State Antitrust Law Developments: California Expands Cartwright Act to Single-Firm Conduct; Federal Court Partially Blocks New York’s Algorithmic Rent-Setting Ban

In the span of just two days, California expanded its state antitrust law while a federal court blocked part of New York’s algorithmic rent-setting ban. On September 30, 2026, California Governor Gavin Newsom signed AB 1776 (also known as the COMPETE Act), extending the Cartwright Act to single-firm conduct. A day earlier, on September 29, 2026, Judge Valerie Caproni of the U.S. District Court for the Southern District of New York preliminarily enjoined enforcement of a key provision of New York’s law restricting algorithmic rent-setting on First Amendment grounds.

California: Governor Newsom Signs the COMPETE Act (AB 1776)

Governor Newsom signed AB 1776 into law on September 30, 2026, and it will take effect on January 1, 2027. As discussed in our previous client memos on AB 1776 (when it passed the Assembly Committee on Appropriations, the full Assembly and the state Senate), the bill will extend California’s Cartwright Act to reach unilateral conduct.

• Governor’s signing message urges restraint; acknowledges potential uncertainty. Governor Newsom cautioned that “we must be careful not to set the bar too low - dragging legitimate, superior business practices and products into the ambit of anti-competitive behavior,” and stated that the bill’s reference to “substantial market power” “should be understood as a necessary - but not sufficient - condition to prove unlawful conduct.” He signed the bill “with the expectation that the Attorney General, district attorneys, and judges will interpret and apply it in ways that penalize clear wrongdoing, without creating needless uncertainty,” and acknowledged that “additional legislation may be required to clarify the appropriate standards.”

Summary of AB 1776

• Single-firm conduct. The Cartwright Act now prohibits monopolization and monopsonization, including attempts, maintenance and conspiracies to monopolize or monopsonize, with an express focus on labor markets. A business may still lawfully obtain and maintain monopoly power through superior products, services or business acumen.
• Substantial market power. A plaintiff must allege and, at trial, prove, substantial market power through direct or indirect evidence. The term is not defined in the statute.
• Public enforcement only. Late-stage Senate amendments removed the private right of action; only the California Attorney General or a district attorney may bring an action under the new provisions.
• Federal law “at most instructive.” The law states that the Cartwright Act is “broader in range and deeper in reach” than the Sherman Act and that federal interpretations are “at most instructive.”
• Small business and government-authorized conduct exemptions. The law exempts independently owned, California-based businesses with California-domiciled officers, no more than 100 employees and no more than $10 million in average annual gross receipts over the preceding three years, as well as government-authorized conduct.
• No UCL “borrowing.” Except in actions brought by the Attorney General or a district attorney, an alleged violation of the new single-firm provisions may not serve as a predicate violation under the Unfair Competition Law (“UCL”). Although the bill does not amend the UCL, it prevents private plaintiffs from borrowing an alleged violation of the new provisions as a UCL predicate.

Practical Takeaways

• Expansion of Cartwright Act part of a broader California trend of increased enforcement. The signing of AB 1776 is part of a trend of increased antitrust enforcement by California: requiring certain Hart-Scott-Rodino (“HSR”) Act filings to be submitted to the Attorney General, increasing civil antitrust penalties and creating criminal penalties, restricting common pricing algorithms and budgeting roughly $14.3 million per year for antitrust enforcement.
• No private right of enforcement. With no private right of action and no UCL workaround for private plaintiffs, enforcement under the new provisions will be driven by the Attorney General and district attorneys.
• Standards remain unsettled. With “substantial market power” undefined and federal precedent “at most instructive,” courts will shape the law’s contours. The Governor has signaled that follow-on legislation may be needed.

New York: Court Preliminarily Enjoins Section 3 of Algorithmic Rent-Setting Law

As discussed in our client memo from when the bill was signed, New York added N.Y. Gen. Bus. Law § 340-B to the Donnelly Act in October 2025. Section 2 prohibits facilitating agreements among landlords not to compete, including through software performing a “coordinating function” (collecting pricing, supply or lease data from two or more unaffiliated landlords, analyzing it computationally and recommending rents or lease terms). Section 3 makes it an unlawful agreement for a landlord to set or adjust rents or lease terms based on such software’s recommendations, without distinguishing between public and nonpublic data.

In RealPage, Inc. v. New York, RealPage challenged the law on First Amendment grounds. The court preliminarily enjoined the Attorney General from enforcing Section 3 of the statute, finding that RealPage was likely to succeed on the merits of its First Amendment claim. No. 25-cv-09847 (VEC) (S.D.N.Y. Sept. 29, 2026).

The Court’s Holding

• Central Hudson’s four-part test. The court held that algorithmic pricing recommendations are commercial speech subject to intermediate scrutiny under Central Hudson Gas & Elec. Corp. Pub. Serv. Comm'n of N.Y., 447 U.S. 557 (1980). Central Hudson requires a four-part test: “(1) … whether [the expression] concerns lawful activity and is not misleading; (2) ‘whether the asserted governmental interest is substantial’; (3) ‘whether the regulation directly advances the governmental interest asserted’; and (4) ‘whether it is not more extensive than is necessary to serve that interest.’” The Second Circuit has interpreted this last part of the test to require “a reasonable fit between the legislature’s ends and means chosen to accomplish those ends.”
• Section 2 survives. Section 2 merely clarifies that facilitating horizontal price-fixing through software is unlawful; because it restricts unlawful activity, the analysis ends at the first step of Central Hudson and Section 2 receives no First Amendment protection.
• Section 3 likely fails the “reasonable fit” requirement. The court held that RealPage was likely to prevail, with respect to Section 3, under the four-part Central Hudson test:
  • Lawful activity. The court held that RealPage’s recommendations, now based almost entirely on public data under the DOJ consent decree (as discussed in our client memo on the topic), are not per se illegal and thus are protected speech.
  • Substantial government interest. The court accepted New York’s substantial interests in competition and housing affordability.
  • Direct advancement of that interest. The court assumed “for argument’s sake” that Section 3 advances a state interest, noting that the harms are legitimate and the restrictions may alleviate them.
  • Reasonable fit between legislature’s ends and means. Although a close question, the court found New York’s fit argument “bare bones” and “insufficient” and less restrictive alternatives “easy to imagine,” such as limiting the ban to software using non-public data from horizontal competitors. The court said that “there is nothing untoward about considering prices charged by competitors when deciding how to price one’s own product,” and found Section 3 “undiscerning in targeting software without regard to its use of public versus non-public data.”
• Better explanation of harm from public data. The court suggested New York could conceivably show a reasonable fit with a better explanation of the harm from public-data-based recommendations, noting that courts give considerable leeway to New York as the executor of its governmental interest.

Practical Takeaways

• Coordination remains off-limits. Section 2’s facilitation ban, the Donnelly Act generally and federal antitrust law continue to apply to algorithmic coordination among competitors.
• The court emphasized the distinction of public vs. nonpublic data. The decision, consistent with the DOJ’s RealPage consent decree, makes the source of pricing inputs central. In a footnote, the court noted that “[m]any of the documented harms that the law seeks to address, however, would be mitigated by effectively eliminating reliance on non-public data from competitors when making pricing recommendations.”
• The injunction is preliminary. An initial pretrial conference is set for October 30, 2026.
• Monitor case law for algorithmic pricing developments. In Cornish-Adebiyi Caesars Ent., Inc., the Third Circuit recently revived algorithmic pricing claims against casino hotels in Atlantic City, as discussed in our client memo on the case.

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