Distribution, Competition, and Antitrust / IP Law

Do State Bar Associations Have Antitrust Risk?

It was only a matter of time after the Supreme Court’s decision in North Carolina State Board of Dental Examiners v. Federal Trade Commission, 135 S. Ct. 1101 (2015) (*), that a state bar association would face an antitrust suit.  But the suit happened quickly: on June 3, LegalZoom sued the North Carolina State Bar for violations of Sherman Act Sections 1 and 2 in the U.S. District Court for the Middle District of North Carolina.  LegalZoom.Com, Inc. v. North Carolina State Bar, Case No. 1:15-CV-439 (M.D.N.C.).

In a nutshell, LegalZoom alleges that the Bar does not enjoy antitrust immunity because it is controlled by lawyers (market participants) and its activities are not actively supervised by the state.  LegalZoom challenges the Bar’s refusal to register its prepaid legal plans, which it sells in 42 states and the District of Columbia.  LegalZoom seeks not only injunctive relief, but also $3.5 million in damages (before statutory trebling).

This may be the leading edge of a wave of lawsuits challenging activities of state boards staffed by industry participants.

(*) I covered the Fourth Circuit’s decision in Dental Examiners here.

Ninth Circuit Holds State Action Immunity Doctrine Bars Claims Against Convention Center

The San Diego Convention Center in San Diego, ...

The San Diego Convention Center in San Diego, California. (Photo credit: Wikipedia)

In United National Maintenance, Inc. v. San Diego Convention Center, Inc., No. 12-56809 (9th Cir. May 14, 2014), the United States Court of Appeals for the Ninth Circuit held that the San Diego Convention center enjoyed state-action immunity from antitrust claims brought by a supplier of cleaning services whose business was negatively impacted by the convention center’s decision to be the exclusive supplier of cleaning services.

The California Legislature specifically authorized San Diego (and other cities) not only to build a convention center but also to create a commission that would “manage the use” of the convention center.  This type of managerial authorization, the court held, was sufficient to make any anticompetitive effects the result of a clearly articulated and affirmatively expressed state policy – the first prong of the test for state action immunity.

The Ninth Circuit also held that the center did not need to meet the second state action immunity requirement (that its actions were “actively supervised” by the state).  That is because (1) the City of San Diego appoints all of the center’s board members, (2) upon dissolution, the center’s asserts revert back to San Diego, and (3) the center must publicly account for its operations.  Overall, the court held, the center acts as an agent that operates the convention center for the benefit of its principal, the city of San Diego.  It is an extension of the municipality of San Diego and thus does not require active supervision by the state in order to retain its immunity from antitrust liability.

Furthermore, the court noted, the specific facts indicate there is no need for the evidentiary function of active supervision.  Although the center’s actions may reflect the pursuit of parochial interests, there is no evidence that it entered into any kind of private price-fixing arrangement with other convention center operators.  This fact, the court held, distinguishes the center from other cases where groups of private actors, entrusted with state regulatory authority over a profession, may have taken actions to further their own private interests.  The case is available here.

U.S. Supreme Court to Decide When Professional Licensing Bodies Have Antitrust Immunity

teeth whitening

teeth whitening (Photo credit: torbakhopper)

The state action immunity doctrine shields private actors from antitrust liability if their activities are actively supervised by a state.

But arms of the state itself generally don’t have to satisfy the actively-supervised requirement to enjoy the immunity.

What about a state agency that consists of professionals who are regulating their own profession?  Is such an agency an arm of the state, or is it more like a private actor that must meet the actively-supervised requirement to enjoy antitrust immunity?

That’s the issue the Supreme Court will decide in North Carolina State Board of Dental Examiners v. Federal Trade Commission, Case No. 13-534.   The Board had engaged in efforts to block non-dentists from offering tooth-whitening services.  The Fourth Circuit agreed with the FTC that a North Carolina agency made up almost entirely of practicing dentists must satisfy the actively-supervised requirement for the immunity to attach.  See 717 F.3d 359 (4th Cir. 2013).   “[W]hen a state agency is operated by market participants who are elected by other market participants, it is a ‘private’ actor.”  Id. at 370.

Although the issue of the regulation of dentists may be a narrow one, the case has broader implications for the regulation by states of many professions and industries.  

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Supreme Court Agrees to Hear Two Antitrust Cases Next Term

U.S. Supreme Court building.

U.S. Supreme Court building. (Photo credit: Wikipedia)

Today, although it did not issue its much-anticipated ruling on the Obama Administration’s health care plan, the Supreme Court did agree to hear two antitrust cases during its next term (which starts in October).

In the first case, styled in the court of appeals as Behrend v. Comcast Corp., 655 F.3d 182 (3d Cir. 2011), Comcast challenged a decision certifying a class of cable TV subscribers.  The Supreme Court has limited the question presented on appeal to: “Whether a district court may certify a class action without resolving whether the plaintiff class has introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a class-wide basis.”

This is an important question.  In the U.S., in most antitrust class actions, plaintiffs must show that common questions predominate over individual questions.  Behrend involves application of that basic rule to the issue of damages.  A “no” answer could have a significant negative impact (from plaintiffs’ perspective) on antitrust class action litigation in the U.S.  (In the Supreme Court, the case is numbered 11-864.)

In the second case, styled in the court of appeals as FTC v. Phoebe Putney Health System, Inc., 663 F.3d 1369 (11th Cir. 2011), the Court will take up the question of whether a hospital acquisition is immunized from antitrust scrutiny by virtue of the state action doctrine.  (The Eleventh Circuit determined that the immunity attached, because the acquisition was authorized pursuant to a clearly articulated state policy to displace competition.)  The FTC is pressing ahead with the appeal against the background of its challenges to three hospital mergers since 2011.  (In the Supreme Court, the case is numbered 11-1160.)

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Trade Associations and Selling to the Government

I’ll have more to say about trade associations in future posts.  For now, keep in mind that trade associations are collections of competitors that frequently meet together.  Although they often take pro-competitive actions (by improving efficiency, setting industry standards, and communicating with the public about key issues), they also can take actions that prompt antitrust claims (either the conspiracy type, monpolization type, or both).

Trade associations (and everyone else, for that matter) do enjoy an antitrust immunity for government petitioning under the so-called Noerr-Pennington doctrine, which is derived from the First Amendment.  However, what happens when an association’s members sell to the government?

In that case, associations must be extra careful when they lobby.  Some courts have held that Noerr-Pennington doesn’t apply, because selling, not petitioning, is occurring.  To avoid such a result, associations should remind all members that they must act independently in the market when setting prices.  Associations should also focus on broad policy arguments, not pricing, and lobby only relatively senior officials, while staying away from procurement-level personnel and organizations.


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