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Antitrust federalism

Federalism: spectrum between a state saying that S1 can’t be applied (preempted by supremacy clause of Constitution) and state fixing prices (allowed under state-action immunity)

States: the Sherman Act does not extend to states acting in their sovereign capacity (state-action immunity, Parker)

  • Acts of the legislature and court decisions are state action – edge cases handled by Midcal
  • 2-prong test: to obtain state-action immunity, the challenged restraint must be (e.g., Midcal):
    • (1) Clearly articulated and affirmatively expressed as state policy
    • (2) “Actively supervised” by the state
  • Policy: private (as opposed to state) actors have a conflict of interest to use state institutions to increase their profit
  • Municipalities: a municipalities (e.g., county’s) conduct need not be supervised by the state to receive immunity because they do not present the same conflicts of interest as private actors (Hallie)

Test for municipalities has a single element: the challenged restraint must be (1) clearly articulated and affirmatively expressed as state policy

  • What is clear enough: a reasonable person would understand that they have the power to do things of this nature

Other creatures of state government (e.g., agencies): if the agency/professional association/board is made up primarily of private actors, it must meet both prongs of the Midcal test (NC SBDE)

Caselaw​

Parker v. Brown (U.S. 1943) (establishes state action immunity in antitrust)

Holding: price fixing permitted because CA has state-action immunity

  • Established state-action immunity in antitrust: CA law is still preempted by federal law (e.g., CA can’t pass a law that says S1 doesn’t apply in the state), but it can set prices

Facts: California set up a prorate board that governed the price of raisins by allocating different types of raisins and producers to different types of selling schemes. Since CA was the only producer of raisins in the U.S., the effect of the policy was to raise the price of raisins nationally

Prof. Note:

  • Court could have held that the state law was preempted by federal law, but it decided to rely on federalism instead
  • State action immunity doesn’t allow states to do anything they want: states can’t say that S1 shouldn’t be applied, that would still be preempted by the supremacy clause of the Constitution

Cal. Liquor Dealers v. Midcal Aluminum, Inc. (U.S. 1980) (outlines 2-step test for state immunity)- Holding: P’s suit not barred​

  • D: price fixing was allowed under state authority
  • Court outlines 2 prong test:
    • (1) Clearly articulated and affirmatively expressed as state policy: D meets this condition, the policy was clearly articulated and affirmatively expressed
    • (2) Actively supervised by the state: the state was not actively supervising the price setting process, so the wine producers weren’t immune from liability

Facts: California law allowed wine producers to set wholesale price of wine collectively through process approved by the state. Distributor sues, alleging that the producers were setting an illegal minimum resale price for wine.

FTC v. Phoebe Putney Health System, Inc. (U.S. 2013) (application of Midcal to county hospitals)​

Holding: State authorization does not immunize the municipalities from C7

  • When is state policy clear enough to allow a private party to act?
  • Here, the authorization was like a general incorporation statute: not saying that the hospital is not subject to C7
    • State could say the county hospitals are not subject to C7, but it didn’t
  • Default rule: to establish state-action immunity, it must be shown that the hospital authority was delegated the power to act or regulate anticompetitively (anticompetitive conduct must be reasonably foreseeable)

Facts: State (GA) authorized municipalities to own and operate hospitals. There was no evidence that the State affirmatively contemplated that the municipal hospital authority would displace competition by consolidating hospital ownership.

Prof. Note:

  • There is a strong policy reason to allow local governments to own and operate county hospitals: there are areas where it wouldn’t be profitable for a private hospital to provide healthcare. County hospitals can fill these gaps.

Hallie v. Eau Claire (U.S. 1985)​

Holding: municipality’s conduct need not be supervised by the state to receive immunity because they do not present the same conflicts of interest as private actors

Facts:

North Carolina State Board of Dental Examiners v. FTC (U.S. 2015) (application of Midcal)​

Holding: dental board’s conduct was not shielded by state-action immunity, case can continue

  • Although the Board is a state agency, it is made up primarily of private actors who are conflicted, and so requires supervision under Midcal
  • The state did not adequately supervise the board’s conduct

Dissent: state agencies are creatures of state government created to enact state policy and should not have a supervision requirement

  • Claire rule should apply: even if we think what the agency is doing is wrong, it is not an issue of state law

Dissent: the Board is a state agency, it exercised clearly articulated state authority to regulate the practice of dentistry, and supervision is not required for a state agency (Hallie)

Facts: state agency under NC state law. The agency’s members (dentists) are unhappy that teeth whitening is being practiced by non-dentists. The Board sends cease and desist orders to non-dentists, resulting in effective stoppage of teeth whitening by non-dentists.