Articles Posted in FTC

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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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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?

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Antitrust Superhero

Author: Jarod Bona

Some lawyers focus on litigation. Other lawyers spend their time on transactions or mergers & acquisitions. Many lawyers offer some sort of legal counseling. And another group—often in Washington, DC or Brussels—spend their time close to the government, usually either administrative agencies or the legislature.

But your friendly antitrust attorneys—the superheroes of lawyers—do all of this. That is part of what makes practicing antitrust so fun. We are here to solve competition problems; whether they arise from transactions, disputes, or the government, we are here to help. Or perhaps you just want some basic advice. We do that too—all the time. We can even help train your employees on antitrust law as part of compliance programs.

Perhaps you are a new attorney, or a law student, and you are considering what area to practice? Try antitrust and competition law. Not only is this arena challenging and in flux—which adds to the excitement—but you also don’t pigeonhole yourself into a particular type of practice. You get to do it all—your job is to understand the essence of markets and competition and to help clients solve competition problems.

For those of you that aren’t antitrust attorneys, I thought it might be useful if I explained what it is that we do.

Antitrust and Business Litigation

Although much of our litigation is, in fact, antitrust litigation, much of it is not. In the business v. business litigation especially, even in cases that involve an antitrust claim, there are typically several other types of claims that are not antitrust. As an example, we explain here how we see a lot of Lanham Act False Advertising claims in our antitrust and competition practice.

Businesses compete in the marketplace, but they also compete in the courtroom, for better or worse. And when they do, their big weapon is often a federal antitrust claim (with accompanying treble damages and attorneys’ fees), but they may also be armed with other claims, including trade secret statutes, Lanham Act (both false advertising and trademark), intellectual propertytortuous interference (particularly popular in business disputes), unfair competition, unfair and deceptive trade practices, and others.

In many instances, in fact, we will receive a call from a client that thinks they may have an antitrust claim. Perhaps they read this blog post. Sometimes they do, indeed, have a potential antitrust claim. But in other instances, an antitrust claim probably won’t work, but another claim might fit, perhaps a Lanham Act claim for false advertising, or tortuous interference with contract, or some sort of state unfair trade practice claim.

Antitrust lawyers study markets and competition and are the warriors of courtroom competition between competitors. If you have a legal dispute with a competitor, you should call your friendly antitrust attorney.

Antitrust litigation itself is great fun. The cases are usually significant, document heavy, with difficult legal questions and an emphasis on economic testimony. Some of them even involve class actions or multi-district litigation.

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Global Antitrust

Author: Jarod Bona

Just because your company isn’t based in the United States doesn’t mean it can ignore US antitrust law. In this interconnected world, there is a good chance that if you produce something, the United States is a market that matters to your company.

For that reason, I offer five points below that attorneys and business leaders for non-U.S. companies should understand about US antitrust law.

But maybe you aren’t from a foreign company? Does that mean you can click away? No. Keep reading. Most of the insights below matter to anyone within the web of US antitrust law.

This article is cross-posted in both English and French at Thibault Schrepel’s outstanding competition blog Le Concurrentialiste

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The FTC Headquarters in Washington, DC. The cornerstone to the building was laid in 1937 by Franklin Roosevelt, reportedly using the same trowel George Washington used to lay the cornership of the U.S. Capital in 1793. In the spirit of competition, the National Gallery of Art has set its sights on expanding into the FTC building, and in 2016, the General Services Adminsitration has been investigating the proposal. The FTC has strongly resisted this form of competition for its space.

Author: Steven Levitsky

Under US antitrust Law, parties to certain mergers and acquisitions must prepare what is called a Hart-Scott-Rodino (HSR) filing for the antitrust agencies.

In an earlier article, we mentioned that HSR filings, at least for voting securities and LLC interests, are not triggered by the literal “size-of-transaction” amount.

Instead, they are triggered by a combination of (1) all existing holdings in a target plus (2) what you intend to buy in that target. (In HSR lingo, this is called “aggregation.”) Plus, you need to calculate the total existing holdings across the entire control group. (In HSR lingo, this means all the entities controlled by the “ultimate parent entity.”) When you don’t, you run the risk of being fined $40,654 per day.

Here’s a great example, based on a real-life case. Alpha Fund owns $84 million of Bravo Ltd’s voting securities. Alpha Fund is controlled by Mr. Smith. Because of this control, Mr. Smith is the hedge fund’s “ultimate parent entity,” and he is deemed to “hold” everything in his control group.

Based on his fund’s holdings, Mr. Smith was appointed to the Board of Bravo Ltd. As a board member, he was given stock options for 10,000 voting shares and exercised them. Let’s assume that those shares were worth $50 each, so that the entire option acquisition was only $500,000. This is 0.0059% of the HSR threshold of $84.4 million. But that’s not the way the HSR system works.

What Mr. Smith should have done (or rather, what his lawyers should have done) was combine, or “aggregate,” all his existing holdings ($84,000,000) with the options he was about to convert $500,000). In other words, as a result of his option transaction, Mr. Smith now “held” $85,000,000 of voting securities in Bravo Ltd. But he never made an HSR filing. In this case, the FTC fined him $250,000.

This is actually a simplified version of the real story. In fact, Alpha Fund had previously failed to make an mandatory HSR filing, and had made a corrective filing only later, only proving that it is hard to keep track of acquisitions across a control group. As part of the settlement of the corrective (after-the fact) filing, the FTC always imposes an obligation to create and maintain a compliance program for future acquisitions. The FTC takes the position that a second failure to file proves that the compliance program was not complied with.

By the way, there was absolutely no competitive issue involved in this violation. The control group’s collective holdings in Bravo Ltd. were too low for it to be able to exert any control. Furthermore, Bravo Ltd. granted the options with one single day to exercise them. There was no possibility for Mr. Smith to have made an HSR filing. Despite all these mitigating factors, the fine was imposed simply because there had been an acquisition that required an HSR filing, and no filing was made.

Here’s another complication from the same story. Let’s assume that Alpha Fund bought the shares at $50,000,000, and that over time they appreciated in value to $84,000,000. It’s not clear, but it seems possible that Alpha and Mr. Smith had considered the original acquisition cost of the stock ($50,000,000 plus $500,000). That was another serious mistake, because the HSR rules require you to calculate the current value of your existing holdings. In other words, if your original $50,000,000 investment grows to $85,000,000 through appreciation, you don’t need to do a thing. But you can’t acquire a single dollar more of stock in the same target without making a filing.

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Author: Jarod Bona

The United States Court of Appeals for the Fifth Circuit agreed on July 17, 2018 to stay the FTC’s Action against the Louisiana Real Estate Appraisers Board.

The Fifth Circuit’s one-line decision rejects the FTC’s opposition to the Board’s requested stay and allows immediate appellate review of the FTC’s significant state-action-immunity rejection.

You might recall that we wrote about the FTC’s state-action-immunity decision the day it occurred, concluding that then Commissioner Ohlhuasen’s opinion was well-reasoned and thorough.

You can review the documents in the FTC administrative action against the appraisal board here.

This FTC administrative action arises out of allegations that a Louisiana board of appraisers required appraisal management companies to pay appraisers what it described as a “customary and reasonable” fee for real estate appraisal services. The FTC argues that this is illegal price-fixing, which, of course, violates Section 5 of the FTC Act.

What is particularly interesting about this case is that it addresses one of the most significant applications of the active supervision prong of the state-action-immunity doctrine since the US Supreme Court decided NC Dental.

You might recall that, in most cases, entities that want to claim state-action immunity must satisfy both prongs of the Midcal test: (1) the challenged restraint must be clearly articulated and affirmatively expressed as state policy; and (2) the policy must be actively supervised by the state itself.

You can read our analysis of active supervision and related FTC guidance on the requirement here.

As we described in our prior article, Commissioner Ohlhausen effectively addressed important factual and legal issues that make up the active-supervision standard, offering useful guidance to boards and those that challenge them under the antitrust laws.

For example, the FTC applied three elements that it held—in this case—form part of active supervision: (1) the development of an adequate factual record; (2) a written decision on the merits; and (3) a specific assessment of how the private action compares with the substantive standard from the legislature.

While the Fifth Circuit’s stay decision is not good news for the FTC’s current action, it may be good news for state boards and others that want guidance on the active-supervision requirements of state-action immunity.

The Supreme Court’s NC Dental decision offered some parameters of what doesn’t constitute active supervision, mostly from prior cases. But at this point, the law is light on the specifics. A federal appellate decision that fully engages on these issues will help state boards, victims of state boards, district courts, and, in fact, the Federal Trade Commission.

Besides the substantive active supervision issue, this case presents the drama of the Louisiana governor trying to get around the state-supervision deficiencies through executive order in response to the FTC’s initial antitrust complaint. The board argued that the executive order made the FTC’s case moot. The FTC, of course, rejected that argument.

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Author: Luis Blanquez

Makan Delrahim, Antitrust Chief for the United States Department of Justice, made news on June 1, 2018, when he announced that the United States will finalize and join the Multilateral Framework on Procedures in Competition Law Investigation and Enforcement.

Delrahim explained why due process is a priority for antitrust and competition enforcement: “With more than 140 competition agencies, and increased international commerce, including digital commerce, it is more and more critical that we share a common set of principles that affords due process to individuals and businesses in investigation and enforcement.” (p.2).

We applaud this effort and agree that companies—including those that do business on several continents and governed by multiple enforcers—should receive fair treatment worldwide by competition authorities.

In his speech, Delrahim mentioned the International Competition Network (ICN), among other groups, as likely substantive sources for the multilateral framework.

It just so happens that the ICN recently addressed this issue at its 17th annual conference, hosted by the Competition Commission of India on March 21-23, 2018. Indeed, the ICN adopted new guiding principles for procedural fairness in competition agency enforcement.

For those that are not familiar with it, the ICN is a network of 104 competition agencies, enriched by the participation of non-governmental advisors (representatives from business, consumer groups, academics, and the legal and economic professions), with the common aim of addressing practical antitrust enforcement and policy issues. The ICN promotes more efficient and effective antitrust enforcement worldwide to the benefit of consumers and businesses.

Because antitrust and competition agencies are now prioritizing due process, we will do a deep dive into the specific due process issues that the ICN described in its report.

One of the ICN’s several working groups is the Agency Effectiveness Working Group (AEWG).  The AEWG aims to identify key elements of well-functioning competition agencies, including good practices for strategy, planning, operations, enforcement and procedures. To that end, the AEWG recently developed an ICN Guidance on Investigative Process paper, which offers helpful tips on investigative transparency and due process. This paper follows previous reports on Investigative Tools, Competition Agency Transparency Practices, and Competition Agency Confidentiality Practices.

Following these guidance reports, the AEWG has now produced new Guiding Principles for Procedural Fairness, together with some recommendations for internal agency practices and implementation tips for good agency enforcement process.

You can access the ICN report here.

Following the two-day conference in India, the AEWG adopted the following Guiding Principles for procedural fairness in competition agency enforcement:

Impartial Enforcement

Competition agencies should conduct enforcement matters in a consistent, impartial manner, free of political interference. Agency officials should not have relational or financial conflicts in the matters on which they work. Agencies should not discriminate on the basis of nationality in their enforcement.

The AEWG highlights that agency officials should not have relational or financial conflicts of interest relevant to the investigations and proceedings they participate in or oversee. To ensure the impartiality of investigations and decision making, agencies should have ethics rules to prevent potential conflicts. And they should consider a systematic process to check for potential conflicts for all personnel working on a specific investigation.

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Author: Jarod Bona

As you may have heard, the Senate recently approved a new slate of FTC Commissioners. Among them is new Commissioner Rohit Chopra, who is a former assistant director at the Consumer Financial Protection Bureau and former advisor to the Secretary of Education.

Commissioner Chopra was sworn in on May 2, 2018 and quickly announced one of his early priorities: On May 14, 2018, he issued a public memorandum to the other FTC Commissioners and the FTC Staff describing how he believes the FTC should handle repeat offenders of FTC violations.

Let’s dig into this a little bit.

Commissioner Chopra describes the problem of corporate recidivism as generally resulting from significant management dysfunction, which requires “serious remedies that address the underlying issues.”

After describing several non-antitrust examples of this corporate recidivism, particularly involving large financial institutions, Commissioner Chopra points out, bluntly, that “FTC orders are not suggestions.” He says that—“to deter violations and maintain [the FTC’s] credibility as law enforcers”—the FTC “should carefully consider ways to build on its existing enforcement regime to make clear to market participants that our orders are to be taken seriously.”

For flagrant violators of district court orders, he believes that the agency should consider “contempt proceedings, referral to criminal authorities, and remedial injunctive relief.” Companies that violate FTC administrative orders should face additional injunctive relief and meaningful civil penalties.

Notably, Commissioner Chopra expresses a desire to go after individual executives that participate in FTC order violations, even if those individuals weren’t named in the original orders. So if a company is subject to an FTC order and violates that order, Commissioner Chopra would like to target the people that created the violation.

Structural Remedies Following Order Violations and an Important Caution

Finally, in what I believe is the most newsworthy part of this memorandum, Commissioner Chopra describes the structural remedies that he believes the FTC should explore for FTC-order violators.

His purpose in proposing these remedies is to address “the true causes of noncompliance.” Commissioner Chopra believes that certain companies may “engage in risky business practices to demonstrate to investors and capital markets that they are meeting or surpassing expectations for earnings and growth.” He also believes that “executive compensation practices might inadvertently create incentives for practices that might harm consumers or competition.”

We are, of course, treading on dangerous territory here. Businesses necessarily take risk—that is a feature not a bug. What are “risky business practices”? That is for the market—in its brutal truth and honesty—to reveal. It isn’t up to a government official or entity, without Skin in the Game, to make these determinations.

That isn’t to say that the FTC shouldn’t enforce antitrust, competition, and consumer protection laws. Nor is it to say that the FTC shouldn’t raise the penalties for repeat offenders. But protection of competition moves silently and dangerously to market distortion and harm when it decides that it is smarter than the market itself.

Those that enforce the antitrust laws with government power must do so humbly for the line between removing the barriers to competition and, frankly, screwing-up competition is a fine one that we rarely see clearly. It is best that those with power stay firmly on one side, so they don’t cross this line.

With those cautions, here are the structural remedies that Commissioner Chopra proposes the FTC consider invoking in response to order violations:

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Real-Estate-Appraisers-Antitrust-FTC-300x188Author: Jarod Bona

On April 10, 2018—the eve of my panel on state action immunity issues at the ABA Antitrust Spring Meeting in DC, the FTC granted, in essence, partial summary judgment against the Louisiana Real Estate Appraisers Board on state action immunity. You can read the FTC decision—hot off the press—right here.

I won’t go into a lot of detail here as you can read the decision, but here is short summary:

FTC State Action ImmunityIn early 2015, the U.S. Supreme Court held in North Carolina State Board of Dental Examiners v. FTC that the “active state supervision” prong of the state-action immunity from antitrust liability test applied to state licensing boards controlled by market participants. You can read my analysis of the decision here. And you can read the amicus brief that Bona Law filed in the case here.

(Besides the “active state supervision” requirement, state-action-immunity applicants must also demonstrate that the challenged restraint was clearly articulated and affirmatively expressed as state policy by a state sovereign, like a state legislature. The Supreme Court recently addressed this requirement in FTC v. Phoebe Putney Health System, Inc. I filed an amicus brief in this case, which you can review here.)

Update: The FTC applied its Active State Supervision criteria in an enforcement action against the Louisiana Real Estate Appraisers Board.

The Basics of Antitrust Liability and State-Action Immunity for State Regulatory Boards

I have written quite a bit about state action immunity and the NC Dental case, so I won’t give a lot of background here. You can read my prior articles.

But here are the basics: Not surprisingly, state and local governments often engage in anticompetitive behavior. Sometimes this includes conduct that the federal antitrust laws prohibit.

But, owing to federalism and the fact that governments get away with things they shouldn’t, sometimes state and federal governments have a get-out-of-antitrust-liability card called “state-action immunity.” Like all antitrust exemptions, Courts interpret the scope of state-action immunity narrowly.

In most situations, a state or local government seeking state-action immunity must demonstrate that (1) the state sovereign—usually the legislature or state supreme court acting legislatively—clearly articulated and affirmatively expressed the challenged restraint as state policy (See Phoebe Putney); and (2) that the state actively supervises the anticompetitive policy.

Before the US Supreme Court decided the NC Dental case, it was an open question whether state licensing or regulatory boards were required to show both prongs of what is called the Midcal test, or just the first prong. That is, it wasn’t a given that these state boards had to show active supervision. I addressed that very issue in a law review article, which you can read here. But apparently my article wasn’t enough to end discussion on the issue, so the US Supreme Court went ahead and addressed it in the NC Dental v. FTC case.

The Supreme Court in NC Dental went on to hold that a state board on which a controlling number of decision-makers are market participants in the regulated occupation must satisfy the active supervision requirement to invoke state-action antitrust immunity.

(As an aside, certain municipalities do not need to show active state supervision, but I suspect that courts will continue to narrow this exception. Luke Wake and I argued in another law review article that whenever the government entity becomes a market-participant, it should lose its state-action immunity entirely. I mention this here because it is often a local government entity that competes directly in the market and tries to invoke state-action immunity.).

So we now know that anticompetitive conduct by state regulatory boards are subject to antitrust scrutiny unless they can show both prongs of the Midcal test, including active state supervision. But what is active state supervision?

What is Active State Supervision for State-Action Immunity from Antitrust?

Active Supervision is something that the US Supreme Court has on occasion addressed, but there isn’t a clear standard. It simply hasn’t come up enough to create a dense body of law. So the guidance is slim.

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