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State Antitrust Expansionism: A Potential Roadblock for American Innovation

State Antitrust Expansionism: A Potential Roadblock for American Innovation

June 6, 2024

The risk of ever-expanding state antitrust enforcement brings new challenges amidst the broader neo-Brandeisian crusade against corporate America in general and large American technology companies in particular. During the Biden Administration, the Federal Trade Commission (FTC) and Department of Justice (DOJ) have filed several huge lawsuits against American tech companies, with many states signing on to each of these cases. Furthermore, the neo-Brandeisian false alarms regarding increased consolidation and “Big Tech” are increasingly having an impact at the state level. But a slew of new antitrust legislation at the state level could lead to serious problems.

Expanding state antitrust enforcement would open another front of the broader neo-Brandeisian battle against corporate America. Indeed, Justice Brandeis spoke of "laboratories of democracy" when describing the various states and their role in American federalism. He posited that having states enact their own set of rules allowed for wider experimentation in which both states and the federal government could observe the results of different policies and then choose the best policies for themselves. In other words, just as neo-Brandeisians support decentralization when it comes to market structures, they also prefer decentralized antitrust enforcement—without, of course, slowing down enforcement at the federal level.

State attorneys general across the country have already stepped up their antitrust enforcement activity after the passage of the State Antitrust Enforcement Venue Act. The statute, passed in December of 2022, allows state attorneys general to keep antitrust cases in their home courts, which could lead to forum shopping. Moreover, some state legislatures are also now considering enacting or have already enacted, in the case of Colorado, new antitrust legislation that could go beyond the Sherman Act. But state legislators should carefully consider the possible impact of further antitrust legislation on American businesses before going down this road.

The first problem with such an approach is that states generally do not need additional antitrust legislation or enforcement. As discussed, many have already signed on to and are actively engaged in lawsuits being brought by the FTC or DOJ against big tech companies. To enact and enforce new legislation would thus be to risk unnecessarily diverting resources away from dealing with, for example, restraints on economic liberty at the state and local level that are often subject to federal exemptions via the state action doctrine. In other words, rather than aspiring to be mini-FTCs, state agencies should focus on addressing the anticompetitive conduct in their own backyards.

A second problem with state antitrust expansionism is that the enforcement landscape will invariably become less uniform. Varying state antitrust laws will create confusion for companies as they seek to navigate an even more complex antitrust landscape with new and different rules for each state. Such variation in state antitrust laws will create uncertainty and increase costs for American businesses, which will not only force them to devote more resources to navigating and adhering to an even more complex web of local antitrust regulations, but ultimately get passed on to consumers.

Furthermore, new state antitrust legislation would presumably go beyond the Sherman Act and set stricter thresholds for antitrust liability. But while the Supreme Court held in California v. ARC Am. Corp. that state antitrust laws can prohibit behavior that is legal under federal standards, Congress can still choose to pre-empt these laws if they deviate from the current Sherman Act standards that are supported by almost a century and a half of law and judicial experience. Indeed, if an uncertain and chaotic antitrust regime emerged from state laws creating new antitrust liability, Congress would likely be incentivized to create a more defined federal standard to preempt them, which would have a substantial chilling effect on state antitrust enforcement in the long run.

Relatedly, new prohibitions in state laws may do more harm than good. For example, according to a report identifying potential changes to California’s antitrust law, a firm that engages in exclusionary conduct and has a market share above 30 percent could be liable for unilateral behavior—well short of the monopoly power standard under federal law. But as ITIF has explained, such a standard would chill innovation by targeting firms at a concentration level below that which might maximize innovation. The proposed language in the California report would also apply a rule of reason balancing test across a multitude of unilateral conduct, including behavior like product design changes. However, such a rule would involve courts making almost impossible judgments about weighing innovation benefits with short-run static harms.

In conclusion, there is already very considerable antitrust enforcement at the federal and state levels. States expanding their antitrust powers would be both redundant and chaotic. Such actions would create a complicated and uncertain antitrust landscape, with companies left devoting more resources to complying with new state antitrust laws rather than investing in jobs, research, and development, with consumers ultimately suffering as a result. As such, state legislatures should carefully consider the ramifications of new antitrust laws before enactment.

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