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.
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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.
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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.
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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:
Here the FTC argued that the state as sovereign had not clearly articulated a policy to displace competition, and, for this reason alone, the District Court’s decision that TSSAA was entitled to antitrust state action protection had to be overturned.
The DOJ explained here that the District Court improperly concluded that the District was exempt from the antitrust laws because the state had given it broad authority, comparable to that of private firms, to operate and manage health care facilities. The Court reasoned that anticompetitive effects logically and foreseeably flow from that broad authority. But the DOJ highlighted that unreasonable restraint of trade and monopolization do not logically and foreseeably flow from authority to operate as private firms operate. Nor does anything else in the relevant statutes suggest a state policy to displace competition by regulation or monopoly public service. Thus, in the absence of a state policy to displace competition, the District’s conduct is not shielded from antitrust scrutiny.
Brief urged the Fifth Circuit to dismiss the appeal for lack of jurisdiction or, if the Court found jurisdiction, to reject application of the state action doctrine to the case because the “active supervision” requirement of the doctrine was not satisfied.
If you want to learn more about this case, please see our article from the blog here.
Brief of the United States (Department of Justice and the Federal Trade Commission), in support of Chamber of Commerce of the United States of America and Rasier, LLC, v. City of Seattle, et al. No 17-35640 Court of Appeals for the Ninth Circuit. November 6, 2017.
Brief urged the Ninth Circuit to reject application of the state action doctrine to this case because the “clear articulation” requirement was not satisfied. In particular, it explains that a municipality may displace competition under the state’s antitrust exemption only if that anticompetitive restraint is the inherent, logical, or ordinary result of the exercise of authority delegated by the state. That standard is not satisfied in this case. The State of Washington’s delegation of authority to regulate the for-hire transportation market does not imply authority to displace competition among drivers for their services provided to transport companies. The district court’s expansive interpretation of the Washington code provisions plainly violates the strict bounds of the state action defense.
Brief of the United States (Department of Justice and the Federal Trade Commission), in support of the Court of Appeals decision. This brief argues that a District Court decision denying a motion to dismiss on state action grounds is not immediately appealable under the collateral order doctrine. The state-action doctrine constitutes an important limit on the coverage of federal antitrust law, but it does not provide a public-entity defendant with immunity from suit. A defendant’s claim that the district court misapplied the doctrine therefore can be effectively vindicated on appeal from a final judgment.
This case ultimately settled before the US Supreme Court could resolve it.
If you want to know more about State-Action Immunity and Collateral Order Doctrine, please read our previous articles here, here and here.
In this brief, the DOJ explained that the university was a state agency, not a sovereign, and was thus not entitled to an exemption under the antitrust laws, and that the university couldn’t satisfy the Midcal prongs.
We’ve written an article about this case. See more here.
Brief of the United States Department of Justice and the Federal Trade Commission supporting the District Court’s state-action ruling: If the Court addresses the active supervision component of the state-action defense, the Court should affirm the district court’s holding that the members of the Board of Dental Examiners of Alabama did not meet their burden to show active state supervision.
In a nutshell, brief states that the Court first ruled correctly that the active supervision requirement applied to this case. Dental Examiners “holds … 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 in order to invoke state-action antitrust immunity.” 135 S. Ct. at 1114. SmileDirect alleges that the Board is controlled by active market participants—dentists and a dental hygienist—in the occupation that the Board regulates. The Board members’ attempts to avoid Dental Examiners’ straightforward holding are unavailing.
Next, the brief explains that the Court rightly determined how the Board members did not show active supervision at the motion to dismiss stage. They did not present evidence that any state official(s) equipped with authority to provide active supervision reviewed the Board rules at issue, or the Board’s enforcement actions, to determine whether they promote state regulatory policy rather than dentists’ private interests in excluding teledentistry—and its lower prices—from the Alabama market.
This recent brief supports the District Court’s ruling to dismiss plaintiff’s antitrust complaint on state-action grounds. Brief states that, if the Court addresses the active supervision component of the Georgia Board of Dentistry members’ state-action defense, the Court should affirm the District Court’s holding that the Board members did not meet their burden to show active state supervision of its challenged regulation. The brief also reminded the court that the state-action defense is disfavored, narrowly construed, and the party asserting the defense bears the burden of showing that the requirements of the defense are satisfied.
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FINAL FEMARKS
Challenging government conduct through the antitrust laws is an important area of emphasis for Bona Law. We have substantial experience in writing and filing amicus curiae briefs in state and federal courts. See also here.
Bona Law commonly files amicus briefs in antitrust cases. Most recently, Bona Law PC filed an amicus brief on behalf of the International Center for Law & Economics (“ICLE”) and a dozen legal and economics scholars in the United States Court of Appeals for the Ninth Circuit. The brief argued that the Northern District of California’s ruling in FTC v. Qualcomm Inc. misapplied antitrust doctrine and economic theory in a problematic ruling that could significantly and perversely harm competition if allowed to stand. Bona Law’s amicus brief supported Qualcomm, a company based in San Diego, California.