Goldwater Institute lawyers filed a brief yesterday in the Ninth Circuit Court of Appeals urging the judges not to apply California’s unique (and uniquely bad) antitrust laws to people in other states. The case, which involves that state’s 1907 Cartwright Act, is a class-action lawsuit by purchasers of vaping products who claim that the Altria company tried to engage in monopolistic practices by shutting down production of its own vaping products and buying a competitor. In fact, Altria had legitimate market reasons for what it did, that have nothing to do with monopolization. But more importantly, the class of plaintiffs includes people from a bunch of other states, who did not buy any vaping products in California—but who are trying to use California state law to sue Altria. And that’s a problem because usually state law doesn’t apply beyond the state’s borders.
Why are the plaintiffs trying to use California law this way? The answer is that California’s state antitrust laws are different from—and far worse than—the federal antitrust laws that one would expect people to use in cases like this. Under federal law, courts typically apply a rule called the “consumer welfare test,” which says the most important goal of antitrust law is to encourage competition—not to protect existing businesses against competition. That test is critical because decades ago, courts sometimes punished successful businesses for doing nothing wrong—indeed, for doing good things, like lowering prices and improving the quality of their products. By adopting the “consumer welfare test” instead, courts ensured that companies will be more competitive and satisfy customers instead of wasting their time and money suing each other.
But California’s gone a different way. As we explain in the brief, that state’s courts have said that “consumer welfare” is not the primary concern when applying California antitrust laws. On the contrary, the Golden State’s antitrust laws protect less competent and less diligent businesses against legitimate competition. Or, as the state supreme court has put it, that state’s Cartwright and Unfair Competition laws exist for the “social”—as opposed to economic—purpose of protecting the “prosperous bourgeois class” against competition by “chain stores.” What that really means is that businesses that cannot lower prices or improve their products can just sue each other, instead.
And that isn’t just contrary to federal law, but it’s contrary to the laws of other states—including those where the plaintiffs in this case live. Those states have followed the federal courts’ wise lead in prioritizing the consumer over the protection of business interests when applying their state’s economic regulations.
That means there’s no justification for applying California’s anomalous—indeed, obsolete—legal theories to people located elsewhere. Indeed, because this lawsuit involves people who are “secondary purchasers,” the plaintiffs include people who never even did business with a California company. As antitrust expert Herbert Hovenkamp has written, to apply laws across state lines in cases like this would effectively mean that “all persons within the limits of the United States could be regulated … according to the wishes of the legislature of [California].”
Of course, California is free to choose self-destructive and foolhardy legal theories if it chooses to. But it has no right to inflict those theories on other states, and federal courts should resist efforts to do so.
You can read our amicus brief here.
Timothy Sandefur is the Vice President for Legal Affairs at the Goldwater Institute’s Scharf-Norton Center for Constitutional Litigation.
