CalChamber-Opposed Price Algorithm Bill to Be Heard in Senate Committee Tomorrow

A California Chamber of Commerce-opposed bill that would create duplicative and unnecessary regulations on the use of price algorithms is scheduled to be heard in the Senate Judiciary Committee tomorrow.

The bill, SB 1154 (Hurtado; D-Sanger), enacts the California Preventing Algorithmic Collusion Act of 2024. The CalChamber opposes this bill because it is unnecessary, creates onerous reporting requirements, chills price competition by exposing businesses to significant uncertainty and aggressive liability, and imposes significant cost on all but the smallest of businesses using tools that fall under the bill’s definition of price algorithms.

Alarmingly, the bill also grants the Attorney General (AG) authority to request reports detailing a business’ use of pricing algorithms for any reason, without regard to whether the business is alleged to have behaved anticompetitively or harmed consumers, and then permits the AG to share the report with a third party, the National Institute of Standards and Technology (NIST), to decipher the reported information.

Price Collusion Already Illegal

In a letter sent to legislators, the CalChamber pointed out that SB 1154 is duplicative and unnecessary because price collusion is already illegal under current federal and state laws.

Existing antitrust laws prohibit competitors from colluding through common use of a third-party company to set prices by improperly using competitively sensitive information from rivals, and the prohibition applies regardless of the form the alleged collusion takes. In other words, whether it is by salespeople conspiring or computers running algorithms, collusion is collusion. Indeed, the very circumstances that appear to have inspired federal bills on this topic have already been the subject of multiple lawsuits making their way through the courts and the U.S. Department of Justice Antitrust Division recently joined the effort.

Ill-Defined Terms, Liability Exposure

The use of a pricing algorithm does not inherently constitute price fixing, the CalChamber explained in its letter. Price algorithms are in fact extremely common, allowing businesses to save valuable resources by avoiding manual pricing while making prices more responsive to changes in supply and demand. Retailers use pricing algorithms to ensure they are offering the lowest prices to consumers. Realtors use them to help clients set home prices. Banks use them to set terms (e.g. rates and fees) for services. Hospitality, airlines, transportation network companies, utilities, ticket venues, and many others use them for dynamic pricing.

If enacted, SB 1154’s reliance on incredibly broad, ill-defined terms and ambiguous standards will invariably muddy the distinction between permissible pricing algorithms and price fixing, creating significant confusion for businesses. For example, the definition of “pricing algorithm” is so overly broad and vague that it captures any algorithm that uses a computational process. For another, SB 1154 prohibits the use or distribution of any “pricing algorithm” that uses, incorporates, or was trained on “nonpublic competitor data.” “Nonpublic competitor data,” however, is not actually limited to nonpublic information. Rather, even the use of a competitor’s public prices could be deemed “nonpublic competitor data” if the data is later determined to have not been “widely available” or “easily accessible” to the public. Of course, what is considered widely available or easily accessible to the public is entirely unclear.

These are just two (of many) examples of definitional defects with language in the proposed bill, the CalChamber said.

“Despite this glaring lack of clarity, SB 1154 nonetheless imposes an incredibly aggressive $10,000 per day penalty for violations, plus the sum of the price of each product or service sold using the pricing algorithm, in civil actions brought by the Attorney General,” the CalChamber said. “Such uncertainty combined with significant liability exposure will invariably chill price competition and squelch the continued use of industry standard algorithms that aid businesses in ensuring accurate pricing and avoiding the potential for price gouging.”

Onerous Reporting Requirements

SB 1154 also authorizes the AG to demand that any business using pricing algorithms turn over potentially sensitive and valuable trade secret and competitive information, without any showing of illegal activity or even reasonable cause to believe there has been illegal activity.

These reporting requirements are quite onerous, not to mention legally problematic insofar as they require a business to state if it engages in price discrimination, certified under penalty of perjury by the company chief executive officer, chief economist, chief technology officer or corporate officer of similar authority, the CalChamber said. Even though all the information in the report is seemingly exempted from the Public Records Act to quell concerns around the disclosure of trade secrets and the potential use of such reports as litigation bait, nothing in the bill precludes the AG from wielding its authority to demand compliance and effectively conduct a fishing expedition.

Staff Contact: Ronak Daylami