The state-action antitrust exemption grew out of the 1943 decision of Parker v. Brown, 317 U.S. 341 (1943), in which the Supreme Court explained that “nothing in the language of the Sherman Act or in its history suggests that its purpose was to restrain a state or its officers or agents from activities directed by its legislatures.” And, relying on principles of federalism, the Supreme Court gave deference to the state as a sovereign body.
Subsequent decisions expanded the reach of state-action to state and local governmental agencies (including counties and municipalities), as well as private parties. In California Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97 (1980), the Supreme Court held that the actions of state and local governmental agencies was exempt if they were undertaken pursuant to a clearly articulated state policy. Also in Midcal, the Supreme Court ruled that private parties could take cover under this exemption if they acted pursuant to a clearly articulated state policy and were actively supervised.
However, the federal enforcement agencies have become increasingly frustrated with what, in their view, are the adverse competitive consequences of state-action, particularly as it relates to the health care industry. And, over the years they have actively pursued cases designed to shape and narrow this judicially created exemption. For example, based on cases brought by the Federal Trade Commission, the Supreme Court clarified that only activity that is undertaken pursuant to a “clearly articulated and affirmatively expressed” state policy to displace competition, and is the “foreseeable result” of what the state authorized, can be covered by state-action, see FTC v. Phoebe Putney Health Sys., 568 U.S. 261 (2013), and, more recently, the Supreme Court agreed that even activities of a state agency (such as a state licensing board) must be actively supervised before state-action can apply if the agency is dominated by market participants, see N.C. State Bd. of Dental Exam’rs v. FTC, 135 S. Ct. 1101 (2015).
And the assault on state-action continues. Maureen K. Ohlhausen, the acting Chair of the Federal Trade Commission (until confirmation of Joseph Simon), in a recent speech given at the George Washington University Law School entitled Competition Policy at the FTC in the New Administration, indicated that the Commission will continue to “work to define and confine the anticompetitive effects that flow from state action.” And earlier in November, the Federal Trade Commission and the Antitrust Division of the Department of Justice jointly filed an amicus brief in the United States Court of Appeals for the Ninth Circuit in the matter of Chamber of Commerce v. City of Seattle (Appeal No. 17-35640), seeking to convince the Court (in a case to which neither federal agency is a party) to apply an extremely narrow interpretation of conduct covered by a Seattle ordinance regulating the provision of taxi services.
The bottom line is that as a matter of stated policy, the federal antitrust enforcement agencies will continue their pursuit to limit application of the state-action exemption, and parties looking to rely on state-action to insulate their activity from antitrust challenge should take note. Attacks on other judicially created antitrust exemptions, and to the extent possible, Certificate of Need and Certificate of Public Advantage statutes, will also continue.