Articles Posted in State-Action Immunity

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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 situations that do create 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. We expect that this exemption will continue to narrow over time.

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). So a business filing rates with a regulator is not, by itself, sufficient to create an exemption from antitrust liability. There are nuances.

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 here.

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. And you can read about production restraints here.

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. A broad interpretation of this immunity could create massive antitrust loopholes because even a regulator with a heavy hand on an industry may not consider anticompetitive conduct as part of its command and control. And regulation itself creates barriers to entry in a market that is more likely to lead to less competition.

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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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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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: Jarod Bona

Maybe everyone really is conspiring against you? If they are competitors with each other—that is, if they have a horizontal relationship—they may be committing a per se antitrust violation.

A group boycott occurs when two or more persons or entities conspire to restrict the ability of someone from competing. This is sometimes called a concerted refusal to deal, which unlike a standard refusal to deal requires, not surprisingly, two or more people or entities.

A group boycott can create per se antitrust liability. But the per se rule is applied to group boycotts like it is applied to tying claims, which means only sometimes. By contrast, horizontal price-fixing, market allocation, and bid-rigging claims are almost always per se antitrust violations.

We receive many calls and messages about potential group boycott actions. This is probably the most frustrating type of antitrust conduct to experience as a victim. Companies often feel blocked from competing in their market. They might be the victim of marketplace bullying.

You can also read our Bona Law article on five questions you should ask about possible group boycotts.

Many antitrust violations, like price-fixing, tend to hurt a lot of people a little bit. A price-fixing scheme may increase prices ten percent, for example. Price-fixing victims feel the pain, but it is diffused pain among many. Typically either the government antitrust authorities or plaintiff class-action attorneys have the biggest incentive to pursue these claims.

Perpetrators of group-boycott activity, by contrast, usually direct their action toward one or very few victims. The harm is not diffused; it is concentrated. And it is often against a competitor that is just trying to establish itself in the market. The victim is often a company that seeks to disrupt the market, creating a threat to the established players. This is common.

The defendants may act like bullies to try to keep that upstart competitor from gaining traction in the market. Sometimes trade associations lead the anticompetitive charge.

Group boycott activity often occurs when someone new enters a market with a different or better idea or way of doing business. The current competitors—who like things just the way they are—band together to use their joint power to keep the enterprising competitor from succeeding, i.e. stealing their customers.

Sometimes group-boycott claims are further complicated when the established competitors—the bullies—use their relationships with government power to further suppress competition. Indeed, sometimes the competitors actually exercise governmental power.

This is what occurred in the NC Dental v. FTC case (discussed here, and here; our amicus brief is here): A group of dentists on the North Carolina State Board of Dental Examiners engaged in joint conduct, using their government power, to thwart teeth-whitening competition from non-dentists.

This, in my opinion, is the most disgusting of antitrust violations: a group of bullies engaging government power to knock out innovation and competition. And I am very happy to see the Federal Trade Commission take a pro-active role against such anticompetitive thuggery.

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Author: Luis Blanquez

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

And here is why.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Author: Luis Blanquez

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

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

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

  1. THE FIRST STEPS: THE MODERN STATE ACTION PROGRAM

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

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

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

  1. PHOEBE PUTNEY AND NORTH CAROLINA DENTAL

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

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

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

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

North Carolina State Board of Dental Examiners v. FTC Decision

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

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

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

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

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

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

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

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

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

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Author: Jarod Bona

Selling a product or service when there is little to no competition is a great way to get rich. An economist might call some of those profits “monopoly rents.” With less or no competition, the amount supplied usually diminishes and the price goes up. The purchasers in this scenario lose and the supplier wins.

That is why companies, individuals and governments (yes, governments) violate the antitrust laws—it is good money.

Let’s say you run a municipality and money is tight. You could raise taxes, but that is a hassle because people hate taxes (understandably). You don’t want to cut spending or services because that might make re-election more difficult and will anger the lobbyists. You could spend your money more efficiently, but—oh yeah—you are part of the government. That probably won’t work.

Discouraged, you pack up and fly to the next convention of municipal bureaucrats in a sunny, expensive location. Probably somewhere in California. After a day or two of panels on replacing intersections with roundabouts and other riveting ideas, you are starting to perk up. Maybe it is the sun. Or maybe it is the conversation you just had with another municipal leader from a different state.

You were complaining about your budget at the municipal-budget support group session and this municipal leader from, let’s say, Virginia, told you about a brilliant money-making scheme for your municipality.

With a new-found energy, you fly back home and begin to implement it.

Here’s the brilliant idea: You leverage your government power to force a monopoly for the municipality. So the municipality will go into business, but doesn’t have to compete like every other business. You get the monopoly rents (money, money, money). The citizens who have to purchase your product or service—maybe garbage collection—lose because they will have to pay more. But it doesn’t look like a tax, even though it is really a hidden tax.

How many citizens will draw out supply and demand curves and loudly protest when they see that their “consumer surplus” is changed into “monopoly rents” for you? Only the economists and antitrust attorneys would do that and you’ve already convinced them to move away long ago.

This is fiction, of course. You probably don’t really run a municipality and you hopefully haven’t implemented an anticompetitive scheme to enrich your government entity.

But this happens all the time. Bona Law receives many calls from businesses that want to compete, but get shoved out of a market because a government entity wants to enrich itself. In practice, what often happens is a local government entity will pick a private-entity partner to implement the business with the product or service and the public and private entities will split the monopoly rents, to the detriment of the taxpayers and potential competitors.

This is a consistent problem and as you read the narrative, you can see why: It is a great way to get rich. Municipalities need money and will often use their regulatory power to assure that their market participation (or partner) remains free from competition.

A regular business couldn’t, of course, get away with this—they would be sued under the antitrust laws or face FTC or DOJ antitrust investigations and actions.

But can the local government get away with this corrupt, hidden tax that hurts competition and enlarges their own coffers?

Well, it depends.

Unfortunately, they get away with it all too often.

The federal antitrust laws do, fortunately, apply to local government entities, but they have a limited exemption called the state-action immunity. We’ve written about that a lot, so I won’t go into the details here. But, in some limited circumstances, courts will allow them to effectively steal money by removing competition from markets in which they compete.

Can you tell what side we take in these cases?

Anyway, there is an easier solution. And you can help.

A few years ago, in a case called FTC v. Phoebe Putney Health Systems, Inc., the US Supreme Court addressed an argument by the National Federation of Independent Business, as amicus, requesting the Court to apply what is called the market-participant exception to state-action immunity. That exception states that a government entity that is acting as a market-participant or commercial player in a market should not have the right to invoke state-action immunity from antitrust liability. If they are competing in a market, they should have to play by the same rules as the other competitors. And that includes following the antitrust laws.

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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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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.

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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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