California Considering Broad Bans on Pricing Software

Two bills currently making their way through the California Legislature could, if passed, have far-reaching implications for how companies doing business in California price their goods and services. California Assembly Bill 325 (Aguiar-Curry) and Senate Bill 384 (Wahab), as drafted, seek broad prohibitions against the use, distribution of, and inputs into algorithmic pricing and supply software, even where there is no coordination among competitors on the use of such software or the setting of prices. Their enactment would reach every business that uses software applications to develop pricing, supply levels and other commercial terms in California. Crowell & Moring represents the California Chamber of Commerce (“CalChamber”) in monitoring, analyzing and responding to the proposed bills.

With the complexity of today’s marketplace and its rapidly changing conditions, businesses, large and small, often use software tools and technology to efficiently and dynamically price their goods and services. The technology can be licensed from third-party providers or developed internally by software engineers and pricing teams. But AB325 and SB384, as written, would largely bar use of this type of pricing technology, regardless of whether licensed or developed internally.

AB325, for instance, would prohibit the use or distribution of a pricing algorithm that (1) incorporates or was trained with “nonpublic competitor data,” defined broadly to include data of a competitor in the same or a related market; or (2) is used to set prices and other commercial terms where the algorithm is being used by another business in the same or a related market.

In addition to its broad definition of data, AB325’s definition of “pricing algorithm” is similarly sweeping—encompassing “any computational process, including a computational process derived from machine learning or other artificial intelligence techniques, that processes data to recommend or set a price or commercial term.” As written, the bill would not only prohibit software used to set prices, but also technology used to measure and predict output and capacity needs.

SB384 is even more expansive, prohibiting the use of any software, system, or process that collects current or historical pricing or supply level data from two or more persons or from public databases for the purposes of analyzing and creating pricing models based on that data, which has long been recognized as a legitimate, competitive method for analyzing pricing and other commercial terms.

While both bills appear aimed at curbing collusion through pricing algorithms, both federal and California antitrust law already prohibit agreements between competitors to fix the prices of goods and services—whether that agreement is accomplished via an algorithm or otherwise. But the bills go even further than barring collusion among competitors by imposing liability even if competitors do not reach agreement on prices or the use of algorithms employed to set prices. These expansive prohibitions could potentially stifle in California the development and use of algorithmic and dynamic pricing technologies. With the potential to force businesses to a more manual pricing process, the bills could impede businesses’ ability to competitively price their products and services and potentially lead to higher prices for consumers.

Crowell & Moring is monitoring AB325 and SB384 along with several other antitrust bills currently making their way through the state Legislature. As counsel for CalChamber, Crowell & Moring has also provided testimony to the Senate and Assembly Judiciary Committees on the likely impact of these bills, if passed. If you are interested in joining CalChamber’s coalition for common sense legal reforms or have questions about AB325 and SB384’s impact to your business, please contact any Crowell lawyer listed below.