California’s Crackdown on Algorithmic Pricing

The apartment industry’s use of algorithmic pricing tools to set rental rates has recently come under siege by several state and local legislators, and as of November 20, a broad coalition of Democratic senators has supported the effort in an attempt to quell the use of such tools by reintroducing the End Rent Fixing Act of 2025. While these state, local, and now federal legislative initiatives have been focused on the apartment industry’s use of algorithmic pricing tools to set rental rates, just over one month ago California signed into law amendments to the Cartwright Act to address “common pricing algorithms” used by any industry—and not just for setting prices.

 On October 6, 2025, California Governor Gavin Newsom signed into law statutory reforms to the Cartwright Act, which will go into effect on January 1, 2026. The reforms target companies’ use of “common pricing algorithms,” clarify that California maintains a lower pleading standard for alleging an agreement than exists for federal antitrust law, and increase the penalties that can be imposed for antitrust violations. The amendments will create new uncertainty around the use of shared pricing algorithms, create the potential for further divergence from federal antitrust law, and may impose greater costs on companies doing business in California. 

California Opens Door for Stricter Treatment of Algorithmic Pricing 

Assembly Bill (AB) 325 declares unlawful a person’s use or distribution of a “common pricing algorithm” as part of an agreement to restrain trade, as well as a person’s use or distribution of a common pricing algorithm if the person coerces another person to set or adopt a price or commercial term recommended by the algorithm for the same or similar products or services. A common pricing algorithm is defined as “any methodology, including a computer, software, or other technology, used by two or more persons, that uses competitor data to recommend, align, stabilize, set, or otherwise influence a price or commercial term.” 

AB 325 opens the door for stricter treatment of the distribution or use of shared pricing algorithms under the Cartwright Act than exists under federal antitrust law, depending on how courts interpret AB 325. 

First, there are several ambiguous, broadly defined, or undefined terms in AB 325 that are likely to cause significant uncertainty and litigation. For example, the “common pricing algorithm” definition in AB 325 extends its prohibitions to any methodology that uses competitor data to “otherwise influence” a price or a commercial term. It defines a “price” as including not just service or product prices but also “compensation paid to an employee or independent contractor,” and defines a commercial term as including without limitation “level of service,” “availability,” and “output.” Meanwhile, it puts no parameters around what “otherwise influence” means. Nor does AB 325 define what amounts to coercion under the statute. Sponsors of the bill have suggested a broad interpretation of coercion “encompass[ing] a wide range of behavior, including imposing a financial penalty or withholding a financial benefit, deprioritizing or hiding a person’s listings or posts, or tweaking the algorithm to penalize the person’s interests.” But precedent cited in AB 325’s legislative history suggests a higher bar to showing coercion. Indeed, a California court of appeals considering coercion in the context of the Cartwright Act, Kolling v. Dow Jones, explained that coercion requires “affirmative action” to “bring about involuntary acquiescence” by prohibiting or restraining a customer’s “ability to sell in accordance with their own judgment.” 

Second, on its face, AB 325 does not appear to treat vertical arrangements or coercion between a provider and a user of a common pricing algorithm differently from horizontal arrangements or coercion between competing users of a common pricing algorithm. Federal antitrust law often treats vertical arrangements less stringently than horizontal arrangements.  

Third, unlike an earlier version of the bill, AB 325 does not distinguish between common pricing algorithms that rely on publicly available competitor data and common pricing algorithms that rely on confidential competitor data, whereas recent court decisions suggest that this distinction matters under federal antitrust law. For example, in Gibson v. Cendyn Group, the Ninth Circuit concluded that competing hotels independently but consciously deciding to use the same third party’s pricing software for hotel room price recommendations by itself was not enough to violate Section 1 of the Sherman Act (see Axinn’s prior coverage here), especially where the software did not share confidential price information among the hotels. The panel explained that antitrust law “does not require a business to turn a blind eye to information simply because its competitors are also aware of that same information.”      

Given these and other ambiguities in AB 325, and the potential for divergence from federal antitrust law, the risks and costs of using or distributing shared pricing algorithms may become greater in California than elsewhere, at least until some of those ambiguities have been addressed by the courts. 

In the meantime, the antitrust risks of using or distributing shared pricing algorithms, in California or elsewhere, can be mitigated by, for example: (1) ensuring pricing is independent and unilateral, and does not involve commitments, contractual requirements, or incentives to abide by prices recommended by a commonly used pricing algorithm; (2) avoiding communications with competitors or the algorithm provider concerning competitors’ use of any pricing algorithm; (3) establishing and documenting independent pricing processes; (4) using data in the algorithms that is a few months behind current market prices or terms; (5) where feasible, aggregating and/or anonymizing data so that it cannot be attributed to particular companies or their products.

Cartwright Act Pleading Standard Is Lower Than for the Sherman Act

California opens the door for antitrust plaintiffs to proceed to discovery under the Cartwright Act when they may not be able to do so under the Sherman Act. 

AB 325 clarifies that the Cartwright Act pleading standards are “different” from those required under federal antitrust law. Like Sherman Act claimants, Cartwright Act claimants must allege facts making plausible the existence of a contract, combination, or conspiracy. However, AB 325 makes clear that, unlike Sherman Act claims, Cartwright Act claimants need not plead so-called “plus factors” that tend to exclude the possibility of independent action. As proponents for the new law explained, AB 325’s pleading standard represents a more plaintiff-friendly approach intended to encourage California courts to “construe pleadings liberally” and to discourage application of the stricter pleading standards required in federal antitrust actions.

Practically speaking, this suggests Cartwright Act claimants will not need to plead additional factors tending to exclude independent action and instead need only make plausible allegations. This will likely result in plaintiffs gaining easier access to discovery and companies’ internal business documents. 

California Gives Cartwright Act More Bite

Senate Bill (SB) 763 raises the stakes for Cartwright Act violators. The law increases the maximum criminal fine for corporations from $1 million to $6 million per violation, and for individuals, from $250,000 to $1 million. In addition, courts now have discretionary power to impose an additional civil penalty of up to $1,000,000 per violation on any person, corporation, or business entity, with the severity and persistence of the misconduct factoring into the penalty amount. Furthermore, SB 763 explicitly allows for these penalties to be “cumulative” — meaning those found to violate the Cartwright Act may face cumulative criminal, civil, and equitable remedies for the same conduct.