Articles Posted in State-Action Immunity

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Author: Aaron Gott

There are a number of exemptions to and immunities from the federal antitrust laws. Some are well known, and we have written about many of them before. Jarod Bona catalogued the big ones—state-action immunity, the filed-rate doctrine, the insurance exemption under the McCarran-Ferguson Act, the baseball exemption, the Capper-Volstead Act for agricultural cooperatives, Noerr-Pennington, the statutory and non-statutory labor exemptions, implied immunity, export trade exemptions, foreign sovereign doctrines, the FTAIA, and primary jurisdiction.

Maybe you knew about the baseball exemption. But did you know about the Coca-Cola exemption? How about the Sports Broadcasting exemption? As you might expect, Congress has carved out various immunities and exemptions—often to serve a particularly powerful constituency—and Coca-Cola (and its bottlers) and the National Football League top the list for firms that hold enough cultural sway and political capital to obtain an antitrust golden ticket.

I’m an antitrust lawyer, and even I didn’t know about the Coca-Cola exemption—until I listened to the Coca-Cola episode of Acquired. And that wasn’t even the first time Acquired had taught me about antitrust: it also taught me about the Sports Broadcasting exemption. I decided enough was enough and catalogued some more of these lesser-known antitrust exemptions so that this doesn’t happen to you, too. Some of these exemptions are narrow, some are surprisingly broad. All of them are at least interesting.

The Fishermen’s Collective Marketing Act

Passed in 1934, the Fishermen’s Collective Marketing Act is essentially a Capper-Volstead Act for the fishing industry. It permits associations of fishermen to collectively catch, prepare, handle, and market fish and fish products without triggering antitrust liability. Like the Capper-Valstead Act, the fishermen’s exemption covers the cooperative’s core marketing activities but does not immunize predatory conduct—using the cooperative as a vehicle to harm processors, distributors, or other non-member competitors falls outside its protection. The Act is rarely litigated, which is part of why it flies under the radar, but for commercial fishing operations structured as cooperatives, it is the primary statutory basis for coordinating output and pricing that would otherwise look like textbook horizontal price-fixing. If you advise fishing cooperatives or process antitrust complaints in that industry, it’s worth understanding the ins and outs of this exemption. If don’t deal in the fish industry, you are now well on your way to crushing your next trivia question about obscure antitrust exemptions.

The Soft Drink Interbrand Competition Act

Did you know that Coca-Cola doesn’t actually make the product you know and love? Instead, it makes syrup, and it sells that syrup to independent bottlers through a licensing agreement. The bottlers mix that syrup with carbonated water and put it in a can or bottle, and then deliver it to the store where you buy it. Make no mistake, Coca-Cola tightly controls the process and this distribution model benefits Coca-Cola in myriad ways. But to make it work, Coca-Cola had to give these independents exclusive territories. And even though Coca-Cola’s distribution model had existed for decades, the FTC decided in the 1970s that it did not like it. (The agency also targeted Pepsi and its bottler network.) The FTC argued that the exclusive territorial arrangements that soft drink manufacturers used for bottler distribution violated Section 1 of the Sherman Act because they were unlawful market allocation agreements between competitors.

Congress passed the Soft Drink Interbrand Competition Act in 1980 to preempt that debate by statute, expressly authorizing exclusive territorial grants in carbonated soft drink distribution—so long as the manufacturer faces substantial and effective interbrand competition from other brands. That “interbrand competition” requirement is the meaningful limitation on the exemption: if a brand faces robust competition from other soft drink brands, its exclusive territories are immunized. If the market has become so concentrated that a brand faces no real interbrand pressure, the immunity is more fragile. The Act is a notable example of Congress legislating a specific safe harbor for a single industry’s distribution structure—conduct that, in most other contexts, could be unlawful depending on the specifics of the distribution structure.

The Newspaper Preservation Act

The Newspaper Preservation Act of 1970 authorizes joint operating agreements—JOAs—between competing newspapers in markets where one paper is at serious risk of financial failure. Under a JOA, two separately owned papers can merge their printing, distribution, advertising, and business operations while maintaining separate and independent editorial staffs. In antitrust terms, this is an explicit congressional authorization for competing publishers to share costs, coordinate pricing, and allocate markets in their commercial operations—conduct that would otherwise be per se illegal under the Sherman Act—so long as they seek preclearance to do so. The rationale is that two editorially independent papers sharing a back office serve the public better than one monopoly survivor. The Act requires the Attorney General to approve new JOAs, and the “probable danger of financial failure” standard is supposed to function as a real gatekeeping requirement—not a rubber stamp. The number of newspapers operating under JOAs has declined sharply as the industry has contracted, but as Pat Pascarella and I once argued, the JOA framework could still be relevant. And local news markets continue to consolidate as more and more papers go under.

The National Cooperative Research and Production Act

The National Cooperative Research and Production Act—the NCRPA—was originally enacted in 1984 as the National Cooperative Research Act and expanded in 1993 to cover production joint ventures. It does two distinct things. First, it requires that R&D and production joint ventures that file notification with the DOJ and FTC be evaluated under the rule of reason rather than the per se standard—a significant benefit given that horizontal coordination between competitors can attract fights over the application of the ancillary-restraints doctrine and possibly per se treatment. Second, and perhaps more importantly, it limits antitrust damages for qualifying ventures to actual damages rather than treble damages, even if the venture is ultimately found to have violated the antitrust laws. The notification process is not burdensome: the parties file with both agencies describing the venture’s scope and membership, and publish a summary in the Federal Register. The liability exposure drops substantially as soon as notification is filed. For technology consortia, standard-setting bodies, and any group of competitors considering pooled R&D or joint manufacturing, the NCRPA is a meaningful but often overlooked risk-reduction tool.

The Local Government Antitrust Act

The Local Government Antitrust Act of 1984—the LGAA—is distinct from, and more narrow than, state-action immunity under Parker v. Brown. State-action immunity is a complete defense: qualifying governmental conduct is simply not subject to antitrust liability. The LGAA operates differently. It does not immunize the underlying conduct; it eliminates only damages, and only for local governments and their officials. Under the LGAA, local governments and their officials acting in official capacities cannot be held liable for damages under the federal antitrust laws, even if their conduct is ultimately found to be anticompetitive. Injunctive and declaratory relief remain fully available. The practical consequence for plaintiffs is significant: before investing in antitrust litigation against a municipality or local agency, you need to assess whether injunctive relief alone justifies the cost, because treble damages—the usual engine driving private antitrust enforcement—are off the table. The LGAA damages bar can apply even when Parker immunity fails, so you want to consider both defenses in the case from the beginning.

The Shipping Act

The Shipping Act of 1984—updated by the Ocean Shipping Reform Act of 1998 and amended again by OSRA 2022—creates a regime of supervised antitrust immunity for ocean carrier agreements. Under the Act, common carriers can enter into agreements fixing rates, pooling revenues, allocating cargo, and coordinating vessel capacity, provided they file those agreements with the Federal Maritime Commission. Once filed, the agreements receive antitrust immunity unless the FMC acts to reject or modify them. The immunity is not unconditional: the FMC retains authority to prohibit agreement terms that are unjustly discriminatory or unreasonably harmful to shippers, and OSRA 2022 added new requirements around transparency and service contract compliance. But the core structure—FMC-supervised horizontal coordination among ocean carriers—remains intact and immunizes conduct that would be per se illegal under the Sherman Act in virtually any other context. For shippers challenging rate coordination or capacity management practices by ocean carriers, this means the FMC regulatory process, not an antitrust lawsuit, is generally the primary available remedy.

The Sports Broadcasting Act

The baseball exemption gets most of the attention in sports-and-antitrust discussions. Baseball’s exemption is judge-made, rooted in a 1922 Supreme Court decision holding that baseball was not interstate commerce—a conclusion the Court has since acknowledged was likely wrong but kept alive on stare decisis grounds. But there is another sports exemption that applies beyond baseball: the Sports Broadcasting Act.

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Author: Aaron Gott

In my last post, I discussed how California’s newly enacted AB 1340—which allows independent contractor gig drivers to form a “union” and engage in sectoral bargaining against rideshare companies such as Uber and Lyft—likely does not provide the federal antitrust immunity that it purports to provide. This week, I’d like to discuss the other problem with AB 1340: it is likely unconstitutional.

In 2018, the Ninth Circuit decided Chamber of Commerce v. City of Seattle, striking down a Seattle ordinance that authorized rideshare drivers to engage in collective bargaining with Uber and Lyft.

So why did California just enact essentially the same law? AB 1340 revives nearly the same structure—and the same constitutional defect—under a new label, in a different locale.

Now, there is a key factual difference between the Seattle ordinance and AB 1340. Can you spot it?

The difference is that California is a state, and Seattle is a mere political subdivision. And that difference matters, because we have a dual federalist system: states on the one hand, and the federal government on the other. Cities? They are not sovereign and are irrelevant for federalism purposes. (But don’t shed any tears for municipalities: they get an ill-reasoned exemption from the active supervision prong set forth in Town of Hallie v. City of Eau Claire, plus the Local Government Antitrust Act of 1984, which immunizes them from antitrust damages and fees, thus freeing them to pursue all sorts of anticompetitive schemes with reckless abandon.)

Still, this factual difference does not save AB 1340 from the same fate as Seattle’s ordinance.

The problem is that California’s AB 1340 is not a genuine act of state regulation, but merely an attempt to declare private coordination immune from federal law.

Under Supreme Court precedent, naked attempts to immunize anticompetitive conduct are foreclosed not only by the state-action immunity doctrine. They are also subject to federal preemption.

From Seattle to Sacramento

Seattle’s ordinance authorized “qualified representatives” of for-hire drivers—eventually, the Teamsters—to bargain collectively with companies such as Uber and Lyft. Everyone agreed the ordinance facilitated private price-fixing, and the city defended it on state-action grounds. The Ninth Circuit rejected that defense.

The court held that Washington’s general authorization to regulate for-hire transportation did not clearly articulate a policy to displace competition in the ride-referral market, and that a statutory declaration purporting to exempt local regulation from the Sherman Act was not a policy to displace competition—it was an impermissible attempt to exempt municipal conduct from federal law altogether. Finally, the court confirmed that the “municipal exception” to active supervision is narrow: when private actors participate in the restraint, active state supervision is required, and cities are not “the state itself.”

The Ninth Circuit emphasized that “authority to regulate a market is not the same as authority to authorize anticompetitive conduct.” That observation speaks directly to the structure of AB 1340, even if California, unlike Seattle, acts here as the sovereign rather than its subdivision.

What the Ninth Circuit Actually Held

Two features of Chamber v. Seattle are particularly relevant.

First, the Ninth Circuit drew a sharp line between a policy to regulate and a policy to displace competition. The state statute there authorized municipalities to regulate for-hire transportation for safety and reliability reasons, but said nothing about replacing market competition with collective bargaining. The resulting ordinance therefore lacked the “clear articulation” required by Midcal.

Second, the court rejected the notion that the legislature could “immunize” municipalities from the Sherman Act by fiat. Citing Parker v. Brown, it reiterated that “states cannot give immunity to those who violate the Sherman Act by authorizing them to violate it.” A declaration of exemption, even one framed as explicit legislative intent, is not a substitute for a true regulatory program.

And in footnote 9, the court made a related and important point:

“The City’s argument that the presumption against preemption applies here is misplaced. State-action immunity is a defense to preemption.”

That is, the doctrines are not separate. If state-action immunity fails, federal law preempts.

AB 1340 and the Limits of State Sovereignty

California’s position differs from Seattle’s in one respect: a state itself has enacted the challenged framework. That distinction matters under Parker, which recognizes that the Sherman Act does not bar a state acting as sovereign from imposing market restraints “as an act of government.” But AB 1340’s flaw is not that it delegates authority to a city; it’s that it authorizes private competitors to collude and then declares their collusion immune from federal scrutiny.

That structure is inconsistent with Parker and a number of subsequent Supreme Court cases. The statute’s declaration that the “state-action antitrust exemption shall apply” does not transform private collusion into sovereign regulation. It is simply a legislative announcement that California intends to exempt certain conduct from federal law—something it cannot do. The Constitution allows states to regulate, but not to negate federal statutes.

The Federal Boundary

The Ninth Circuit’s footnote in Seattle captured the relationship succinctly: state-action immunity is a defense to preemption. When the defense fails, federal supremacy governs. The result is not a close call. AB 1340 does not replace competition with regulation; it replaces it with private collusion, then declares that collusion lawful. That is precisely the type of state-created conflict the Supreme Court’s preemption jurisprudence forbids.

A facial challenge to AB 1340 before implementation would thus rest on solid ground. The statute’s structure and purpose conflict directly with the Sherman Act and the Supremacy Clause. As Chamber v. Seattle illustrates, courts remain willing to enforce that boundary when governments—state or local—attempt to erase it.

From Seattle to Sacramento

The Seattle ordinance was straightforward. It allowed independent drivers to “collectively bargain” against app-based “driver coordinators” such as Uber and Lyft. The City appointed the Teamsters as the designated representative to negotiate rates and terms. Everyone agreed that this amounted to private price-fixing—a per se violation of the Sherman Act—but the City argued it was immune because Washington law allowed municipalities to regulate for-hire transportation services.

The Ninth Circuit rejected that argument on every front. The court held that:

  1. Washington’s general authorization to regulate for-hire transportation did not clearly articulate a policy to displace competition in the ride-referral market.
  2. A statutory declaration purporting to exempt local regulation from federal antitrust law was not a policy to displace competition—it was an invalid attempt to exempt state and local conduct from federal law.
  3. The “municipal exception” to the active-supervision requirement is narrow: when private actors participate in the restraint, state supervision is required.

As the court put it, state law authority “to regulate a market is not the same as authority to authorize anticompetitive conduct.”

That reasoning applies squarely to AB 1340. California’s statute authorizes the same kind of horizontal coordination and then declares the result immune. It is, in substance, Seattle 2.0—a legislative replay of a theory the Ninth Circuit has already rejected.

Why AB 1340 Raises the Same (and Worse) Problems

Like Seattle’s ordinance, AB 1340 authorizes private competitors—rideshare drivers—to coordinate on pricing and output decisions. And, just as Seattle did, California attempts to pre-emptively declare that conduct exempt from federal scrutiny: “the state-action antitrust exemption shall apply.”

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Author: Aaron Gott

California Governor Gavin Newsom recently signed AB 1340 into law, a bill that purports to give more than 800,000 California rideshare drivers the right to unionize and bargain collectively over pay and working conditions. Some are celebrating the statute as a political and policy breakthrough.

In press statements, supporters called the measure a victory for “dignity and fairness” and proof that government can “deliver” where federal leaders cannot. Governor Gavin Newsom framed it as an antidote to “chaos,” praising California for “giving drivers the power to unionize.” Some might call it political theater. Others, compromise.

The Deal Behind the Law

AB 1340 emerged from a late-summer negotiation among Uber, Lyft, Governor Newsom, and organized labor. The companies backed the bill as part of a broader package that also reduced their insurance obligations. In exchange, the state created a legally sanctioned structure for “sectoral bargaining” among app-based drivers.

Beneath that compromise lies a legal problem that could, and likely should, prove fatal: the law is an attempt by one state to exempt a specific cartel of competitors from federal antitrust liability. But that is not something any state has the power to do.

What AB 1340 Does

The new law creates a sector-wide bargaining framework for app-based drivers. Drivers remain classified as independent contractors under California’s voter-approved Proposition 22, but AB 1340 allows them to elect a union-like representative to negotiate with Uber, Lyft, and other platforms.

The Public Employment Relations Board (PERB) oversees the process: it will certify representatives, set ground rules for bargaining, facilitate mediation, and approve final agreements. The bill expressly states that this system is intended to displace competition among drivers and “the state action antitrust exemption shall apply.”

In short, California has authorized independent centers of decisionmaking in the market to coordinate on price and output—the very conduct that, absent a special exemption, is per se illegal under Section 1 of the Sherman Act.

Why did lawmakers believe such a statute was necessary? Because everyone in the room—union leaders, legislators, and company executives—understood that a “union” of independent contractors is, in the eyes of federal law, just another word for a cartel. Without some form of immunity, sectoral bargaining among gig drivers would expose everyone involved in this horizontal cartel to treble damages and potential criminal liability. AB 1340 tries to solve that problem by legislating immunity.

That strategy faces serious constitutional limits—and might even be subject to a facial constitutional challenge. But, at a minimum, a federal court properly applying the law is unlikely to find that state action immunity applies to a gig-drivers’ cartel that seeks protection under AB 1340.

The Purpose of the State Action Immunity Doctrine

Since Parker v. Brown (1943), the Supreme Court has recognized that the Sherman Act does not apply to restraints imposed directly by a state acting as sovereign. The reasoning is grounded in federalism: Congress did not intend to subject state legislation itself to antitrust review.

But when a state authorizes others to restrain trade, the exemption applies only if two demanding conditions are met under California Retail Liquor Dealers Ass’n v. Midcal Aluminum Inc. (1980):

  1. The state must clearly articulate and affirmatively express a policy to displace competition; and
  2. The conduct must be actively supervised by the state itself.

As the Court later explained in FTC v. Phoebe Putney Health System (2013), these safeguards ensure that the restraint “is truly the action of the State,” not the product of private choice.

North Carolina State Board of Dental Examiners v. FTC (2015) tightened the second requirement further: supervision must be substantive. The state must actually review the competitive merits of the conduct and have authority to veto or modify it if inconsistent with state policy.

Why AB 1340 Fails the Test

AB 1340’s declaration that “the state action antitrust exemption shall apply” may seem to check the box for “clear articulation,” but it totally misses the point. As the Court explained in the OG state action immunity case of Parker v. Brown—all the way back in 1943—states cannot “give immunity to those who violate the Sherman Act by authorizing them to violate it”. The Court’s most recent foray into the doctrine, in NC Dental (2015), reaffirmed this principle: a state cannot simply grant market participants a free pass to commit antitrust violations, as states’ “power to attain an end does not include the lesser power to negate the congressional judgment embodied in the Sherman Act.”

Put another way, a clearly articulated policy to displace competition means a policy that displaces competition with regulation, not a policy that purports to displace antitrust law with an exemption.

AB 1340 also likely fails the active-supervision requirement. PERB’s role is to certify, mediate, and formalize collective agreements. Nothing in the statute directs the Board to analyze whether an agreement advances state policy or to assess its competitive effects. There is no requirement that PERB determine whether proposed wage scales or contract terms are consistent with any articulated state goal. The Board’s authority is procedural, not substantive.

Under NC Dental, that is not “active supervision.” The Court was explicit: a supervisor must review the substance of anticompetitive decisions, not merely the procedures that produce them, and must exercise power to ensure the conduct serves the state’s own policy rather than private interests. AB 1340 offers none of that.

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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.

Below are the primary antitrust exemptions created by Congress and the federal courts. Aaron Gott describes the lessor-known antitrust exemptions in this article.

State-Action Immunity. State-action immunity has come up a lot at Bona law. 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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Author: Jarod Bona

Do you feel paranoid? Maybe everyone really is conspiring against you? If they are competitors with each other—that is, if they have a horizontal relationship—they may even 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 to compete. 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. This antitrust claim fits into Section 1 of the Sherman Act, which requires a meeting of the minds, i.e an agreement or conspiracy.

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 a lot of questions 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. Of course, excluding or limiting competitors from a market may also create diffused harm among customers or sellers for those excluded competitors.

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 and market share.

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 we, at least in the past, have watched the Federal Trade Commission take a pro-active role against such anticompetitive thuggery.

Group Boycotts and ESG

An increasingly prominent example of a group boycott that you should watch for are companies that coordinate their ESG policies such that they exclude competitors that decline to accept these rigid restrictions. You can see how this could develop: A group of companies in an industry decide that they want to win some PR points by announcing ESG policies, but quickly realize that this decision increases their own costs such that they can’t offer products or services that are of competitive quality and price with those in their industry that focus on the consumer. So they coordinate together and try to stop suppliers from dealing with this consumer-friendly company, or engage in other collective tactics to exclude this lower-priced competition. There is a good chance that these actions create antitrust liability for the coordinating ESG companies. And as the FTC recently reiterated, ESG does not create antitrust immunity.

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Author: Luis Blanquez

Just weeks before our ABA antitrust panel on State Action Immunity takes place in Washington DC, the Ninth Circuit Court of Appeals has allowed SmileDirectClub to proceed against the members of the California Dental Board for antitrust violations, rejecting the board’s immunity claim on active supervision grounds.

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.

Background of the SmileDirectClub Antitrust Saga

This is part of the antitrust group of cases that SmileDirectClub has filed against dental boards in Alabama, Georgia and California.

Rather than teeth-whitening like in NC Dental, the product market in these three cases 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 have, according to plaintiffs, allegedly conspired to harass the SmileDirectClub parties with unfounded investigations and an intimidation campaign, with hopes of driving them out of the market, while using their government-created power in the marketplace to protect the economic interests of the traditional orthodontia market.

District courts in Alabama and Georgia have allowed all cases to proceed, after the 11th Circuit affirmed. The Alabama case settled in 2021, after that state’s dental board signed a consent decree with the Federal Trade Commission.

The District Court case in California: Sulitzer v. Tippins, case No. 20-55735

In California, by statute, the dental board regulates the practice of dentistry. See Cal. Bus.&Prof. Code §§ 1600–1621. It enforces dental regulations, administers licensing exams, and issues dental licenses and permits. Id. § 1611. The Board is made up of fifteen members: “eight practicing dentists, one registered dental hygienist, one registered dental assistant, and five public members.” Id. § 1601.1(a). Since many of its members compete in the market for teeth-straightening services, they allegedly view SmileDirect as a “competitive threat.”

Plaintiffs alleged that certain members of the Board, motivated by their private desires to stifle competition, mounted an aggressive, anticompetitive campaign of harassment and intimidation designed to drive the SmileDirectClub out of the market. The Complaint contended that these actions violated the Sherman Antitrust Act; the Dormant Commerce Clause; the Equal Protection Clause; the Due Process Clause; and California’s Unfair Competition Law. The dental board defendants moved to dismiss SmileDirectClub’s claims for anticompetitive conduct based on a state-action immunity defense.

The district court rejected defendants’ argument that the state action doctrine applied because the defendants––members and employees of the Dental Board of California—largely made up of traditional dentists and orthodontists who have a financial motive to view the newcomers as competition—could not show that they were actively supervised. The court nevertheless held plaintiffs failed to state a Section 1 claim and ended up dismissing the complaint without prejudice.

SmileDirectClub amended the complaint once, but the district court dismissed again the federal claims and declined to exercise supplemental jurisdiction over the state law claim. This time the court held that SmileDirectClub may have pled enough facts to show the existence of an agreement––by way of a theory of the board’s ratification of the investigation––but surprisingly concluded it was nevertheless insufficient to state a Section 1 claim because the agreement was consistent with its regulatory purpose to undertake their delegated authority as members of the board, and thus was not intended to restrict or restrain competition. Make sure you don’t forget this last sentence. The Ninth Circuit hammers this argument down now in its Opinion.

SmileDirectClub appealed the ruling before the Ninth Circuit

The Case on Appeal: SmileDirectClub and Jeffrey Sulitzer DMD v. Joseph Tippins et al., 9th U.S. Circuit Court of Appeals No. 20-55735

I would strongly suggest you read this opinion. It is absolutely worth your time.

First, the Ninth Circuit concludes that plaintiffs sufficiently alleged anticompetitive concerted action to meet the pleading standards of Federal Rule of Civil Procedure 12(b)(6), although it makes no judgment on the merits of the claims and whether those claims will withstand scrutiny in the next phase of the litigation

It further explains that by requiring plaintiffs to plead facts inconsistent with the Board’s regulatory purpose, the district court applied a standard more appropriate at the summary judgment stage, where § 1 plaintiffs must offer “evidence that tends to exclude the possibility” of lawful independent conduct. This is something many district courts do across the country and which we have been writing about at Bona Law systematically.

Second, the court plainly rejects the broad proposition—offered up by the board members and the district court—that regulatory board members and employees cannot form an anticompetitive conspiracy when acting within their regulatory authority.

In its opinion, the court highlights how the Supreme Court has stressed, “[t]he similarities between agencies controlled by active market participants and private trade associations are not eliminated simply because the former are given a formal designation by the State, vested with a measure of government power, and required to follow some procedural rules.” N.C. State, 574 U.S. at 511.

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Author: Luis Blanquez

It is time again for the ABA Antitrust Spring Meeting. In my case, this year is particularly special for two reasons. First, because the meeting is live. While the Zoom meetings have been extremely helpful, I think we (almost) all agree—online conferences just aren’t the same as in person ones. Second, because I will be a speaker in the panel dedicated to state action immunity issues: Is There Anything Left to Smile About?

Below is a brief preview of the State Action Immunity issues I will be discussing.

  1. The State Action Immunity Doctrine: From Parker to Phoebe Putney, City of LaGrange, SmileDirect and Quadvest

The state action immunity doctrine allows certain state and local government activity to avoid antitrust scrutiny. Federal antitrust laws are designed to prevent anticompetitive conduct in the market. Yet, the Supreme Court long ago held that these antitrust laws do not apply against the States themselves, even when they take actions that harm competition. Parker v. Brown, 317 U.S. 341 (1943). Like other judicially imposed exemptions from the antitrust laws, the Supreme Court has held that the Parker doctrine must be narrowly construed.

While the states themselves may adopt and implement policies that depart from the federal antitrust laws, subordinate political subdivisions, including state regulatory boards and municipalities, are not beyond the reach of the antitrust laws by virtue of their status because they are not themselves sovereign. The Supreme Court has recognized that a state legislature or state supreme court acting in its legislative capacity is “the sovereign itself,” whose conduct is exempt from liability under the Sherman Act without need for further inquiry.

But when the activity is not directly that of the state legislature or supreme court but is instead carried out by others pursuant to state authorization, the challenged restraint qualifies for state action exemption only if it is (1) undertaken pursuant to a “clearly articulated and affirmatively expressed” state policy to displace competition, and (2) actively supervised by the state. California Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97, 105 (1980).

So, when is then 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. Under this new standard, the defendant’s conduct must be not only foreseeable, but also the “inherent, logical, or ordinary result” of the state scheme.

In the panel we will discuss the different wrinkles under the two Midcal prongs, and how courts all over the country have started to apply the new heightened standard under Phoebe Putney when considering the clear articulation requirement.

  1. A Market Participant Exception is Necessary

At Bona Law we advocate for the establishment of a formal market participant exception, and we expect that the state action exemption will continue to narrow over time.

Indeed, when a state regulates, the market participants compete on the same playing field within the framework of that regulation. But if a commercial actor—public or private—is free of antitrust scrutiny, the federal policy of interstate competition suffers because participants do not play by the same rules. Therefore, state and local market participants must follow the same federal competition rules as their private counterparts.

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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: 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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