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New York’s Pending Antitrust Bill – What It Would Mean for Companies That Have Market Shares in Excess of 30-40%

Antitrust is in the news every day.  Amidst the deluge of stories about cases filed by federal and state enforcers against tech companies, the nomination of Lina Khan to the Federal Trade Commission, President Biden’s sweeping Executive Order and competing antitrust bills introduced in both chambers of Congress, you may have missed that New York State is embarking on a unique path in antitrust enforcement.

In June 2021, the New York State Senate passed a bill entitled the “Twenty-First Century Anti-Trust Act” (the “Bill”).[1]  If the Bill passes in the State Assembly and is signed by Governor Cuomo, it would amend New York’s antitrust law (the Donnelly Act) and turn it into the most rigorous and comprehensive antitrust legislation in the United States.[2]  Of the many significant changes proposed in this legislation, among the most important is that it would enable New York to impose antitrust liability on companies that abuse their dominant position to the detriment of competitors, consumers, and workers.

This is not a new concept.  The abuse of dominance standard has been the primary standard for assessing single-firm conduct under the competition laws of the European Union and many of its member states for decades.  The United States has historically been suspect of the broader scope of EU-type dominance rules and, to some degree, the EU has modified its own laws to move closer to historic U.S. practices.  New York legislators, however, believe that the Europeans may have had it right all along.

As New York State moves toward a new regime, companies doing business in the State need to understand who would be considered “dominant” under the new Bill.

Does Your Company Have a Dominant Position?

The Bill creates a presumption of dominance in two circumstances: first, if a company has a 40% or greater share of a relevant market as a seller, and, second, if a company has a 30% or greater share of a relevant market as a buyer.

A “relevant market” is a term of art used in antitrust law. It refers to the market composed of products or services that are reasonably interchangeable substitutes for each other.[3]  Defining the “relevant market” is usually a contested issue in antitrust cases.  But companies that acknowledge that they have shares above 40% (as a seller) or 30% (as a buyer) of the market, as they define it, should anticipate that they may be targeted by the Bill.

The Bill also gives examples of direct evidence of a company’s dominant position.  These examples do not rely on market shares or the definition of a relevant market.  In fact, if there is direct evidence of dominant position, the Bill specifically prevents courts from considering the definition of the relevant market.[4]  The Bill gives some examples of direct evidence of dominant position, such as:

  • The unilateral power to set prices, terms, conditions, or standards, or to dictate non-price contractual terms without compensation;
  • Evidence that a person is not constrained by meaningful competitive pressures, such as the ability to degrade quality without suffering reduction in profitability; and
  • In labor markets, the use of non-compete clauses, no-poach agreements or the unilateral power to set wages.

These examples are broad and will no doubt be clarified as antitrust enforcers and private parties litigate cases in New York courts.  For example, is having a contract of adhesion (where one party unilaterally sets prices, terms, or conditions) direct evidence of dominant position?  What type of non-price contractual terms are intended to be covered?  Does the power to set terms need to extend to a certain share of market participants? What is “meaningful competitive pressure” under the Act? How do you measure degradation of quality, and does it need to be intentional? Many companies could be “dominant” under an expansive reading of these examples of direct evidence.

What is Prohibited “Abuse” under the Bill?

If a company is found to have a dominant position, the types of activities that are prohibited as “abusive” capture a potentially wide swathe of conduct that current antitrust laws struggle to reach.  For example, abuse of dominant position can include “leveraging a dominant position in one market to limit competition in a separate market” or “refusing to deal with another person with the effect of unnecessarily excluding or handicapping actual or potential competitors.”[5]  In labor markets, a dominant company  restraining employees’ freedom to disclose wage and benefit information or limiting their right to engage in lawful profession, trade or business, is also considered evidence of  “abuse.”  Once abuse is found, the Bill does not allow “pro-competitive effects” to be used to defend against a claim of abuse of dominance.[6]

If the Bill passes, the New York Attorney General’s Office will issue further guidance on how it will interpret these provisions.  In doing so, it may draw upon examples from EU cases on abuse of dominance. The Bill instructs the Attorney General to consider “the important role of small and medium-sized businesses.”[7]

Constantine Cannon will continue to monitor the Bill and provide more information and guidance in the coming months.

Edited by Gary J. Malone

[1] See S933A (nysenate.gov)

[2]  See N.Y. may become Antitrust Central, Opinion by Lloyd Constantine, July 24, 2021, available at: https://www.timesunion.com/opinion/article/N-Y-may-become-Antitrust-Central-16336815.php

[3] See proposed General Business Law Section 340 2(b)(i)(2).

[4] See proposed General Business Law Section 340 2(b)(i)(3): “If direct evidence is sufficient to demonstrate that a person has a dominant position or has abused such a dominant position, no court shall require definition of a relevant market in order to evaluate the evidence, find liability, or find that a claim has been stated under this paragraph.”  Courts analyzing Donnelly Act claims have found that identifying relevant market or submarket is a “basic requirement” of a Donnelly Act claim.  See Global Reinsurance Corp. U.S. Branch v. Equitas Ltd., 18 N.Y.3d 722 (2012) (citing to Creative Trading Co. v. Larkin–Pluznick–Larkin, Inc., 136 A.D.2d 461, 462, 523 N.Y.S.2d 102 (1st Dept.1988))

[5]  See proposed General Business Law Section 340 2(b)(ii). Under the Donnelly Act, courts have recognized a company’s unilateral right “to select the person with whom it does business and to refuse to deal or continue to deal with anyone for reasons sufficient to itself.”  Benjamin of Forest Hills Realty, Inc. v. Austin Sheppard Realty, Inc., 34 A.D.3d 91 (2006) (citing to Hsing Chow v. Union Central Life Ins. Co., 457 F.Supp. 1303, 1306).

[6]  See proposed General Business Law Section 340 2(b)(iii).

[7]  See proposed General Business Law Section 340 2(c)(iii).

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