Financial flags US States Concept A bill containing the biggest potential rewrite of California’s antitrust laws in a century is working its way through California’s Senate. AB 1776 would add single-firm liability to a statute that allows indirect purchasers to sue and carries treble damages, construed under an express maximize-deterrence directive, with no defense for how challenged conduct in the supplier market benefits consumers. Given the private right of action, the costs from increased litigation are likely to be enormous, and California senators will have to consider whether the costs exceed the benefits. There has been no official cost-benefit analysis, and no supporters have even bothered to quantify the bill’s supposed benefits.
We have estimated the costs of earlier versions of AB 1776, including an April analysis estimating the bill would cost about $1 trillion in foregone annual GDP ten years after enactment, and a June analysis of a revised version of the bill, finding that the revised bill would cost about $760 billion in foregone annual GDP ten years after enactment. Following new amendments to the bill text that occurred by early August, using the same model as the prior estimates but with components re-scored in response to the amendments, we estimate AB 1776 will still cost California $670 billion in foregone annual GDP by 2037.
As the Appropriations Committee is the next to consider the bill, it may be useful to conduct a case study to examine how the bill would impact California’s fiscal position through impacts to just one heavily exposed sector: the startup ecosystem. As explored below, the fiscal impact from the subset of impacts accruing to the startup ecosystem alone could be as high as $8.6 billion in lost California tax revenues over a decade, during which California is already predicted to face a structural budget deficit of about $35 billion per year. California senators must consider whether they want to risk a fiscal squeeze caused by reduced tax revenues from an impacted startup ecosystem, as well as increased court and enforcement costs arising from increased litigation. Losing this tax revenue means less funding for Californians’ healthcare, education, and transportation.
Note that these fiscal figures are a deliberately narrow case study. They capture capital gains tax on startup liquidity events only, not the reduced corporate, sales, and payroll bases with $670 billion in foregone GDP. The full fiscal exposure implied by that GDP figure is substantially larger than the estimates explored in detail below.
Supporters of AB 1776 often downplay its potential impact. They describe it as a “small step” to “clarify” California antitrust law. The bill’s own text tells a much more radical story and threatens the venture capital and startup ecosystem that California policymakers want to keep. We explore some of the most problematic provisions of the bill’s operative text in the next section, but this sentence from the bill sums up AB 1776’s intent concisely: “Courts shall liberally interpret California’s antitrust laws to best promote free and fair competition and be mindful that California favors maximizing effective deterrence of antitrust violations” [emphasis added]. Particularly when plaintiffs’ attorneys have every incentive to sue, and have been invited by the bill’s author as experts to testify in its favor, AB 1776 will encourage even more litigation. Businesses in California are understandably concerned about how California judges will interpret a bill whose desired outcome in the courts is a more aggressive interpretation of antitrust law than existing case law.
Aggregate GDP Cost of AB 1776 After Recent Amendments Remains High at $670 Billion Ten Years After Enactment
We estimate the aggregate economic impact of the revised AB 1776 bill text across the entire California economy. Applying the deterrence-based framework of Garces, Zetenyi, and Banternghansa (Analysis Group, 2024), which scales estimated costs by a composite deterrence-intensity index measuring how much a state statute deters procompetitive conduct. Holding each component’s weight fixed and re-scoring only the provisions the amendments changed, the full low-to-high scenario range runs from $612 billion to $737 billion in foregone annual GDP by year ten. The central scenario estimate is approximately $670 billion in foregone annual GDP by year ten.
Three recent amendments drive most of the cost reduction relative to prior estimates. Section 16731(d) now requires proof of substantial market power, and new Section 16730(f) affirms that firms may lawfully acquire market power through superior products or business acumen. Section 16731(a)’s standalone restraint-of-trade prohibition was struck, leaving language that tracks Sherman Act Section 2. Section 16730(d)’s asymmetric prohibition on dismissing claims under federal precedent was removed. Our estimate stays conservative, excluding the bill’s monopsony scope, the Governor’s $14.25 million antitrust enforcement request, and the risk that the small-business exemption is struck down.
Even with these amendments, AB 1776 would add single-firm liability to a statute carrying treble damages, a private right of action, and indirect-purchaser standing, construed under an express maximize-deterrence directive, with no cross-market efficiency defense.
The fiscal case study that follows examines only a subset of the costs of AB 1776 by limiting the scope of its analysis to California’s startup ecosystem.
The Risk to the Startup Ecosystem
AB 1776 creates enormous litigation risks for companies of all kinds, especially companies operating in the tech sector. Startups are particularly exposed because they operate on a limited capital runway between funding rounds: in early 2025, median early-stage funding was about $3 million and median Series A funding was about $12 million. Also in 2025, U.S. federal antitrust enforcers acknowledged that litigating a single antitrust case typically costs millions of dollars, and expert fees alone in monopolization cases routinely cost over $25 million. In other words, a single antitrust case can doom most startups.
Supporters of AB 1776 point to its narrow exemption for startups, but that exemption does not prevent a startup from being sued; rather, a startup would have to respond to a lawsuit by demonstrating that it falls within the exemption, requiring substantial legal defense spending. As most startups’ financial information and other exemption-relevant criteria are not easily observed by potential plaintiffs, litigation against startups covered by the exemption is likely, and startups fully covered by the exemption will have to spend a sizable sum to defend themselves. Moreover, the exemption disappears the moment a company hires more than 100 employees, or once average revenues exceed $10 million per year, or even if the company’s officers or principal office location leaves the state of California. Finally, even if private plaintiffs and California enforcement agencies choose not to pursue many antitrust cases against startups, startups would still be hit by the risk of antitrust litigation against their potential acquirers, or the litigation risk to their future operations after they go public.
Research has shown that acquisitions are indispensable as an exit option and liquidity event type for startups. Most startups are not capable of going public, with NVCA reporting that even among unicorns, only about 5 percent met the bar to go public. In addition, most startups are not on a revenue and profitability trajectory to provide venture capital funders with liquidity on a reasonable time horizon absent an acquisition. In other words, without acquisitions, venture capitalists would have to significantly reduce funding to those small numbers of startups with the potential to go public or grow quickly enough to offer a return from revenue on a short time horizon.
AB 1776 is not expressly focused on mergers and acquisitions, but creates huge litigation risks for acquirers after an acquisition is complete. If potential acquirers cannot rule out increased litigation risks, they will naturally curtail their acquisitions or reduce their bid magnitudes accordingly, leading to a huge fall in venture capital funding going forward. Startup formation will fall, and with it, the California state tax revenues that fund so many government employees and social services.
While AB 1776 would not necessarily prevent successful startups from going public via an IPO, it would increase the risk that startups would face antitrust litigation after they go public. These risks would be taken into account by investors considering purchasing shares in the IPO, who would reduce the amount they would be willing to pay per share as a result of the increased antitrust litigation risk. This would reduce exit prices for IPOs, and by extension, the capital gains resulting from IPOs, reducing California’s tax revenues from startups going public.
Examples of Problematic Text in the Bill
Start with Section 16732, which the bill adds to the Business and Professions Code. It instructs courts to “liberally interpret California’s antitrust laws to best promote free and fair competition” and to be “mindful that California favors ‘maximizing’ effective deterrence of antitrust violations.” As written, the bill functions as a one-directional instruction to courts: when a case is close, err toward finding liability.
Section 16730(d) reinforces this instruction by allowing CA courts to disregard federal jurisprudence. Federal antitrust interpretations, the bill says, are “at most instructive.”
Section 16731(b) then removes a defense federal law allows: procompetitive justifications must be weighed “within the same relevant market as the conduct that is alleged to be unlawful.” Efficiencies benefiting consumers in an adjacent market cannot be counted at all. In other words, even if the expert economists on both sides of the case conclude that the aggregate impact of a business practice is pro-competitive and benefits consumers overall across connected or related markets, a business could still be found liable based on a narrow analysis within a single, court-defined “market.”
Expert analysis consistently concludes that AB 1776 increases liability risk for businesses. For example, Skadden concluded the bill could significantly expand California antitrust law beyond federal principles, and Crowell & Moring found that the amendments explicitly decouple California antitrust law from federal precedent.
Departures from established federal jurisprudence impose real costs on businesses of all sizes and increase the risk of regulatory fragmentation. As a practical matter, the most restrictive applicable standard can set the floor for regulatory compliance. A California-specific standard could function in practice as a national standard for any firm doing business in California. This would likely result in higher compliance costs, greater difficulty in pricing and timing transactions, and incentives to litigate in the forum offering the most favorable framework. Any departure should be justified by a concrete benefit sufficient to outweigh the loss of that legal certainty.
How the Small-Business Exemption Fails Startups
Supporters of AB 1776 are likely to emphasize that the bill targets large firms and offers a (narrow) small business exemption that California startups can use. That likely unconstitutional exemption falls apart upon closer scrutiny.
The small business exemption does not prevent a startup from getting sued. It only offers a defense that can be asserted in response to a lawsuit. Because plaintiffs may not be able to determine whether a startup is covered by the exemption, covered startups will likely be sued and have to spend sizable sums defending themselves to demonstrate that the exemption applies.
In addition, the small-business exemption is very narrow. Section 16731(e) exempts a company only if it is independently owned, headquartered in California, has officers domiciled in California, and, together with affiliates, has 100 or fewer employees and $10 million or less in average annual gross receipts. Failing any one of those provisions removes protection entirely. Almost no startup past a Series B funding round clears that bar.
Meanwhile, Section 16730(c) expressly endorses “lower actionable market shares.” A growth-stage company leading a narrow niche is a very plausible defendant under this framework, whatever supporters of the bill may say about intending to target household names.
Moreover, exit prices for startups are set by bids from potential acquirers, and California startups’ most likely acquirers carry the most California exposure. When an acquirer knows that integration, bundling, and distribution decisions after closing on an acquisition may be tested under a statute drafted to maximize deterrence, with no cross-market efficiency defense available, it lowers what an acquirer will pay, or it does not bid. Reduced exit values follow from a thinner, less aggressive pool of bids from potential acquirers.
The reduction in the number of bids and magnitude of bids for startups is likely to begin before any California court actually rules substantially more aggressively than federal antitrust case law. All that it requires is that counsel for potential acquirers cannot rule the elevated risk out. A statute instructing judges to construe liberally while detaching them from federal precedent widens the range of plausible outcomes. Wider outcome ranges mean higher required returns, and higher required returns mean lower valuations today. In other words, if AB 1776 becomes law, until and unless California courts establish a body of state case law that remains largely consistent with federal case law, the value of startups will start declining immediately via the expectations channel.
What AB 1776 Costs the State through Reduced Exit Prices for Startups
California taxes capital gains as ordinary income, at rates reaching 13.3 percent. And under Revenue & Taxation Code §18152, California does not conform to the federal qualified small business stock exclusion, so startup gains that are fully exempt federally are taxed in full by the state.
It is useful to look at illustrative figures to demonstrate the approximate scale of the tax revenue at risk for California.
The NVCA 2026 Yearbook, using PitchBook data, puts total U.S. venture exit value at $217 billion in 2025, but the exits are not broken down by state. Over the same time period, California captured roughly 60 percent of all U.S. venture capital deal value, $191.2 billion across 4,846 deals. Applying a conservative 55 percent share to a two-year average of U.S. exit value gives California roughly $90 billion in annual venture exit value.
Assume 40 percent of that is realized as taxable gain by California taxpayers like founders, employees, and in-state investors. At a 12 percent effective state rate, every dollar of California exit value yields about 4.8 cents in state income tax.
So what happens if AB 1776 reduces exit prices?
A 10 percent reduction removes $9 billion in exit value, causing about $430 million a year in lost California tax revenue, or $4.3 billion in lost tax revenue over a decade.
A 20 percent reduction removes $18 billion in exit value, leading to about $865 million a year in lost California tax revenue, or $8.6 billion in lost tax revenue over a decade.
Those are both plausible impacts, and they are estimated conservatively. A 10 percent exit price reduction would actually reduce taxable gain by slightly more than 10 percent, because the cost basis has to be subtracted. Neither figure counts the wage and payroll base, which leaves with any company choosing relocation over risk, and the Legislative Analyst’s Office has already warned that recent income tax gains rest on an unsustainable base. LAO projects structural deficits of around $35 billion annually starting in 2027-2028, and those would be compounded by the loss of hundreds of millions of dollars per year in tax revenue.
