The Latest on Cartels in New York

Antitrust enforcement has accelerated in recent years as researchers have documented rising concentration and markups, and public discomfort with the power of large firms, especially the large tech firms, has grown. A growing pile of evidence shows that, during a fallow period of antitrust enforcement going back to the 1990s, the economic power of US corporations has grown considerably, resulting in higher prices and lower wages. These trends may also have slowed economic growth and increased inequality.

The tech industry, in particular, has been rocked by scandals over privacy, censorship, political influence, and the mental health effects of social media. Concerns had been voiced as early as the Obama administration, and significant tech cases were brought during the Trump administration, including the lawsuit against Google that alleged that it monopolised search and advertising markets. Early in his administration, President Biden issued an unusual executive order that documented the harms of monopolisation and urged government agencies to enforce the antitrust laws more vigorously. He also appointed aggressive enforcers to the Antitrust Division of the Department of Justice and to the Federal Trade Commission. In the last four years, the agencies have carried through their mandate by enforcing long-neglected areas of the antitrust laws, strengthening administrative regulations, and suing companies that in previous years would have been spared.

Many states have joined in. Reacting to the same concerns about increasing concentration and monopolisation as the federal government, they have both brought their own aggressive enforcement actions and explored ways of expanding state law. New York State, by virtue of its central role in the nation’s commerce, deserves special attention.

The Donnelly Act

The Donnelly Act is New York’s “little Sherman Act.” While the language differs somewhat from federal law, the Donnelly Act is understood to prohibit collusion, like Section 1 of the Sherman Act, and monopolisation, like Section 2 of the Sherman Act. New York courts have held that the Donnelly Act should be interpreted consistently with federal law except where there are clear departures in language. Among other differences, the Donnelly Act permits indirect purchasers to sue antitrust defendants for damages, is a bit more hostile to vertical restraints, does not explicitly regulate mergers, and recognises some exemptions for professional organisations and non-profits.

New York’s antitrust law has been frequently used to challenge anti-competitive behaviour that does not reach the attention of the federal antitrust enforcers because the behaviour is local. And, as is often the case in other states, private litigators sue under both state and federal law, and the courts focus on the federal questions in their opinions. However, because of the commercial significance of New York, state attorneys general have brought a number of significant cases against cartels. But as New York law has mostly followed federal law, complaints about the tradition of under-enforcement by the federal antitrust agencies have been directed at the state as well.

The Twenty-First Century Antitrust Act

Dissatisfaction with the narrow scope of the Donnelly Act spurred reform efforts just as the federal government began to awaken from its antitrust slumbers. In 2020, the Twenty-First Century Antitrust Act was introduced in the New York State Legislature. Among other things, the bill included a provision echoing the European abuse-of-dominance standard. The new provision both reduced the market-share threshold at which a firm is presumptively a monopolist and expanded the types of behaviour that are illegal. Departing from the American antitrust tradition, the bill provided that excessively high pricing by a firm with substantial market power was an abuse of dominance and hence illegal, a stance that has long been resisted by US enforcers and antitrust experts because of the difficulty of evaluating pricing decisions. The bill also increased civil and criminal penalties. In 2021, a revised version of the bill was introduced. The new bill gave the Attorney General the authority to issue regulations relating to the abuse-of-dominance provision and established a new pre-merger notification system. The bill passed the state senate in 2024 but has not yet been approved by the assembly.

The bill’s emphasis on unilateral action reflected concerns about monopolisation, which was seen as an increasingly urgent problem in the tech era. The bill’s sponsor, Senator Mike Gianris, explained, “Our laws on antitrust in New York are a century old and they were built for a completely different economy. ... Much of the problem today in the 21st century is unilateral action by some of these behemoth tech companies and this bill would allow, for the first time, New York to engage in antitrust enforcement for unilateral action.” These concerns arose in part from the finding of researchers that monopoly power – as measured by price markups and wage markdowns – has increased over the last decade, and in part from worries among advocates and commentators that large firms – especially, the big tech firms – abused their power by, among other things, raising prices, extending their monopolies into new markets, degrading the quality of their platforms, and censoring users. Opposition came from tech companies and business organisations, who argued that the bill would harm innovation.

Labour and the non-compete ban

An important strand of the economic research mentioned above provided evidence that labour markets were highly concentrated, and that anti-competitive behaviour by employers – including mergers, no-poach agreements, and non-competes – harmed employees and, by driving workers from the labour market, lowered economic growth. A study that found that dozens of large fast-food franchises incorporated no-poach clauses in franchise agreements, led to multi-state litigation against franchises in which New York took part. Most of the franchises settled by agreeing to drop the no-poach provisions.

Non-competes (short for “covenants not to compete”) are terms in employment contracts that forbid employees who leave their employers to take positions at competing firms. The research on non-competes caught the attention of policymakers because of the evidence that non-competes were imposed on millions of workers – including lower-income workers – and pushed down wages. Non-competes also reduced worker mobility and did not appear to protect innovation or produce other beneficial effects. At the same time, lawsuits and news reports brought to public attention the harms caused that were often imposed on low-income workers, sometimes without their knowledge or understanding.

Non-competes have traditionally been regulated by state statutes and common law, and New York has been no exception. Under the approach of New York and most other states, a non-compete is enforceable as long as the employer can identify a legitimate interest (such as protection of trade secrets) and the geographic, temporal, and commercial scope of the non-compete is no broader than necessary to protect that interest. But the research suggested that traditional common law enforcement was not adequate. Evidence that employers overused non-competes to the detriment of the public spurred the FTC to issue a flat ban on non-competes. Although the ban was later blocked by a court (the injunction has been appealed), many state legislatures proposed bills or enacted laws that enhanced restrictions on non-competes.

Such was the case in New York. In 2020, assemblywoman Latoya Joyner introduced a non-compete bill in the New York State Assembly. The bill was not as comprehensive as the FTC’s proposed rule, as it allowed non-competes, where necessary, to prohibit the disclosure of trade secrets and confidential client information and to stop former employees from soliciting valued clients. But it would have radically changed employment practices in New York. The bill passed the senate and assembly later that year.

After the bill was passed, lobbyists descended on Albany. Financial institutions, media organisations, and other businesses argued that the non-compete was overbroad: high-income workers should not be protected by the law because they are frequently entrusted with proprietary information. Many commentators also argued that bans on non-competes are excessive. Governor Hochul agreed. She vetoed the bill because she disagreed with the bill’s “one-size-fits-all approach” but said she remained open to a ban on non-competes that are imposed on middle-class and low-wage workers. Other states have recently enacted such limited prohibitions, and it would not be surprising if New York eventually follows suit.

Major enforcement actions by the New York Attorney General

Attorney General Letitia James has taken an aggressive approach to antitrust enforcement, both individually and in collaboration with the DOJ, FTC, and other state attorneys general. Collaborative actions from just the past two years include:

• litigation against drug companies for fixing the prices of generic drugs;
• a challenge to acquisition of Amedisys, a home healthcare and hospice service provider by UnitedHealth;
• LiveNation and Ticketmaster for monopolisation of concert ticket sales;
• the NCAA for colluding to restrict payments to student-athletes and restricting transfers; and
• Google, based on its monopolisation of its app store.

The New York Attorney General’s office is also participating in the significant monopolisation cases against Google, Apple, Amazon and Meta.

The Attorney General has also brought several individual antitrust actions. Among other cases, she sued and settled with title insurance company First American for its use of no-poach agreements, and with insulin manufacturers, based on allegations that they had fixed prices. The First American case was notable because of the orientation toward labour. Under the no-poach agreement, First American and other insurance companies agreed not to hire away one another’s agents. Similarly, the challenge to the UnitedHealth/Amedisys merger was based in part on the merger’s expected impact on labour markets in which home healthcare and hospice workers participate; and the NCAA antitrust litigation is directed at the labour markets of so-called student-athletes. Companies should expect this attention on labour markets to continue.

The Attorney General’s office has also brought a significant case against CVS. According to the Attorney General, CVS has required certain hospitals and clinics that order prescriptions at CVS pharmacies to use one of its subsidiaries, Wellpartner, to administer a federal prescription subsidies programme for low-income patients. A federal court subsequently dismissed the complaint because it found that New York had not adequately alleged that CVS had sufficient market power to compel hospitals to use Wellpartner.

The future

The last few years of antitrust enforcement have roiled the antitrust commentariat because enforcers appeared to depart from conventional antitrust analysis. The “Chicago school” and related approaches, which took root in the last three decades of the twentieth century, emphasised economic analysis, consumer welfare and cautious enforcement. The newer approach:

• downgrades economic analysis because of its complexity and narrowness;
• recognises harms beyond consumer welfare as within the ambit of antitrust law; and
• advocates stricter enforcement.

This new approach reflects both the recent economic literature on monopolisation and increasing popular distrust of large corporations. Many economists, lawyers and business leaders have pushed back, complaining that the new approach to antitrust is “populist” and unpredictable. These debates are unlikely to end anytime soon. But they have been overtaken by political developments.

The transition from the Biden administration to the Trump administration has raised questions as to whether federal enforcement of the antitrust laws will slacken. Many corporate leaders were unhappy with Biden’s enforcers, and businesses mobilised to push back. One executive even publicly urged Democratic presidential candidate Kamala Harris to fire Lina Khan if she were elected. Business leaders may hope to use their influence in the Trump administration to weaken enforcement, consistent with the newly elected president’s support for deregulation. Yet some influential Republicans, including vice-president JD Vance, say they are committed to vigorous antitrust enforcement. This new and interesting development in antitrust enforcement emphasises the harms caused by tech companies who allegedly censor conservative users of platforms, and employers who underpay workers.

The New York State legislature and governor’s office remain firmly in the hands of Democrats, who can be expected to continue to press for legislative reform and to support the vigorous antitrust enforcement that has taken place over the last few years. It is likely that the New York Attorney General will continue to focus on the tech industry and on anticompetitive behaviour by employers. Yet the divisions within the New York Democratic party that are already on display may widen if the political forces that have turned against antitrust at the federal level also influence state enforcement.