Antitrust News: The Department of Justice Supports a Market-Participant Exception to State-Action Immunity in No-Poaching Agreement Case Against Duke University

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Author: Jarod Bona

It is illegal under the antitrust laws for competitors to agree not to steal each others’ employees. For more about that, you can read our article about how the antitrust laws encourage stealing. Yes, you read that correctly.

But this article isn’t about stealing or even agreeing not to steal employees. Instead, it is about one of our favorite topics: Suing the government under the antitrust laws and the increasingly narrow state-action immunity from antitrust liability.

The FTC and DOJ Antitrust Division can affect antitrust policy beyond just the cases that involve those agencies. They will often file amicus briefs, or in this case, a Statement of Interest of the United States of America. You can read here about how these type of filings have resulted in the FTC seeming like a libertarian government agency.

In Danielle Seaman v. Duke University, a class action alleging that Duke and the University of North Carolina had a no-poaching agreement in violation of the Sherman Antitrust Act, the Department of Justice filed a Statement of Interest on March 7, 2019.

One of Duke’s arguments in defense of the lawsuit is that it is exempt from antitrust liability because it is a state entity. This is called state-action immunity. We write about this doctrine constantly at The Antitrust Attorney Blog.

Anyway, Duke argued that it is Ipso facto exempt from the antitrust laws because it is a “sovereign representative of the state” that is automatically exempt under the Parker doctrine (which is essentially the state-action immunity doctrine). Notably, this argument is flawed already, as the doctrine really only supports automatic exemption for the state acting directly as sovereign, which is typically limited to the state acting in its legislative capacity, or its Supreme Court acting as a legislator (which sometimes happens).

But the Department of Justice, in addition, argued that state-action immunity—or at least Ipso facto immunity—does not apply because Duke University is acting as a market participant, not as a regulator. The DOJ supported this argument with some familiar case law, including the landmark NC Dental case.

It seems that the DOJ market-participant argument is limited here to the point that Duke cannot be automatically exempt from antitrust liability because it is a market participant rather than a regulator, for purposes of the anticompetitive conduct.

But the same reasoning that DOJ makes and the same cases that DOJ cites support a broader market-participant exception to state-action immunity overall. This is an issue that the US Supreme Court expressly left open in its Phoebe Putney decision.

It is a short step from the argument that DOJ makes here to a straightforward market-participant exception to state-action immunity.

Why do I care so much about this?

This one is a little bit personal for me.

Many years ago—back in my DLA Piper days—I became interested in the issues involved with suing the government under the antitrust laws and the state-action immunity doctrine. This was before Phoebe Putney and before NC Dental.

The Institute for Justice (check out the great work they do) invited me to speak at an event on Occupational Licensing issues. I spoke about antitrust, of course. The result was an article on antitrust and licensing issues that discussed NC Dental before it was a Supreme Court case.

That led to a US Supreme Court amicus brief for the National Federation of Independent Business in the Phoebe Putney case, arguing that the Court should recognize a market-participant exception to state-action immunity.

The Supreme Court didn’t follow our advice, but we received a shout-out in footnote 4 of the Phoebe Putney opinion telling us specifically that they would not address our issue in that case, which is still open.

Unwilling and unable to give up in our quest for a market-participant exception to state-action immunity, Luke Wake from the NFIB and I published an article urging a market-participant exception to state-action immunity. Sometimes great change takes time.

Recently, we argued in the Ninth Circuit for a market-participant exception to state-action immunity for one of our clients. But the Ninth Circuit declined to accept this argument. So we sought Supreme Court review on this issue and others, which you can read about here.

Anyway, seeing DOJ make many of the same arguments that we have made over the years feels good because I can taste how close we are to achieving our goal to apply a market-participant exception to state-action immunity. I won’t get into the details why that is so important because I have written about it a lot in the past, including in this article. But it is fun to watch the evolution of the law. I think the Supreme Court will eventually get there. And if they don’t, Congress should step in to do it themselves.

One final point: In the Duke University case, DOJ also argues that, among other reasons, the active supervision test of Midcal should apply here because Duke is acting as a labor market participant. You can read more about active supervision here.

It used to be that municipalities were not subject to the active supervision prong of the Midcal test, but after NC Dental, I don’t think that is still good law. But as far as I know, that hasn’t yet been confirmed. I think that a likely small step on the way to a broader market-participant exception is to apply the active supervision prong even to municipalities when those local governments are acting as market participants. That really is the only approach that makes sense following NC Dental.

This will be fun to watch.

This article assumed some knowledge of state-action immunity. If you didn’t understand the shorthand references, I recommend that you read some of our other state-action immunity articles or at least the NC Dental decision (we filed an amicus brief in that case too).