Articles Posted in Antitrust Exemptions and Immunities

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Authors: Luke Hasskamp and Aaron Gott

This article briefly explores the applicability of federal antitrust laws to actions taken by municipalities or other state subdivisions and, specifically, whether they have acted pursuant to a clearly articulated state policy to displace competition in the marketplace.

Federal antitrust laws are designed to prevent anticompetitive conduct in the market. Yet, the Supreme Court long ago held that antitrust laws do not apply against States themselves, even when they take actions with anticompetitive effects. Parker v. Brown, 317 U.S. 341 (1943). The Supreme Court also recognized that this state action immunity applied not only to states but also to municipalities or other state political  subdivisions, and even private actors, provided they are acting pursuant to state authority.

Thus, any time a state or local government body is sued for antitrust violations, it will inevitably claim that it is exempt from liability under the state action immunity doctrine.

To obtain this immunity, the defendant will have to show, at the least, that it acted pursuant to a clearly articulated state policy to displace competition. In short, the state had to understand that the authority it was delegating to substate actors would have anticompetitive effects and that it clearly articulated such a policy in its legislative delegation.

But when is a state policy clearly articulated? That is the question the U.S. Supreme Court decided in FTC v. Phoebe Putney Health System, declaring a stricter standard than courts had been applying.

FTC v. Phoebe Putney Health System

Any antitrust lawyer who is drafting a brief on is probably going to cite Phoebe Putney. Those invoking state action immunity will probably downplay its significance and rely more heavily on earlier cases instead. Let’s talk about the case so you can understand how it dramatically raised the bar for defendants seeking immunity.

You don’t have to be an avid antitrust nerd to have noticed that the healthcare industry has undergone a lot of consolidation in recent years, with hospitals merging with or acquiring one another in already limited markets. The FTC challenges a fair number of these transactions because they reduce competition in markets that already have all sorts of competition problems. Phoebe Putney involved one of those challenges.

Phoebe Putney Health System was owned by a public hospital authority created by a city and county in Georgia. The health system owned Memorial Hospital, which was one of two hospitals in the county. The other hospital, Palmyra Hospital, was just two miles away and was owned by national nonprofit healthcare network HCA. Phoebe Putney and HCA reached an agreement for Phoebe Putney to purchase Palmyra, and the hospital authority approved.

The Federal Trade Commission scrutinized this plan and filed suit because the transaction would create a monopoly that substantially lessened competition in the local market for acute-care hospital services.

In defense, Phoebe Putney claimed that it was entitled to state action immunity because, it argued, it had acted pursuant to a clearly articulated state policy to displace competition. Specifically, Georgia state law allowed its political subdivisions to provide health care services through hospital authorities. The law authorized those hospital authorities “all powers necessary or convenient to carry out and effectuate” the law’s purpose, and more specifically granted them authority to acquire hospitals. Phoebe Putney claimed that it was foreseeable to the Georgia legislature that a hospital authority would use this power anticompetitively.

The district court agreed and dismissed the case. And since the case is FTC v. Phoebe Putney and not Phoebe Putney v. FTC, you can surmise that the Eleventh Circuit agreed with the district court. Many courts had been applying this foreseeability standard based on language from earlier Supreme Court cases like City of Columbia v. Omni Outdoor Advertising, and this case was no different. The Eleventh Circuit reasoned here, for example, that the Georgia legislature must have anticipated that granting hospital authorities the power to acquire hospitals would produce anticompetitive effects because “foreseeably, acquisitions could consolidate ownership of competing hospitals, eliminating competition between them.”

But the FTC had a good point: nothing about the rather basic corporate power to acquire a business suggests that a state clearly articulated a state policy allowing public hospital authorities to monopolize entire markets. Indeed, the statute did not even discuss competition. The Supreme Court granted certiorari, and ultimately agreed with the FTC in a rare 9-0 opinion: the Eleventh Circuit, like so many other courts, had been applying clear articulation “too loosely.” As a result, they had sanctioned all sorts of anticompetitive conduct by state and local government entities that the state legislature had not really intended. Federal antitrust policy should not be set aside so easily.

Instead, the defendant’s conduct must be not only foreseeable, but also the “inherent, logical, or ordinary result” of the state scheme. Courts had been seizing on the “foreseeability” language of the Court’s prior decisions while ignoring much of what else it had said:

  • State law authority to act is not sufficient; the substate governmental entity must show it was delegated the authority to act or regulate anticompetitively
  • There must be evidence the state affirmatively contemplated that the scheme would displace competition
  • Where a state’s position is one of mere neutrality to competition, the state cannot be said to have contemplated anticompetitive conduct
  • Simple permission to play in the market is not authority to act anticompetitively

The Court also addressed two additional arguments. First, Phoebe Putney pointed to Georgia’s certificate of need law as evidence that the Georgia legislature had contemplated the displacement of competition relating to hospitals. (Learn more about certificate of need laws here, here, and here). But the Court rejected this argument because “regulation of an industry, and even the authorization of discrete forms of anticompetitive conduct pursuant to a regulatory structure, does not establish that the State has affirmatively contemplated other forms of anticompetitive conduct that are only tangentially related.”

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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).

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.

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Author: Luis Blanquez

When someone new enters a market with a different or better idea or way of doing business, existing competitors must also innovate, lower their price, or otherwise improve their offerings to maintain their position in the market. That is why competition is good for consumers.

But sometimes competitors choose another path: they avoid competition by banding together to boycott the disruptive new entrant. And sometimes, they use state and local governments to accomplish that end—often under the guise of consumer health, safety, and welfare.

Competitors in some industries have been particularly successful in establishing a perpetual, government-backed gatekeeping role by collectively lobbying the state legislature to enact a licensing regime, imbuing power in a licensing board comprising competitors of the industry. That is what happened in North Carolina State Board of Dental Examiners v. FTC, a 2015 U.S. Supreme Court case about a professional licensing board comprising dentists who used their state government power to attempt to thwart competition from non-dentist teeth whiteners.

At Bona Law we are no stranger to enforcing the federal antitrust laws against anticompetitive conduct enabled by state and local governments. In fact, we filed an amicus curiae brief in the NC Dental case.

State and local governments create anticompetitive schemes that are inconsistent with federal antitrust laws all the time—regulation often displaces competition in some respect. When anticompetitive conduct is the result of government power, the federal antitrust laws sometimes exempt liability under the state-action immunity.

In NC Dental, the Supreme Court held that state regulatory boards dominated by active market participants qualify for the state-action exemption only if two stringent criteria are met: first, the defendants must show they acted pursuant to a clearly articulated state policy and second, their implementation of that policy is actively supervised by the state. NC Dental, 574 U.S. at 504. Defendants bear the burden for establishing both criteria. Id.

Yet five years after the North Carolina dental board lost at the Supreme Court, new disruptive competitors are still battling it out against dental boards across the country. One of those competitors is SmileDirectClub, who is currently litigating antitrust cases against dental boards in Georgia, Alabama and California. Rather than teeth-whitening, this time the product market is teeth alignment treatments. SmileDirectClub provides cost-effective orthodontic treatments through teledentistry.

One of SmileDirectClub’s services is SmileShops. These are physical locations in several states at which they take rapid photographs of a consumer’s mouth. Customers may also use an at-home mouth impression kit, which means that an in-person dental examination is not necessary. Afterwards they send the photographs to the SmileDirectClub lab.

SmileDirectClub connects the customer with a dentist or orthodontist, who is licensed to practice locally but is located off-site (and may be even located out-of-state), who evaluates the model and photographs and creates a treatment plan. If the dentist feels that aligners are appropriate for the patient, she prescribes the aligners and sends them directly to the patient. The patient doesn’t need to visit a traditional dental office for teeth alignment treatment. This results in significant cost savings and greater customer convenience and access.

But the members of the boards of dental examiners in Georgia, Alabama and California––the bullies that want things to remain the same––have, according to plaintiffs, used their government-created power in the marketplace to protect the economic interests of the traditional orthodontia market by using (i) coordinated statewide raids; (ii) false statements; (iii) and other misconduct to prevent SmileDirectClub from competing on the merits.

The Eleventh Circuit cases against the dental boards in Alabama and Georgia

In October 2018, SmileDirectClub together with one of its affiliated dentists in Alabama, Blaine Leeds, sued the Alabama Dental Examiners Board after receiving a cease-and-desist letter accusing him of unauthorized practice of dentistry. The district court declined to grant state-action immunity to the Alabama board members because they couldn’t show, among other things, the second element of the NC Dental test, active supervision. This case is currently on appeal.

In August 2020, SmileDirectClub won its first appellate victory against a state dental board when the Eleventh Circuit held that the Georgia’s board of dental examiners was not entitled to state-action immunity.

SmileDirectClub sued the Georgia board and its members alleging, among other things, that a rule amendment––to require dental assistants taking orthodontic scans to have immediate supervision from a licensed dentist––unlawfully restricted competition from teledentistry services. The district court dismissed SmileDirectClub’s claims against the board in its official capacity on sovereign-immunity grounds, but the claims against the board members in their individual capacities survived dismissal.

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Author: Aaron Gott and Nick McNamara

As the effects of the ongoing COVID-19 pandemic continue to ripple across all sectors of the economy, agriculture has been hit especially hard. The widespread closure of restaurants combined with the general hit on most Americans’ wallets has precipitated a massive demand shock, which in turn has sent the prices of agricultural products such as corn, soybeans, milk, and fresh produce tumbling. While this may be good news for consumers (at least in the short run), it does not bode so well for farmers, who in recent months have had to resort to dumping milk and culling herds of livestock—practices which are both wasteful and potentially environmentally harmful.

Can farmers work together to mitigate these issues by agreeing, prior to production, to set production caps so that prices may be stabilized, and waste avoided? The answer depends on whether such controls on output are covered by the Capper-Volstead Act’s antitrust exemption for farm cooperatives.

Under normal circumstances, a concerted agreement among horizontal competitors to restrict output is a per se violation of Section 1 of the Sherman Act. But the Capper-Volstead Act, enacted in 1922 amid populist fervor in the agricultural sector, provides a limited antitrust exemption to “[p]ersons engaged in the production of agricultural products as farmers, planters, ranchmen, dairymen, nut or fruit growers.”

You can read a more detailed primer on the Capper-Volstead Act here. But, in brief, the act allows agricultural producers to collectively process, prepare, handle, and market their products. Now, it is important to note again that the exemption applies only to agricultural producers, not processors. This past year, there has been a flurry of antitrust litigation against pork and beef processors who are alleged to have agreed to restrict output, among other things. As discussed in the primer, the Supreme Court has held that a cooperative cannot include processors because they do not fit into the category of “farmers, planters, ranchmen, dairymen, nut or fruit growers.” Thus, only those entities at the most basic level of the food supply chain get to enjoy the exemption.

For producers, the farm cooperative exemption has been interpreted by courts to include a blanket exemption from antitrust liability for price fixing, a practice which also normally incurs per se liability under Section 1 of the Sherman Act. No court has ever directly ruled on the question of whether the exemption applies also to output controls, but there are indications they might find output restrictions outside the narrow confines of the act.

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Author: Jarod Bona

Congress and the federal courts have—over time—created several exemptions or immunities to antitrust liability.

The US Supreme Court in National Society of Professional Engineers v. United States explained that “The Sherman Act reflects a legislative judgment that ultimately competition will produce not only lower prices, but also better goods and services.” 435 U.S. 679, 695 (1978). And “[t]he heart of our national economy long has been faith in the value of competition.” Id.

National Society of Professional Engineers holds, effectively, that those that think that they should not be subject to competition—for whatever reason—don’t get a free pass.

But there are several areas that do have limited exemptions to federal antitrust liability. Importantly, however, the US Supreme Court has repeatedly emphasized that courts should narrowly interpret these exemptions.

Here are the primary antitrust exemptions created by Congress and the federal courts:

State-Action Immunity. State-action immunity comes up a lot at Bona law, as we work hard to enforce the federal antitrust laws against anticompetitive state and local conduct. This exemption allows certain state and local government activity to avoid antitrust scrutiny. Lately, the US Supreme Court has narrowed the doctrine, including for state licensing boards that seek its protection when sued under the antitrust laws (North Carolina State Board of Dental Examiners v. Federal Trade Commission). Bona Law also advocates a market-participant exception to state-action immunity, but the courts are split on that issue.

Filed-Rate Doctrine. The filed-rate doctrine is a defense to an antitrust action that is premised on the regulatory rates filed with a federal administrative agency. In many regulated industries (like insurance, energy, shipping, etc.), businesses must, generally, file the rates that they offer to customers with federal agencies. The filed-rate doctrine eliminates antitrust liability for instances in which, to satisfy the antitrust elements, a judge or judge must question or second guess the level of these filed rates (i.e. that they included overcharges resulting from anticompetitive conduct).

Business of Insurance. The McCarran-Ferguson Act exempts certain acts that are the business of insurance and regulated by one or more states from antitrust scrutiny. You can read more about the McCarran-Ferguson Act and its requirements at The Antitrust Attorney Blog.

Baseball. That’s right—there is a baseball exemption to antitrust liability. This is a judge-made doctrine developed long ago. The other sports don’t have an antitrust exemption and the question of whether baseball should have one comes up periodically. If you want to learn more, you should read the five-part series on baseball and antitrust that Luke Hasskamp authored.

Agricultural Cooperatives. The Capper-Volstead Act provides a limited antitrust exemption to farm cooperatives. Under certain circumstances, this Congressional Act allows farmers to pool their output together and increase their bargaining power against buyers of agricultural products. You can read more about this in Aaron Gott’s article on the Capper-Volstead Act.

The Noerr-Pennington doctrine. The Noerr-Pennington immunity—named after two US Supreme Court cases—is a limited antitrust exemption for certain actions by groups or individuals when the intent of that activity is to influence government actions. The Noerr-Pennington doctrine can apply to actions that seek to influence legislative, executive, or judicial conduct. There is, however, an important sham exception to Noerr-Pennington immunity that often comes up in litigation.

You can learn more about the Noerr-Pennington doctrine and antitrust liability here.

Statutory and Non-Statutory Labor Exemptions. The statutory labor exemption allows labor unions to organize and bargain collectively in limited circumstances, including requirements that the union act in its legitimate self-interest and that it not combine with non-labor groups. The non-statutory labor exemption arrives from court decisions that further exempt certain activities that make collective bargaining possible, like joint action by employers that is ancillary to the collective bargaining process.

You can read more about both the statutory and non-statutory labor antitrust exemptions here.

Implied Immunity. Implied immunity occurs in the rare instances in which there is no express antitrust exemption, but the anticompetitive conduct falls into an area of such intense federal regulatory scrutiny that antitrust enforcement must yield to the pervasive federal regulatory scheme.

The typical area where this comes up is with the federal securities laws, which is a good example of pervasive federal regulation. The US Supreme Court case to read for this antitrust exemption is Credit Suisse Securities (USA) LLC v. Billing, from 2007.

Keep in mind that courts do not easily find implied immunity of the antitrust laws—there must be a “clear repugnancy” or “clear incompatibility” between the antitrust laws and the federal regulatory regime.

Export Trade Exemptions. A little-known exemption involves export trade by associations of competitors. This antitrust exemption arises primarily from the Webb-Pomerene Act and the Export Trading Company Act. These FTC and DOJ guidelines provide more information about this antitrust exemption.

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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: 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: 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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