Chapter IV. General Application of the Doctrine
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CHAPTER IV
GENERAL APPLICATION OF THE DOCTRINE
This chapter addresses various issues and complexities that arise in
applying the two prongs of the Midcal test—“clear articulation” and
“active supervision”—under the state action doctrine. This chapter also
examines how different types of state entities may substitute regulation
for market forces, and how state legislatures may extend this regulatory
authority to the executive branch, state agencies, or municipalities within
the state. In addition, this chapter considers whether allegations of
government corruption alter the state action analysis and whether the
doctrine applies if the state is acting as a participant in the market, rather
than in its governmental capacity. Finally, this chapter examines
preemption challenges to state statutes under the federal antitrust laws.1
A. Private Conduct
1. The Clear Articulation Requirement
As described earlier in this book, the state action doctrine protects
political subdivisions of a state from the antitrust laws where the
subdivisions act pursuant to a “clearly articulated and affirmatively
expressed state policy.”2 Where the state policy is expressed in a statute
granting regulatory authority to a political subdivision, the clear
articulation requirement is often satisfied where the challenged conduct
by the subdivision is a foreseeable result of the regulatory scheme.3
1. See also ABA SECTION OF ANTITRUST LAW, ANTITRUST LAW
DEVELOPMENTS 1273-84 (6th ed. 2007) (addressing general application of
the state action doctrine).
3. Id. at 42; see also City of Columbia v. Omni Outdoor Adver., 499 U.S.
365, 373 (1991) (holding that delegating statute need not expressly displace
competition; state action immunity granted if suppression of competition is
foreseeable result of what statute authorizes).
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Indeed, the state policy does not have to be so precise as to compel
the anticompetitive conduct to meet the clear articulation test. In
Southern Motor Carriers Rate Conference v. United States,4 the Supreme
Court held that “a state policy that expressly permits, but does not
compel, anticompetitive behavior may be ‘clearly articulated’ within the
meaning of Midcal.”5 The state, therefore, need not explicitly authorize
conduct for the first prong of the Midcal test to be satisfied:
A private party acting pursuant to an anticompetitive regulatory
program need not “point to a specific, detailed legislative
authorization” for its challenged conduct. . . . Requiring express
authorization for every action that an agency might find necessary to
effectuate state policy would diminish, if not destroy, its usefulness.
Therefore, we hold that if the State’s intent to establish an
anticompetitive regulatory program is clear . . . the State’s failure to
describe the implementation of its policy in detail will not subject the
program to the restraints of the federal antitrust laws.6
Thus, the state action exemption may be available to public entities,
public officials, and private parties when conduct is either authorized or
compelled by the state.7
4. 471 U.S. 48 (1985).
5. Id. at 61 (footnote omitted). The Court thus repudiated its conclusion in
Cantor v. Detroit Edison Co., 428 U.S. 579 (1976), that the state action
doctrine protected only compelled activities. See Ch. II.A.2.b for a
discussion of the Cantor decision.
6. 471 U.S. at 64-65 (citation omitted).
7. See, e.g., Mich. Paytel Joint Venture v. City of Detroit, 287 F.3d 527, 535-
36 (6th Cir. 2002) (broad authority under state statute and constitution to
bid out public contracts was sufficient authorization for municipality to
enter into exclusive telephone contract); Yeager’s Fuel v. Pa. Power &
Light Co., 22 F.3d 1260, 1270 (3d Cir. 1994) (electric utility’s subsidy and
incentive program promoting installation and use of electric heat pumps
was expressly authorized through legislation and regulation by the
Pennsylvania Public Utilities Commission); Sandy River Nursing Care v.
Aetna Cas., 985 F.2d 1138, 1146-47 (1st Cir. 1993) (private insurance
companies held immune from antitrust liability for alleged conspiracy to
charge maximum rates authorized but not compelled by the state); FTC v.
Equitable Res., 512 F. Supp. 2d 361, 364-68 (W.D. Pa. 2007) (holding that
“comprehensive and pervasive” regulatory authority granted to state utility
agency evidenced clearly articulated state policy to displace competition),
General Application of the Doctrine 49
The state’s authorizing legislation may even shield conduct that
occurred before the measure at issue was enacted,8 and the state action
doctrine may apply to conduct that, although not expressly sanctioned
under state law, had been undertaken for years with the knowledge and
approval of state regulators.9 Private parties also may qualify for the
exemption by demonstrating that they reasonably relied upon a state
statute, even when the statute was subsequently declared to be
unconstitutional.10
Deriving the state’s intent from the language of a statute, however, is
not always self-evident. For example, if the state statute at issue is aimed
at promoting competition, a court may be reluctant to conclude that the
state intended to displace competition.11 However, clear articulation of a
vacated as moot, No. 07-2499 (3d Cir. Feb. 22, 2008) (Equitable
Resources).
8. See, e.g., Cal. Aviation v. City of Santa Monica, 806 F.2d 905, 909 n.5 (9th
Cir. 1986) (“[s]tatutes enacted after allegedly anticompetitive conduct
[may] express pre-existing state policies to displace competition”); Mercy-
Peninsula Ambulance v. County of San Mateo, 791 F.2d 755, 757-58 (9th
Cir. 1986) (giving effect to statutory intent to immunize conduct occurring
before statute’s enactment). But see Columbia Steel Casting Co. v.
Portland Gen. Elec. Co., 111 F.3d 1427, 1442 (9th Cir. 1996) (retroactive
amendment by Oregon Public Utilities Commission of an order “cannot
satisfy the objective Midcal clear articulation test by declaring that it had
intended to displace competition with regulation 20 years earlier”).
9. See, e.g., TEC Cogeneration v. Fla. Power & Light Co., 76 F.3d 1560,
1568-69 (11th Cir.) (requisite state authorization for particular private
anticompetitive conduct could be inferred from the state’s action after the
original state authorization was given), modified on other grounds, 86 F.3d
1028 (11th Cir. 1996).
10. See, e.g., Lease Lights, Inc. v. Pub. Serv. Co. of Okla., 849 F.2d 1330, 1334
(10th Cir. 1988) (“The constitutional invalidity of the attempted state
regulation is not an appropriate basis for disregarding state action
immunity. . . . Rather, there should be a defense for those reasonably
relying on the appearance of legality when a state agency’s exercise of
power is unauthorized.”) (citations omitted).
11. See, e.g., Cal. CNG, Inc. v. S. Cal. Gas Co., 96 F.3d 1193, 1200 (9th Cir.
1996) (finding clear articulation prong was not met where utilities
commission had held generally that utilities “must not interfere with the
development of a competitive market” and that its guidelines were
subordinate to federal and state antitrust laws). Similarly, some district
courts have suggested that state regulatory statutes that call for “just and
reasonable rates” or that preclude “unfair” or “discriminatory” conduct
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