Articles Posted in Antitrust Exemptions and Immunities

Noerr-Pennington-Immunity-300x190

Author: Jarod Bona

You might wonder why industry trade associations can lobby the government without obvious antitrust sanction, even when—which is common—they seek regulations or actions that ultimately harm competition.

The answer is found in the Noerr-Pennington doctrine, which we will discuss today.

What is the Noerr-Pennington Doctrine?

The Noerr-Pennington immunity is a limited exemption from antitrust liability for certain actions by individuals or groups that are intending with that action to influence government decision-making, which can be legislative, executive, or judicial.

Importantly, for the Noerr-Pennington immunity to apply, the challenged action cannot be a sham that merely covers up an intent to interfere with a competitor’s ability to compete. The question of whether an action fits within the “sham” exception to Noerr-Pennington is often an area of intense dispute between the parties to litigation. You can learn more about the sham exception later in this article.

The purpose of the Noerr-Pennington doctrine is to protect the fundamental right to petition the government, including filing litigation in the courts. It also seeks to support the flow of information to the government. If you’ve read the First Amendment to our Bill of Rights, you might be familiar with this petitioning the government thing.

You may wonder why the doctrine has such an odd name—Noerr-Pennington. Why didn’t they name it the “government-petitioning” immunity or the “you-can-sue-who-you-want-without-incurring-antitrust-liability” doctrine?

Did two people named Noerr and Pennington invent the doctrine?

No—the Noerr-Pennington immunity developed from two cases in the crazy 1960s: Eastern Railroad Conference v. Noerr Motor Freight, 365 U.S. 127 (1961) and United Mine Workers of America v. Pennington, 381 U.S. 657 (1965—better known as the first year the Minnesota Twins made the World Series, losing to the Dodgers).

In Noerr Motor Freight (we’ll describe the case with the party name that made the doctrine title), a group of railroad companies conducted a joint publicity campaign targeting legislation that would make it harder for trucking companies to compete with them. Even though defendants’ conduct was anticompetitive in intent, the Court held that joint action for legislation was of sufficient importance to society that it should be exempt from antitrust liability.

In Pennington, a union and a group of large mining companies escaped antitrust liability for their group effort (i.e. conspiracy) to try to induce the Labor Department to set minimum wages at a level that would make it difficult for small mining companies to compete.

From these two cases, the doctrine took off and was expanded to other contexts, including court filings. Of course, there are limits and parties facing antitrust scrutiny can’t just point to some potential eventual political impact to their actions to capture Noerr-Pennington immunity.

Interestingly, the US Supreme Court  in Allied Tube and Conduit Corp v. Indian Head, Inc., 486 U.S. 492 (1988), rejected Noerr-Pennington immunity for anticompetitive conduct before a private standard-setting body, even though local governments typically enact the standards set by that standard-setting group. If you are interested in where the lines are to meet the government petitioning part of the Noerr-Pennington doctrine, you should read Allied Tube.

What is the Sham Exception to the Noerr-Pennington Doctrine?

As you might expect with any exception, parties that want to get away with antitrust liability try to fit their conduct within it. That is one reason why the Supreme Court makes it clear that exceptions, exemptions, and immunities to the antitrust laws should be construed narrowly. (Unfortunately, many courts below the Supreme Court have not yet figured that out with respect to state-action immunity, as they are still applying it more broadly than I believe the Supreme Court has ordered through its recent decisions).

Anyway, to avoid abuse of the Noerr-Pennington doctrine, courts apply what is called a “sham exception.” This exception applies when the challenged conduct is intended to interfere with competition, rather than to legitimately influence official government conduct.

It isn’t always easy to understand when the “sham” exception applies, but one way to understand the difference is to compare the “process” of government petitioning from the “outcome” of government petitioning. When the anticompetitive conduct arises from the actual process—i.e. baseless litigation that bankrupts a competitor because of the legal fees—the sham exception applies. When the harm from the challenged conduct arises from the outcome of government petition—i.e. successfully convincing a government agency to pass a grossly anticompetitive regulation—the sham exception is less likely to apply.

One example of potentially “sham” petitioning activity outside of a litigation context is a situation in which a competitor will challenge its market adversary’s licensing application (of some sort) in an effort to delay it or otherwise interfere with its granting, outside of any issues with the merits.

Sometimes what you will see in the reality of a dispute is a combination of legitimate petitioning activity and other coercive anticompetitive conduct. In those instances, an antitrust defendant cannot use the activity protected by the Noerr-Pennington doctrine to shield the other unprotected anticompetitive conduct. Courts often have to distinguish between the two categories of conduct.

Continue reading →

State-and-Local-Government-Antitrust-Violations-300x205

Author: Jarod Bona

Lawyers, judges, economists, law professors, policy-makers, business leaders, trade-association officials, students, juries, and the readers of this blog combined spend incredible resources—time, money, or both—analyzing whether certain actions or agreements are anticompetitive or violate the antitrust laws.

While superficially surprising, upon deeper reflection it makes sense because less competition in a market dramatically affects the prices, quantity, and quality of what companies supply in that market. In the aggregate, the economic effect is huge, thus justifying the resources we spend “trying to get it right.” Of course, in trying to get it right, we often muck it up even more by discouraging procompetitive agreements by over-applying the antitrust laws.

So perhaps we should focus our resources on the actions that are most likely to harm competition (and by extension, all of us)?

Well, one place we can start is by concentrating on conduct that is almost always anticompetitive—price-fixing and market allocation among competitors, as well as bid-rigging. We have the per se rule for that. Check.

There is another significant source of anticompetitive conduct, however, that is often ignored by the antitrust laws. Indeed, a doctrine has developed surrounding these actions that expressly protect them from antitrust scrutiny, no matter how harmful to competition and thus our economy.

As a defender and believer in the virtues of competition, I am personally outraged that most of this conduct has a free pass from antitrust and competition laws that regulate the rest of the economy, and that there aren’t protests in the street about it.

What has me so upset?

Continue reading →

Downtown Hartford

Author: Jarod Bona

In many instances, conduct involving the business of insurance is, indeed, exempt from antitrust liability.

So why does insurance sometimes get a free pass?

In 1945, Congress passed a law called The McCarran-Ferguson Act. Insurance, of course, has traditionally been regulated by the States. Territorial and jurisdictional disputes between the States and the Federal government are a grand tradition in this country. We call it Federalism. In 1945, it appears that the states won a battle over the feds.

As a result, in certain instances, business-of-insurance conduct can escape federal antitrust scrutiny.

The business of insurance isn’t the only type of exemption from the antitrust laws. There are a few. At The Antitrust Attorney Blog, we have discussed state-action immunity quite a bit (as suing state and local governments under the antitrust laws is a favorite topic of mine). Indeed, the week of this article update, Bona Law filed a petition for cert to the US Supreme Court asking it to review a state-action immunity from antitrust liability ruling by the Ninth Circuit.

An exemption that is similar to the McCarran-Ferguson Act is the filed-rate doctrine, which we discuss here. There are, of course, several others, including–believe it or not–an antitrust exemption for baseball. The courts, however, disfavor these exemptions and interpret them narrowly.

But back to the insurance-business exemption and The McCarran-Ferguson Act. Do you notice that I keep calling it the “business of insurance” exemption and not the insurance-company exemption? That is because the courts don’t just exempt insurance companies from antitrust scrutiny. No, the exemption only applies to the business of insurance and in certain circumstances.

Below are the basic elements a defendant must satisfy to invoke the McCarran-Ferguson Act:

  1. The conduct in question must be regulated by the state or states.
  2. The conduct must qualify as the business of insurance—the business of insurers is not sufficient.
  3. The conduct must not consist of a group boycott or related form of coercion.

Each of these elements, in turn, has its own requirements, case law, and doctrinal development. The most interesting of the three elements is how to define the business of insurance.

Continue reading →