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Authors: Steven Cernak and Jarod Bona

In big antitrust news, the Federal Trade Commission and Department of Justice Antitrust Division released a draft of an update to the 1984 Vertical Merger Guidelines (VMG) on January 10, 2020.  Only three of the five FTC commissioners voted to release the draft with Democratic Commissioners Rebecca Kelly Slaughter and Rohit Chopra abstaining but issuing separate statements. The agency will accept public comments on the draft through February 11, 2020.

These vertical merger guidelines make extensive references to the Horizontal Merger Guidelines, most recently issued in 2010 (HMG). Like the HMG, the VMG are guidelines only, not law, and are meant to provide the merging parties some understanding of the analysis the reviewing agency will use. Because nearly all merger reviews begin and end with these agencies, however, the HMG have become both influential and persuasive for courts. The VMG rely on the HMG for much of the analysis and so, at nine pages, are much shorter and seem to break little new ground besides updating the outdated 1984 version.

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Author: Jarod Bona

The doctrine of federal antitrust law includes several immunities and exemptions—entire areas that are off limits to certain antitrust actions. This can be confusing, especially because these “exceptions” arise, grow, and shrink over time, at the seeming whim of federal courts.

As a matter of interpretation, the Supreme Court demands that courts view such exemptions and immunities narrowly, but they are still an important part of the antitrust landscape. This includes, prominently, the Filed Rate Doctrine, which is the topic of this article.

Here at The Antitrust Attorney Blog, we write about these antitrust exceptions periodically. In particular, we spend a lot of time on state-action immunity, but have also published articles on, for example, the baseball antitrust exemption, the farm cooperative exemption, and the business of insurance exception (which, unlike many others, arose from statute: The McCarran-Ferguson Act).

What is the Filed Rate Doctrine?

The filed rate doctrine is simply a judicially created exception to a civil antitrust action for damages in which plaintiffs challenge the validity of rates or tariff terms that have been filed with and approved by a federal regulatory agency.

But what does that mean?

In some industries, notably insurance, energy, and shipping (or other common carriers), the participants must file the rates that they offer to all or most customers with a government agency. This regulatory agency must then, in some manner, approve those rates. This approach is an exception to a typical market and was more common in certain industries pre-deregulation.

The idea of filing these rates is that the benevolent and all-knowing government agency, rather than the market, will best look after customers. It arises from the same seed as socialism and was particularly popular in the early to mid-20th century when the view that educated people could perform better than markets was in vogue.

Anyway, these “filed rates” are still with us and are a defense, through the filed rate doctrine, to certain antitrust actions.

The filed rate doctrine itself arose in a 1922 US Supreme Court case called Keogh v. Chicago & Northwest Railway Co., 260 U.S. 156 (1922). In that case, the plaintiffs sought antitrust damages by arguing that defendants violated the Sherman Act and the rates charged by certain common-carrier shippers were higher than they would have been in a competitive market.

The defendants, however, had filed these rates with the Interstate Commerce Commission (ICC), a federal agency that had approved them. The Supreme Court responded by precluding plaintiffs’ antitrust lawsuit on that basis, as the rates, once filed, “cannot be varied or enlarged by either contract or tort of the carrier.” It is the legal rate.

The Supreme Court has since reaffirmed this holding, most prominently in a case called Square D Co. v. Niagara Frontier Tariff Bureau, Inc., 476 U.S. 409 in 1986, which you can read at the link if you want to dig deeper.

When Does the Filed Rate Doctrine Preclude Antitrust Liability?

The filed rate doctrine is a defense to an antitrust lawsuit, premised on damages, so long as the claim requires the Court to examine or second guess the rates filed with a federal agency.

So if you are a plaintiff that wants to bring an antitrust action against a defendant that filed rates, you could (1) seek certain types of injunctive relief; and (2) develop your action in a way that doesn’t require the Court to determine liability or calculate damages by comparing current filed rates to a hypothetical rate in a but-for world. This can get complicated, so if you are not an antitrust attorney, you might want to find one.

If you are or represent a defendant that has been sued under the antitrust laws and the defendant company files rates with some agency, you should also seek antitrust-specific guidance. You might have a strong defense.

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Author: Steven Madoff

Steven Madoff was an Executive Vice President of Business and Legal Affairs for Paramount Pictures Corporation from 1997-2006.

The recent announcement by the Antitrust Division of the Department of Justice that it is planning to terminate the 70-year-old Paramount Consent Decrees leads to reflection on how culture, business models, the law, and technology intersect and impact one another.

The history of the motion picture business resonates with the evolution (and sometimes revolution) of technology, the industry’s adaptation of its business models to respond to these changes in technology and the impact of these changes and adaptations to cultural transitions and transformations.

Virtually from its birth in the early 20th century, the motion picture industry attracted the scrutiny of governmental regulators. As early as the 1920’s, the U.S. Justice Department started looking into the trade practices and dominant market share of the Hollywood studios.

The Studio System

In the early 1930’s, the Justice Department found that the major studios were vertically-integrated monopolies that produced the motion pictures, employed the talent (directors, writers, actors) under long-term exclusive contracts, distributed the motion pictures and also owned or controlled many of the theaters that exhibited the movies. This was sometimes called the “studio system.”

Particularly troubling were the studios’ practices of block booking and blind bidding. Block booking is the practice of licensing one feature film or group of feature films on the condition that the licensee-exhibitor will also license another feature film or group of feature films released by the same distributor. Block booking prevents customers from bidding for individual feature films on their own merits. Blind bidding or blind selling is the practice whereby a distributor licenses a feature film before the exhibitor is afforded an opportunity to view it. These practices were particularly onerous when applied against independent theater owners not owned or affiliated with the studio-distributor.

It seemed like the time had come for the government to force the studios to divest their ownership of the exhibition side of the business. But the Depression intervened and the studios convinced President Roosevelt that the country needed a strong studio system to supply movie entertainment to the populous as a relief from tough economic times. President Roosevelt therefore delayed any action requiring the studios to divest their theaters under the goals of the National Industrial Recovery Act.

The Paramount Consent Decrees

But, by 1940, the Department of Justice filed a lawsuit against the studios alleging violations of Sherman 1 and 2—restraint of trade and monopolization. The claims were made against what were then called the Big Five Studios, all of which produced, distributed and exhibited films (MGM, Paramount, RKO, Twentieth Century-Fox and Warner Bros.) and what were called the Little Three studios, which produced and distributed films but did not exhibit them (Columbia, United Arts and Universal).

At the time, Paramount was the largest studio and exhibitor and was first-named in the lawsuit, and so in 1940 when the studios reached a settlement with the Department of Justice, the resulting arrangement became known as the Paramount Consent Decrees.

As part of the Consent Decrees, the Studios were not required to divest their ownership in theaters; however, block booking was dramatically cut back (e.g., no tying of short subjects to feature films and no “packages” in excess of five feature films) and blind bidding was prohibited. The parties agreed to a 3-year period for the Consent Decrees during which the Department of Justice would monitor compliance by the Studios.

By 1946, however, the Department of Justice had determined the Studios were not in compliance and brought the case back to the Federal District Court.  After the trial, the Court ruled that the Studios could no longer engage in block booking, but did not require them to divest their ownership in theaters, which the Department of Justice had asked for. Both parties appealed the case, which eventually reached the US Supreme Court.

In a 7-1 decision, written by Justice William O. Douglas, the Court found, among other things, that block booking was a per se violation of Sherman 1 and in remanding the case to the District Court recommended that the Studios be ordered to divest their ownership in theaters. But before the District Court rendered a decision on whether the Studios should divest their theaters, one of the Big Five Studio defendants, RKO Pictures (then controlled by Howard Hughes) decided to sell its theaters. After that, another Big Five Studio defendant, Paramount, sold its theaters.

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Author: Steven Cernak

Companies like Facebook, Google, Amazon and more have faced an increasing number of antitrust investigations and challenges (globally), both private and government, in recent years.  In the U.S., current Presidential candidates are lining up to propose changes to antitrust laws and advocate for enforcement focused on these same tech companies. While they might not be explicit targets in as many actions, other U.S. companies outside Silicon Valley could be swallowed up in this techlash and so need to be prepared.

Techlash not New and Not Just American

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Author: Luke Hasskamp

This article—the fifth in a series—addresses some of the aftermath of the Supreme Court’s decision in Toolson v. New York Yankees, in particular the litigation involving Curt Flood that ultimately led to the free agency era of professional baseball.

You can find the other parts to this series below:

Baseball and the Antitrust Laws Part 1: The Origins of the Reserve Clause

Baseball and the Antitrust Laws Part 2: The Owners Strike Back (and Strike Out)

Baseball and the Antitrust Laws Part 3: Baseball Reaches the Supreme Court

Baseball and the Antitrust Laws Part 4: Baseball’s Antitrust Exemption

Curt Flood takes on baseball

Curt Flood was immensely important in baseball’s labor movement, serving as the plaintiff in the last baseball lawsuit to reach the U.S. Supreme Court, and helping to usher in the current “free agency” era of baseball. He was also a star player, spending 15 years in the major leagues with the Cincinnati Red(leg)s, the St. Louis Cardinals, and the Washington Senators. He was a three-time All Star, a seven-time Gold Glove winner, and retired with a .293 batting average.

After twelve seasons in St. Louis, on October 7, 1969, the Cardinals traded Flood and several other players, including Tim McCarver, to the Philadelphia Phillies. Yet, Flood, who was still near the peak of his playing years, had no interest in going, citing Philadelphia’s terrible record, dilapidated stadium, and racist fans, at least in Flood’s eyes.

Flood refused to report to Philadelphia and sent a strongly-worded letter to baseball’s commissioner at the time, Bowie Kuhn, noting that he was not “a piece of property to be bought and sold irrespective of my wishes.” Flood added his belief that “any system which produces that result violates my basic rights as a citizen and is inconsistent with the laws of the United States and of the several States.”

Flood’s letter to Kuhn fell on deaf ears, and he filed suit against the League in the Southern District of New York, alleging that baseball’s reserve clause violated antitrust law. Flood, who was then making $90,000 per season, sought $1 million in damages. Flood retained former Supreme Court Justice Arthur Goldberg, who agreed to handle the matter without charge. Flood knew that the lawsuit, which could potentially (and did) take years, would effectively end his playing career.

Several former players testified at trial on behalf of Flood, including Hall of Famers Jackie Robinson and Hank Greenberg, as well as Bill Veeck, renegade owner of the Chicago White Sox. No current players testified in favor of Flood, however. Following a ten-week bench trial, the district court ruled against Flood and in favor Major League Baseball, finding that the reserve clause had beneficial aspects for the game and its players.

Flood appealed the ruling to the Second Circuit, which affirmed the district court, holding that Federal Baseball and Toolson were binding precedent and, thus, Major League Baseball was not subject to the Sherman Act because baseball did not constitute interstate commerce. The Second Circuit added that baseball was “so uniquely interstate commerce” as the league extended over many states that the “consequent extra-territorial effect of necessary compliance” with multiple state antitrust laws would be “far reaching.” Accordingly, federal law pre-empted the application of state antitrust laws.

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Author: Luke Hasskamp

This article—the fourth in a series—addresses some of the aftermath of the Supreme Court’s decision in Federal Baseball Club v. National League, where the Court unanimously held that federal antitrust laws did not apply to professional baseball. This includes the “birth” of baseball’s antitrust exemption in the Supreme Court’s 1953 decision in Toolson v. New York Yankees.

You can find the other parts to this series below:

Baseball and the Antitrust Laws Part 1: The Origins of the Reserve Clause

Baseball and the Antitrust Laws Part 2: The Owners Strike Back (and Strike Out)

Baseball and the Antitrust Laws Part 3: Baseball Reaches the Supreme Court

Baseball and the Antitrust Laws Part 5: Touch ’em all, Curt Flood.

The evolution of the Commerce Clause

It seems safe to say that it is widely known that baseball is exempt from antitrust laws. But that exemption did not arise in the Court’s 1922 ruling in Federal Baseball. Instead, there, the Court had concluded that the Sherman Act did not apply to baseball at all—because baseball was not a form of interstate commerce. This is an important distinction.

The Sherman Act makes it unlawful to “monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States . . . .” The reason Congress included “among the several States” in the statute is because its authority to enact the Sherman Act flowed from Article I, Section 8, Clause 3 of the U.S. Constitution, also known as the Commerce Clause.

Specifically, the Commerce Clause gives Congress the power “to regulate commerce with foreign nations, and among the several states . . . .” If the conduct at issue did not affect commerce “among the several states,” Congress had no authority to regulate it. Thus, because the Court determined that baseball did not affect interstate commerce, Congress had no power to subject it to antitrust scrutiny.

The Federal Baseball decision has been widely criticized, both at the time and today. But when considered in context, it is somewhat understandable. For starters, the game in the 1920s was obviously much different than the multi-billion-dollar industry that we know today. There were fewer teams, lower revenues, and games were not yet watched on television—the first televised Major League Baseball game would occur on August 26, 1939, a doubleheader played at Ebbets Field between the Brooklyn Dodgers and the Cincinnati Reds.

Perhaps an even more understandable explanation for the Federal Baseball outcome was the Supreme Court’s interpretation of the Commerce Clause at the time and, specifically, its definition of interstate commerce, which was narrower than it is today.

Federal Baseball was decided during the Lochner era, which encompassed the three decades following the Supreme Court’s 1905 decision in Lochner v. New York, 198 U.S. 45 (1905). During this period, the Court struck down a number of federal and state laws relating to labor and working conditions, as the Court took a narrow view of states’ police powers and Congress’s powers under the Commerce Clause.

The Lochner era came to an end beginning in 1937, with a series of decisions from the Court upholding several federal and state statutes in this realm, and, importantly, recognizing broader grounds upon which the Commerce Clause could be used to regulate state activity. Instead of viewing the Commerce Clause as a limitation on congressional authority, it now marked one of the most effective means by which Congress could expand its regulatory reach. The narrow definition of interstate commerce was tossed out and activity was now viewed as commerce if it had a “substantial economic effect” on interstate commerce.

Baseball’s deft touch

The late 1930s to the 1950s marked an era of strategic litigation, settlements, and lobbying by baseball. With this expansion of the Commerce Clause, many predicted that it would not be long before the Supreme Court overruled Federal Baseball. Accordingly, baseball sought to avoid legal challenges that would give the Supreme Court an opportunity to do so, and it also worked to negotiate concerns in Congress that led some members to call for legislation clarifying that the Sherman Act should apply to baseball.

An interesting example of the threat faced by professional baseball, and its strategic response to it, arose from the emergence of professional baseball in Mexico soon after World War II. To attract top talent, the Mexican league offered lucrative salaries more than double what players were making in the U.S., causing several players to abandon their contracts and play south of the border. One such player was Danny Gardella, who had been offered $4,500 to play for the New York Giants but $10,000 to play in Mexico for the 1947 season. (The Mexican League was owned by Jorge Pasquel, another colorful character in the long roster of colorful characters in professional baseball, who allegedly used campaigned funds siphoned from the Mexican presidential election to pay for the substantial salaries.)

Perhaps as expected, Major League Baseball was not pleased with the defections, and Commissioner Happy Chandler banned the defecting players for five years, a remarkable penalty considering such strict penalties had only been imposed for violations that impugned the integrity of the game itself, such as gambling or cheating on games. When Gardella returned to the U.S. after the 1947 season—the year in Mexico had not been a success, especially for the Mexican league—he was unable to find a team willing to take him. Thus, he sued in federal court in New York.

The district court granted Major League Baseball’s motion to dismiss. The court recognized that Federal Baseball appeared to rest on a shaky foundation, but it also recognized that it was not its place to overturn the decision—the authority rested with the Supreme Court. Gardella appealed to the Second Circuit Court of Appeals, where it was heard by Chief Judge Learned Hand, Judge Harrie Chase, and Judge Jerome Frank.

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Author: Luis Blanquez

The Eleventh Circuit recently rejected the City of LaGrange’s attempt to assert state-action immunity from antitrust liability in Diverse Power, Inc. v. City of Lagrange, 2019 U.S. App. LEXIS 24772 (11th Cir. Ga., Aug. 20, 2019).

And here is why.

In a nutshell, the City of LaGrange provided water services to both its residents and to users outside the city limits, and natural gas to customers both inside and outside the city.

In 2004, the city enacted an ordinance targeting customers outside the city limits. Under the new law, water would be provided for new construction––to users outside the city––only if the builder installed at least: (i) one natural gas furnace, (ii) one natural gas water heater, and (iii) at least one additional natural gas outlet sufficient for potential future use for a clothes dryer, range, grill, pool heater or outdoor lighting fixture.

Diverse Power, a company that provides electrical power that competes with LaGrange’s natural gas service, suffered competitive harm from this ordinance that tied water service to installation of gas (as opposed to electric) appliances. In response, they brought an action under the Sherman and Clayton Antitrust Acts challenging the city’s policy as an unlawful tying arrangement.

LaGrange moved to dismiss the complaint on several bases, including immunity under the state-action doctrine. The District Court denied LaGrange’s motion and held that LaGrange was not entitled to state-action immunity. Diverse Power, Inc. v. City of LaGrange, 2018 U.S. Dist. LEXIS 226681 (N.D. Ga., Feb. 21, 2018).

On appeal, the Eleventh Circuit also rejected the City’s claim of immunity and held that tying an unrelated service in a different market to the provision of water service fell outside the statutes’ grant of immunity.

If you don’t know what an antitrust tying claim is, you can read our article on tying arrangements.

At first sight, this seems to be a straightforward state-action immunity case. And in fact, it is. But there are two interesting facts worth mentioning here. First, Judge Tjoflat from the Eleventh Circuit revisited the U.S. Supreme Court landmark case FTC v. Phoebe Putney Health Sys., Inc., 568 U.S. 216, (2013). And second, Judge Tjoflat is the same judge who wrote the original Phoebe Putney Opinion FTC v. Phoebe Putney Health System, Inc., 663 F.3d 1369 (11th Cir. 2011) that the Supreme Court quashed.

Let’s jump into the legal analysis included in the Eleventh Circuit Opinion.

The Court starts by referencing Parker v. Brown, 317 U.S. 341, 62 S. Ct. 307 (1943), and how it held that the Sherman Act shouldn’t be read to bar states from engaging in anticompetitive conduct “as an act of government.” But because political subdivisions—like the City of LaGrange— “are not themselves sovereign[,] they do not receive all the federal deference of the States that create them.”

Instead, political subdivisions enjoy state-action immunity when they undertake activities “pursuant to a ‘clearly articulated and affirmatively expressed’ state policy to displace competition.” This is commonly known as the clear-articulation requirement—the first step in the two-step Midcal test (the second step is active supervision).

The Court then explains that unlike clear-statement requirements in other domains of law, the clear-articulation requirement has traditionally been satisfied by articulations that are admittedly less than clear. The US Supreme Court has, the Court explained, “rejected the contention that [the clear-articulation] requirement can be met only if the delegating statute explicitly permits the displacement of competition.” City of Columbia v. Omni Outdoor Advert., Inc., 499 U.S. 365, 372, 111 S. Ct. 1344, 1350 (1991). Instead, according to these older precedents, state-action immunity applied when a municipality’s anticompetitive conduct is the “foreseeable result” of state legislation. Town of Hallie v. City of Eau Claire, 471 U.S. 34, 42, 105 S. Ct. 1713, 1718 (1985).

The Court then turns to City of Columbia v. Omni Outdoor Advertising, Inc., 499 U.S. 365, 111 S. Ct. 1344 (1991) to illustrate that, even though the state zoning statute under which the city promulgated the zoning restrictions had nothing to do with the suppression of competition, the Supreme Court held that the city’s actions were immune from federal antitrust liability.

In both cases, immunity from federal antitrust liability was based on similarly broad state statutes that were facially unrelated to the suppression of competition. And as the Eleventh Circuit acknowledges now, it was against this legal backdrop that the Supreme Court decided the Phoebe Putney case.

In Phoebe Putney, two Georgia laws—a provision of the state constitution and a concurrently enacted statute—gave municipally created hospital authorities 27 enumerated powers, including “the power ‘[t]o acquire by purchase, lease, or otherwise and to operate projects [i.e., hospitals and other public health facilities].’”

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Author: Luke Hasskamp

This article—the third in a series—focuses on the Supreme Court’s decision in Federal Baseball Club v. National League, in which the Court unanimously held that federal antitrust laws did not apply to professional baseball. It is a curious decision, indeed, preceded by two prior decisions that helped to set the table.

Despite the focus of this series of articles on baseball’s unusual treatment under the antitrust laws, the first two articles did not actually address antitrust law. Instead, the focus was, primarily, contract law. Despite the clear anticompetitive implications of baseball’s reserve clause, which owners used to tie players to a team in perpetuity and to suppress player salaries, the initial challenges to these provisions were based on the law of contracts. And the initial lawsuits did not involve affirmative litigation brought by players but were instead brought by the owners, with the players raising these arguments in their defense.

Now the stage was set for the antitrust laws to enter the picture full force, and not just as a shield to protect players from teams’ requests for injunctions, but also as a sword to affirmatively attack professional baseball as an unlawful trust.

You can find the other parts to this series below:

Baseball and the Antitrust Laws Part 1: The Origins of the Reserve Clause

Baseball and the Antitrust laws Part 2: The Owners Strike Back (and Strike Out)

Baseball and the Antitrust Laws Part 4: Baseball’s Antitrust Exemption

Baseball and the Antitrust Laws Part 5: Touch ’em all, Curt Flood.

The antitrust laws and baseball finally intersect: the Hal Chase case

The first antitrust baseball case fully litigated on the merits was American League Baseball Club v. Chase, 149 N.Y.S. 6 (N.Y. Sup. Ct. 1914), a dispute involving Hal Chase, a star first baseman who moved from the Chicago White Sox of the American League to the Buffalo Buff-Feds of the Federal League.

The suit was brought in New York by the White Sox, who sought to enjoin Chase from playing for Buffalo. At the conclusion of the matter, Judge Bissell rejected Chase’s “novel argument . . . presented with much earnestness” that baseball violated federal antitrust laws. The Sherman Act makes it unlawful to “monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States . . . .” Judge Bissell had no doubt that baseball was a monopoly, but he concluded that it was not involved in interstate trade or commerce. Instead, he reasoned: “Baseball is an amusement, a sport, a game that . . . is not a commodity or an article of merchandise subject to the regulation of congress . . . .” (Congress is constrained by the Commerce Clause of the U.S. Constitution. Thus, the connection to interstate commerce was essential. If baseball did not affect interstate commerce, Congress had no power to regulate it.)

Interestingly, Judge Bissell did rule that baseball had violated New York state law, meaning that the preliminary injunction initially granted could no longer be maintained. And his reasoning suggested that he also would have found baseball to have violated federal antitrust laws had it affected interstate commerce:

“A court of equity insisting that ‘he who comes into equity must come with clean hands’ will not lend its aid to promote an unconscionable transaction of the character which the plaintiff is endeavoring to maintain and strengthen by its application for this injunction. The court will not assist in enforcing an agreement which is a part of a general plan having for its object the maintenance of a monopoly, interference with the personal liberty of a citizen and the control of his free right to labor wherever and for whom he pleases; and will not extend its aid to further the purposes and practices of an unlawful combination, by restraining the defendant from working for any one but the plaintiff.”

Thus, with his legal victory, Chase was able to play with Buffalo for 1914 and 1915. While it was not a devastating blow for organized baseball—because “the question of the dissolution of this combination on the ground of its illegality” was not before the court—it must have seemed like an ominous conclusion to the ruling.

Chase ended up having a remarkable career for several reasons. Many players, including Babe Ruth and Walter Johnson, considered him the best first baseman ever, and he is sometimes considered the first true star of the franchise that would eventually become the New York Yankees. But Chase was also ultimately exposed as a notorious cheater, betting extensively on games and paying and receiving money to fix games. Indeed, he was indicted as part of the Chicago “Black Sox” scandal (though his role is disputed), but the State of California refused to extradite him due to a problem with the arrest warrant. He was ultimately blackballed from professional baseball and spent his remaining years on the west coast.

The Federal League takes on Organized Baseball: Round 1

In 1913, the Federal League emerged as a serious competitor to the National and American Leagues. And it intended to do so in court, as well as on the field, where it would wield the threat of a serious antitrust challenge. Indeed, in January 2015, the Federal League finally filed its affirmative suit against the National and American Leagues in federal court in Illinois, alleging that they amounted to a combination in violation of federal and state antitrust laws.

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Author: Luis Blanquez

We’ve discussed the state action doctrine many times in the past. The courts have interpreted the federal antitrust laws as providing a limited exemption from the antitrust laws for certain state and local government conduct. This is known as state-action immunity.

In this article, we will discuss how the FTC and DOJ have approached this important antitrust exemption over time. And we are going to do it in several steps. First, we will examine the early stages, with the creation of the State Action Task Force. Second, we will consider the reflections from former FTC Commissioner Maureen K. Ohlhausen on the Supreme Court’s 2015 North Carolina Dental Decision; and the  FTC Staff Guidance on Active Supervision of State Regulatory Boards Controlled by Market Participants. Last, we will spend some time on what is an amicus brief, and will analyze some of the most recent briefs on state action immunity filed by the FTC and DOJ.

You might also enjoy our article on why you should consider filing an amicus brief in a federal appellate case.

  1. THE FIRST STEPS: THE MODERN STATE ACTION PROGRAM

In September 2003, the State Action Task Force of the FTC published a report summarizing the state action doctrine, explaining how an overbroad interpretation of the state action doctrine could potentially impede national competition goals. The Task Force stressed that (i) some courts had eroded the clear articulation and active supervision standards, (ii) courts had largely ignored the problems of interstate spillover effects, (iii) and that there was an increasing role for municipalities in the marketplace.

To address these problems, the FTC suggested in its report that the Commission implement the following recommendations through litigation, amicus briefs and competition advocacy: (1) re-affirm a clear articulation standard tailored to its original purposes and goals, (2) clarify and strengthen the standards for active supervision, (3) clarify and rationalize the criteria for identifying the quasi-governmental entities that should be subject to active supervision, (4) encourage judicial recognition of the problems associated with overwhelming interstate spillovers, and consider such spillovers as a factor in case and amicus/advocacy selection, and (5) undertake a comprehensive effort to address emerging state action issues through the filing of amicus briefs in appellate litigation.

Finally, the report outlined previous Commission litigation and competition advocacy involving state action.

  1. PHOEBE PUTNEY AND NORTH CAROLINA DENTAL

FTC v. Phoebe Putney Health Sys. Inc., 133 S. Ct. 1003 (2013).

In Phoebe Putney, two Georgia laws gave municipally hospital authorities certain powers, including “the power ‘[t]o acquire by purchase, lease, or otherwise and to operate projects.” Under these laws, the Hospital Authority of Albany tried to acquire another hospital. Such laws provided hospital authorities the prerogative to purchase hospitals and other health facilities, a grant of authority that could foreseeably produce anticompetitive results.

The Supreme Court reaffirmed foreseeability as the touchstone of the clear-articulation test, id. at 226–27, 113 S. Ct. at 1011, but placed narrower bounds to its meaning. In particular, the Supreme Court held that “a state policy to displace federal antitrust law [is] sufficiently expressed where the displacement of competition [is] the inherent, logical, or ordinary result of the exercise of authority delegated by the state legislature.” Id. at 229, 113 S. Ct. at 1012–13. “[T]he ultimate requirement [is] that the State must have affirmatively contemplated the displacement of competition such that the challenged anticompetitive effects can be attributed to the ‘state itself.’” Id. at 229, 113 S. Ct. at 1012 (citation omitted)

Jarod Bona filed an amicus brief in this case, which you can read here. You can also read a statement from the FTC on this case here.

North Carolina State Board of Dental Examiners v. FTC Decision

We have written extensively about this case in the blog. Please see here and here.

In a nutshell, the FTC took notice, brought an administrative complaint against the board, and ultimately found the board had violated federal antitrust law. Importantly, the FTC also held that the board was not entitled to state-action immunity because its actions interpreting the dental practice act were not reviewed by a disinterested state official to ensure that they accorded with state policy. The Fourth Circuit agreed with the FTC, and the Supreme Court granted certiorari.

The case centered on whether a state professional-licensing board dominated by private market participants had to show both elements of Midcal’s two-prong test: (1) a clear articulation of authority to engage in anticompetitive conduct, and (2) active supervision by a disinterested state official to ensure the policy comports with state policy. Previous Supreme Court decisions exempted certain non-sovereign state actors, primarily municipalities, from the active supervision requirement. The board argued it should be exempt as well.

The Supreme Court rejected the board’s arguments and held that “a state board on which a controlling number of decisionmakers are active market participants in the occupation the board regulates must satisfy Midcal’s active supervision requirement to invoke state-action antitrust immunity.”

Bona Law also filed an amicus brief in this case, which you can find here.

In the wake of this Supreme Court decision, state officials requested advice from the FTC about antitrust compliance for state boards responsible for regulating occupations. Shortly after, the FTC published its Staff Guidance on Active Supervision of State Regulatory Boards Controlled by Market Participants. The Commission provided guidance on two questions. First, when does a state regulatory board require active supervision in order to invoke the state action defense? Second, what factors are relevant to determining whether the active supervision requirement is satisfied. If you want to read our summary of the guidance please see here.

  1. THE TOOL OF THE FTC AND DOJ: AMICUS CURIAE BRIEFS

An amicus curiae brief is a persuasive legal document filed by a person or entity in a case, usually while the case is on appeal, in which it is not a party but has an interest in the outcome. Amicus curiae literally means “friend of the court.” Amicus parties try to “help” the court reach its decision by offering facts, analysis, or perspective that the parties to the case have not. There is considerable evidence that amicus briefs have influence, and appellate courts often cite to them in issuing their decisions.

As far as the state action immunity is concerned, the DOJ and FTC have published several amicus briefs. Here are some particularly relevant ones:

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Author: Steven Madoff

Steven Madoff is a former Executive Vice President at Paramount Pictures and General Counsel for its Home Entertainment Subsidiary. He is Of Counsel at Bona Law.

When you see someone acting strangely, do you ever wonder if they are possessed? If you do, it might be because of the everlasting influence of a classic film that I am certain you know: The Exorcist.

One of the great joys of a film is that you can turn down the lights, let your problems disappear, and enter a meditative zone where you become engrossed in the movie and nothing else. You surely know that a lot goes into making a film and that it takes many talented people working really hard to do it well.

But do you ever think about how much thought, work, and fighting (yes, fighting) goes into marketing, distributing, and monetizing a film? Indeed, because films continue to make money for years and sometimes decades after they are made—especially for a classic film like the Exorcist—the battles over revenue and its dissemination can be everlasting.

During my decades at the studios and in the film industry, I had a front row seat to the methods, money, and machinations of the entertainment industry.

Even still, after I left Paramount Pictures, I did not think of myself as an “expert.” I had worked at Paramount for 20 years, the last ten of which I served as Executive Vice President of Worldwide Business and Legal Affairs for the Home Entertainment and Pay Television Divisions. I had also worked at the Motion Picture Association of America for five years in a business development position and then as International Counsel. The Motion Picture Association of America is the trade association representing the interests of the (at the time) seven major Hollywood Studios: Disney, MGM/United Artists, Paramount, Sony Pictures, Twentieth Century Fox, Universal and Warner Bros.

So after 25 years working for the major studios, I knew that I was very experienced and highly knowledgeable about certain aspects of the motion picture and television industries, but I did not think of myself as an “expert” on whose word courts should rely.

That was, anyway, until shortly after leaving Paramount, I started receiving phone calls from other studios involved in one form of litigation or another that were looking for someone who could qualify as an expert and would be willing to render an opinion and possibly testify in court in their litigation. Each one was certain that based on my 25 years of experience in motion picture and television industry business affairs (including all forms of licensing, sales, distribution and acquisition transactions), I would qualify as an ”expert.”

Malcolm Gladwell wrote about the 10,000 hour rule in this book “Outliers.” This rule states that it requires at least 10,000 hours of practice to become an expert in a particular field. I figured that my 25 years of practice in one industry, at a minimum of 40 hours per week, equates to about 50,000 hours that I had practiced in motion picture and television business affairs. Maybe these people were right. As it turns out, my qualifications as an “expert” in multiple cases have never been successfully challenged. That may, in part, be attributed to the fact that I have always been very selective in choosing which matters I offered my services for—I stick with what I truly know.

One of the more interesting cases on which I provided services as an expert witness involved the classic motion picture, “The Exorcist.” The case was before the U.S. District Court for the Central District of California.

For those that don’t know, “The Exorcist” is the 1973 Warner Bros. release which, for many years, was the highest box office grossing horror motion picture of all time. In fact, adjusted for inflation “The Exorcist” is probably still the highest box office grossing horror motion picture of all time. It is certainly in the top five. If you haven’t seen it, you should.

Film finance can be complicated and there are typically investors that put up money or creative services for the film, alongside a studio and others, and, in exchange, they receive a contractual right to participate in the profits of the particular film. These are commonly known as participation agreements.

As often happens in Hollywood, claims were made against Warner Bros., the distributor of “The Exorcist” by a party who has a right to participate in the profits of the film. Basically, the claim was that Warner Bros. had not been properly exploiting “The Exorcist” in subsequent media and therefore the film’s gross revenue and profits were less than they otherwise could have been.

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