers have few alternatives. Include the markets in which you hire. Treat any market in which you are the leading buyer or seller as a priority for review.
3. Audit Distribution and Supply Contracts
Review exclusive dealing arrangements, long-term requirements contracts, loyalty and bundled discounts, tying arrangements, most-favored-nation clauses, and restrictions on customers or distributors. Confirm that each has a documented, legitimate business rationale and is no broader or longer than necessary.
4. Document Pricing and Supply Decisions
Keep contemporaneous records showing that price reductions rest on costs, competitive conditions, or customer demand, and be cautious about pricing below cost in a market where you are already strong. When you decline to supply a customer, terminate a distributor, or change access to a platform or service, record the business reasons when the decision is made.
5. Review Employment and Hiring Practices
Eliminate any no-poach or non-solicitation arrangements with other employers, confirm that employee restrictive covenants comply with sections 16600 and 16600.5, and do not exchange wage or benefit information with competitors. Use care with third-party software that recommends prices, wages, or terms, given the 2025 common pricing algorithm amendments.
6. Train Your Team on Business Communications
Internal emails and messages describing plans such as to “dominate,” “lock up,” or “kill” a competitor are routinely offered as evidence of intent. Train sales, marketing, and executive personnel to describe competitive strategy in terms of customers, quality, innovation, and price.
7. Adopt or Update an Antitrust Compliance Program
A written policy, periodic training, and a clear process for escalating questions to counsel help prevent problems and help demonstrate good faith if a practice is later questioned.
8. Build Antitrust Review into Acquisitions
Acquiring a nascent competitor or a critical supplier may support an attempted monopolization or monopoly maintenance theory. Include antitrust review in deal diligence, and be thoughtful about how deal documents describe competitive motives.
9. Prepare for a Government Inquiry
The Attorney General has broad authority to issue investigative subpoenas. (Gov. Code, § 11180 et seq.) Designate who will receive and coordinate a response to a subpoena or document demand, maintain a litigation hold protocol, and involve counsel immediately. Also confirm whether your directors and officers or other liability policies cover the cost of responding to government investigations.
10. Weigh Antitrust Defenses Before Enforcing Contracts
Counterparties sometimes invoke Business and Professions Code section 16722, which makes contracts that violate the Cartwright Act void, as a defense in commercial disputes. Because section 16731, subdivision (f)(3), states that the enforcement limitation neither creates nor extinguishes defenses in other actions, the interaction between the new prohibition and contract defenses is unsettled. Consider that risk before filing collection or enforcement actions under agreements that contain exclusivity or similar terms.
Conclusion
The enacted version of AB 1776 is narrower than its earliest versions, but it gives California prosecutors a new tool aimed at dominant firms, including dominant employers and buyers, and invites California courts to develop their own standards. Businesses that may hold substantial market power in any California market should use the remaining months of 2026 to assess their exposure and put sensible practices in place as soon as possible.
A full text of AB 1776 as enacted can be found here.
Our firm represents California, out-of-state, and foreign businesses in business tort, unfair competition, and commercial disputes before California state and federal courts. To discuss how AB 1776 may affect your business, please contact Shanen R. Prout at (626) 529-3022 or info@srplawyer.com.
This article is provided for general informational purposes only and does not constitute legal advice or create an attorney-client relationship. The law discussed is new and has not yet been interpreted by the courts. Readers should consult counsel about their specific circumstances and before implementing any of the ideas in this publication. Attorney Advertising.