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Antitrust in 60 Seconds: Doctrinal Antitrust Exemptions and Immunities

· May 28, 2019

The 60-Second Read:

Both Congress and the courts have created certain antitrust exemptions and immunities that prevent antitrust enforcement of certain industries and activities. A previous post in this series explains those antitrust exemptions enacted by Congress. Courts have also created limited immunities, usually as a way of reconciling seemingly conflicting interests under the law. Setting aside the unique treatment given to professional baseball and football, the most well-known examples of court-created immunities are the state action doctrine and the Noerr-Pennington doctrine. The state action doctrine immunizes activities by the state, including those undertaken by private parties directed by and under supervision of the state. The Noerr-Pennington doctrine immunizes activities involving the right to petition the government, even if the consequences are anticompetitive.

The courts are sometimes faced with the difficult task of reconciling seemingly incompatible areas of law. Occasionally, this has resulted in judges declaring that certain activity is outside the reach of antitrust laws. This usually creates a doctrine that is developed by a family of cases that set out the current boundaries of this immunity. Defendants have a strong incentive to argue that their behavior falls under one of these immunities, if possible. Plaintiffs and enforcers, however, prefer that these immunities are construed narrowly. This constant battle results in periodic landmark cases that change how judge-made immunities are interpreted.

How Courts Create an Immunity

In 1942, the Supreme Court was faced with a difficult problem – a California law that created a regulatory system controlling raisin production was anticompetitive. In the case, Parker v. Brown, a farmer challenged this regulatory system under a number of laws including the Sherman Antitrust Act. The Court believed that the activity would certainly violate the Sherman Act if it was undertaken by private individuals. However, constitutionally states are considered sovereign “save only as Congress may constitutionally subtract from their authority.” The courts interpret this strictly, and Congress must expressly take away this authority. The Court decided that since the Sherman Act makes no reference to states or hints that it intended to restrain the actions of states, then state action must be immune from the antitrust laws. A later decision explained that this immunity also applies to private parties under the conditions that “the challenged restraint … be one clearly articulated and affirmatively expressed as state policy,” and that “the policy … be actively supervised by the State.”

Twenty years later, the Supreme Court had to address another conflict. Two cases presented issues that pit the right to petition the government against the antitrust laws. In the first, Eastern R. Conf. v. Noerr Motors, an association of railroad companies engaged in a public relations campaign against truckers designed “to foster the adoption and retention of laws and law enforcement practices destructive of the trucking business, to create an atmosphere of distaste for the truckers among the general public, and to impair the relationships existing between the truckers and their customers.” A few years later, in Mine Workers v. Pennington, the Court heard a case where large mine owners successfully approached the Secretary of Labor to raise the minimum wage of mine workers to a level high enough that small mine owners would no longer be able to compete. In both instances the behavior was anticompetitive. However, the Supreme Court decided that the Sherman Act did not intend to abrogate the right to petition the government, which includes attempts to influence public officials. These two cases began what is known as the Noerr-Pennington doctrine, which provides a limited immunity to activities for the purpose of petitioning the government.

Developments That Change the Boundaries of Doctrinal Immunities

The Supreme Court has generally looked upon its own immunities as doctrines that should be as narrow as possible and to only apply to the extent that they protect the underlying concern. For example, in Fed. Trade Comm’n v. Phoebe Putney Health Sys. the Supreme Court stated “given the fundamental national values of free enterprise and economic competition that are embodied in the federal antitrust laws, ‘state-action immunity is disfavored, much as are repeals by implication.’” The doctrines given as examples above each have landmark cases that narrow the given immunities.

The state action doctrine was narrowed in 2015 by the Supreme Court’s decision in N.C. State Bd. of Dental Examiners v. Fed. Trade Comm’n. In this case, the Court stated that state boards must be actively supervised in order to receive immunity. The Court refused to provide immunity to a state board primarily composed of market participants that excluded non-dentist competitors for teeth whitening services from the market. The Noerr-Pennington doctrine’s biggest limitation was defined in Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp. There the Supreme Court said that the Noerr-Pennington doctrine did not extend to those that maintained and enforced a patent obtained through fraud on the Patent and Trademark Office.

Competition

Some, if not all of society’s most useful innovations are the byproduct of competition. In fact, although it may sound counterintuitive, innovation often flourishes when an incumbent is threatened by a new entrant because the threat of losing users to the competition drives product improvement. The Internet and the products and companies it has enabled are no exception; companies need to constantly stay on their toes, as the next startup is ready to knock them down with a better product.