Key point: California’s expansion of its antitrust law — targeting algorithmic pricing and lowering the bar for litigation — signals a major shift in how companies must approach algorithmic pricing tools and compliance.
On October 6, 2025, Governor Gavin Newsom signed into law two significant amendments to California’s Cartwright Act: AB 325 and SB 763. These amendments to the Cartwright Act are the most significant updates to the law in recent years. AB 325 addresses algorithmic price-fixing by prohibiting the use or distribution of pricing algorithms among two or more entities to coordinate prices or commercial terms. SB 763 substantially increases corporate and individual criminal fines for violations. The new laws take effect on January 1, 2026.
AB 325: New Restrictions on Pricing Algorithms and a Lower Pleading Bar for Antitrust Claims
- Prohibition on Algorithmic Pricing Tools
- The amendment enacted by AB 325 makes it unlawful for any person (including corporations, firms, partnerships, or associations, but not end consumers) to use or distribute a “common pricing algorithm” as part of a contract, combination, or conspiracy to restrain trade or commerce in California.
- 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” (such as level of service, availability, or output).
- The law also prohibits coercing another person to set or adopt a recommended price or commercial term generated by such an algorithm for the same or similar products or services in California.
- Lesser Pleading Standard
- AB 325 also adopts a “plausibility” standard for complaints under the Cartwright Act, stating that it is sufficient for a complaint to contain factual allegations demonstrating that the existence of a contract, combination, or conspiracy to restrain trade or commerce is plausible.
- Plaintiffs are not required to allege facts tending to exclude the possibility of independent action, which is a lower pleading standard than the one established by the U.S. Supreme Court in Twombly for federal antitrust cases.
Implications for Companies Using Algorithmic Pricing Tools
- Scope of Prohibition
- The law targets pricing algorithms that process “competitor data” and are used by two or more entities to coordinate prices or commercial terms. Algorithms used solely by a single entity are not prohibited. However, if your business uses a third-party pricing tool that is also used by competitors, you may still be at risk.
- Risk of Litigation
- The lower “plausibility” pleading standard will make it easier for plaintiffs to litigate Cartwright Act claims in California state courts, potentially increasing litigation risk for companies using shared pricing algorithms.
- Federal vs. State Pleading Standards
- While AB 325 sets a lower pleading standard for Cartwright Act claims in California state courts, it is unclear whether this standard will apply to Cartwright Act claims filed in federal court, which generally are subject to the Federal Rules of Civil Procedure and the Twombly standard. This creates potential uncertainty and likely will lead to litigation over which pleading standard applies.
- Algorithm Developers and Users
- Both software companies that develop and distribute pricing algorithms and firms that use them may be held liable if the tool uses competitor data to coordinate prices among competitors. Liability could attach even if the coordination is tacit and not the result of direct communications or agreements among the competing firms.
- Dynamic Pricing and Other Uses
- The law on its face does not prohibit dynamic pricing or the use of pricing algorithms per se. It is the use of a “common pricing algorithm” by multiple firms to coordinate prices or commercial terms that is targeted. Businesses should review their pricing tools and practices to ensure compliance.
- Potential Chilling Effect
- Industry groups have raised concerns that the law’s broad and vague standards may discourage the use of pricing algorithms, especially among smaller businesses that rely on these tools for competitive pricing. This could include algorithmic pricing tools that rely on publicly available competitor data, such as published prices for products and services.
SB763: Increased Penalties for Violations of the Cartwright Act
- Substantial Increase in Penalties
- Criminal fines for corporations: Increased from $1 million to $6 million per violation.
- Criminal fines for individuals: Increased from $250,000 to $1 million per violation.
- Imprisonment: For individuals, the maximum term is increased from one to three years to two, three, or five years.
- New Civil Penalties
- Courts may impose civil penalties of up to $1 million per violation in actions brought by the attorney general or district attorneys.
- Courts must consider factors such as the nature, seriousness, persistence, and willfulness of the misconduct, as well as the defendant’s financial circumstances.
- Cumulative Remedies
- The new penalties are cumulative and may be applied alongside other remedies available under state law.
Takeaways for Clients
- Review all pricing tools and algorithms in use, especially those provided by third parties and used by competitors.
- Assess whether any pricing algorithms could be considered a “common pricing algorithm” that uses competitor data.
- Consult with antitrust counsel regarding compliance and potential exposure under both state and federal antitrust laws.
- Monitor ongoing litigation and regulatory developments. Numerous federal and state antitrust cases are pending that involve the use of algorithmic pricing tools as an alleged hub in a horizontal price-fixing conspiracy. Several other state and local laws and pending bills also restrict the use of pricing algorithms in certain industries, such as rental housing.
