Join Me at the ABA Antitrust Law Spring Meeting for a Discussion on the New Standard Under Phoebe Putney and the Market Participant Exception to State Action Immunity

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.

2. 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.

During the panel we will discuss how the Supreme Court has consistently recognized that state and municipal commercial activity is subject to federal competition laws. But while the Supreme Court in City of Columbia v. Omni Outdoor Advertising, Inc., 499 U.S. 365, 374-75 (1991) left open the possibility of a market participant exception, the reality is that the Court did not formally adopt the exception. Later, in Phoebe Putney, the Court noted its discussion of the exception in Omni, but declined to decide the issue because the parties did not address it at trial.

At Bona Law, we advocate for courts to adopt the market-participant exception to state action immunity. Extending antitrust immunity to state and local commercial conduct exceeds the bounds of the doctrine’s purpose, introduces unintended consequences, and disturbs the balance between federal interstate regulation and state sovereignty.

I better stop here to leave some real discussion for the day of the ABA panel. I look forward to discussing in person these and other hot topics about state action immunity with my fellow panelists, friends and colleagues.