Big Tech, Beware: New Bill Aims to Expand Antitrust Laws to Large Businesses Doing Business in New York – JD Supra

The New York Senate is currently reviewing a bill that, if enacted, would substantially expand the states ability to pursue antitrust actions against corporations. This summer, state senators Michael Gianaris and Rachel May introduced their co-sponsored Bill S8700A, the Twenty-First Century Antitrust Act, which seeks to amend New Yorks current antitrust laws to expand its scope to include abuse of dominance and unilateral conduct that could create monopolies, as well as to increase penalties for violations, including prison time.

Concerned with the rapid growth and influence of businesses, particularly in the tech sector, the sponsors contend that the current antitrust laws need to be clarified and augmented in order to address the size and power these businesses enjoy as they conduct business in New York. Specifically, the bill states that such corporations have engaged in practices in order to force competitors to sell their businesses to them, and that such unilateral action essentially creates a monopoly. Characterizing these actions as abuse of dominance, the bill seeks to expand the scope of the Donnelly Act, which currently voids any contract or agreement that creates a monopoly or otherwise restricts competition, by addressing such unilateral action. Even unsuccessful attempts to create monopolies would be considered violations of the law, similar to those of criminal schemes.

Furthermore, any person or corporation that violates the law could face a penalty of up to $1 million and/or imprisonment of up to 15 years. The Donnelly Act currently serves penalties of up to $100,000 and/or four years imprisonment. The bill also carves out an authorization for class action lawsuits for private antitrust actions, allowing plaintiffs to seek treble damages.

On September 14, 2020, the Senate Standing Committee on Consumer Protection held a hearing to weigh in on the bill, inviting NY Attorney General Letitia James, members of the tech community, academia, and other stakeholders to share their thoughts on boosting state antitrust regimes. Supporters of the bill recognized that abuse of dominance, a concept more prevalent in European countries than in the U.S., needed to be addressed since federal antitrust laws fall short of reaching businesses that engage in harmful, anticompetitive unilateral action. Such action, arguably, suppresses smaller competitors from entering the market and thus prevents consumers from enjoying the benefits of a free-market system. On the other hand, critics of the bill noted that it could dissuade businesses from engaging in or expanding activities in the state, and that the bill provides no guidance as to what constitutes dominance, let alone abuse of dominant position. Critics also note that the legislation seeks to punish corporations for their size, without any analysis of whether consumers benefit from their activities.

Addition of Abuse of Dominance

Abuse of dominance does not currently exist as a stand-alone violation of U.S. federal law. This bill, however, would permit New York state to punish companies holding a dominant position, even if they do not quite possess a monopoly, which, according to U.S. Department of Justice (DOJ) guidelines, means maintaining at least two-thirds market share. As currently drafted, the legislation does not define what constitutes a dominant position. Looking at the European Unions definition for guidance, abuse of dominance occurs when a company exploits its strong position to eliminate competition by, for example, charging unreasonably high prices or blocking competitors in the market by forcing consumers to buy a product that is related or conditional to the sale of another product.[1]

Absence of Leniency

Notably absent from the proposed bill is the creation of leniency or amnesty procedures. In contrast, the DOJ has its long-established Leniency Program, which allows individuals and corporations alike to come forward to federal authorities if they detect an antitrust offense before anyone else self-reports and cooperates. Under the federal Antitrust Criminal Penalty Enhancement and Reform Act (ACPERA), which provides incentives for corporations to self-report any antitrust violations and cooperation with authorities, damages are limited in civil actions arising from a violation of Section 1 or 3 of the Sherman Act or any similar state law. Departing from the federal provisos, the proposed bill creates a potentially unworkable tension between federal and state regimes where a corporation or individual cooperating with the DOJ for leniency credit may still be subject to liability and face severe penalties in New York. leniency applicants are only subject to single damages, whereas the proposed act could lead to the possibility of facing treble damages brought by the New York State Attorney General.

Enhanced Penalties

As discussed above, the New York legislation seeks to expand the prison sentence for antitrust crimes and increase the maximum available penalty, to 15 years and $1 million, respectively. The proposed penalties differ from those at the federal level, where per se violations under Section 1 of the Sherman Act can lead to fines for corporations up to $100 million, and for individuals up to $1 million plus imprisonment for up to 10 years.[2]

The bill is now under review by the Senates Consumer Protection Committee before submission to the governor. If the bill is enacted, corporations doing business or contemplating doing business in New York will have to take significant caution to avoid liability under the Twenty-First Century Antitrust Act. However, given the undefined terms and inconsistencies with federal law, litigation in connection with interpreting the Twenty-First Century Antitrust Act is foreseeable. Accordingly, the DOJ, the American Bar Association, members of Big Tech and business leaders may also want to provide comments to address their concerns with the proposed law. Once enacted, however, the law will force a business to balance its interests in operating in New York against any potential penalties it may face, and evaluate its dominance in the market as it progresses. That being said, other states may follow suit and pass similar legislation.

[1] Abuse of a dominant position, European Commission, available at https://ec.europa.eu/competition/consumers/abuse_en.html#:~:text=refusing%20to%20deal%20with%20certain,the%20sale%20of%20another%20product.%5B2%5D 15 U.S.C. 1, 2, 3.

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Big Tech, Beware: New Bill Aims to Expand Antitrust Laws to Large Businesses Doing Business in New York - JD Supra