Chapter VI. Recurring Policy Issues Raised by the Doctrine
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CHAPTER VI
RECURRING POLICY ISSUES RAISED
BY THE DOCTRINE
The state action defense is a judicially created doctrine designed to
accommodate federal policy favoring robust competition with principles
of federalism and associated state public policies that are unrelated to or
in conflict with competition goals. Perhaps it is not surprising, then, that
the doctrine has presented a number of recurring policy issues since its
creation. What governmental entities should be eligible to invoke the
doctrine? What state policies supplant federal competition policies?
Must the challenged conduct be supervised by state regulators, and if so,
to what extent? What if a governmental entity competes with private
actors? What if the effects of a state’s policy are felt outside its borders?
This chapter discusses several recurring issues raised by the doctrine that
have garnered the attention of commentators and the courts.
A. What Governmental Entities Should Qualify as the State?
The Supreme Court has held that actions of the state itself, acting as
sovereign, are covered by the state action doctrine by their very nature
and without further inquiry. As explained in Hoover v. Ronwin,1 “When
the conduct is that of the sovereign itself . . . the danger of unauthorized
restraint of trade does not arise.”2 “The only requirement,” the Court
continued, “is that the action be that of the State acting as a sovereign.”3
Outside of some relatively straightforward and obvious circumstances,
however, determining the nature of the state activity as sovereign is
rarely simple. As Professors Areeda and Hovenkamp have explained:
1. 466 U.S. 558 (1984).
2. Id. at 569.
3. Id. at 574 (quotation omitted).
110 State Action Practice Manual
Presumptively we would reserve the “state itself” designation only for
government agencies both that are statewide in their jurisdiction and
that have no particular susceptibility to capture by a particular business
group. This would certainly include the legislature, state supreme
court, and governor’s office. It would never include agencies that are
dominated by members of the regulated industry and not directly
answerable through the electoral process. . . . Unfortunately, the cases
have been far less clear.4
A relatively small group of cases involve the direct actions of a
sovereign state authority. The Supreme Court has made clear that
actions of a state legislature5 and of a state supreme court6 acting in a
legislative fashion exemplify state sovereign action and are thus exempt
under the state action doctrine without need for any further inquiry. As
the Court stated in Hoover, “Where the conduct at issue is in fact that of
the state legislature or supreme court, we need not address the issues of
‘clear articulation’ and ‘active supervision.’”7
Although there is little case law on the sovereign status of governors,
some commentators have argued that governors should at least
sometimes be entitled to the same straightforward state action exemption
as actions of the state legislature or the state supreme court.8
4. 1 AREEDA & HOVENKAMP, supra Ch. II note 160, ¶ 224b, at 405 (2d ed.
2000).
7. Hoover, 466 U.S. at 569.
8. Professors Lopatka and Page agree with Areeda and Hovenkamp, see
supra note 4, but would limit that designation to the governor only,
excluding all other executive branch authorities. See JOHN E. LOPATKA &
WILLIAM H. PAGE, NARROWING THE SCOPE OF THE STATE ACTION
DOCTRINE: REPORT PREPARED FOR THE FEDERAL TRADE COMMISSION
32-33 (2001). In their view, “the foundation of the state action
doctrine—a respect for the sovereign power of states coupled with the
background norm of competition as a fundamental national policy—
counsels that no executive branch official or agency, with the likely
exception of the governor himself, should be considered the state itself.
The strongest argument for this conclusion is based on political
legitimacy.” Id. at 33. In contrast, Professor Floyd would extend such
treatment to all public authorities that have the power both to formulate a
general policy in favor of the anticompetitive arrangements for the state
as a whole and to determine that the specific arrangement in question falls
within that policy. See C. Douglas Floyd, Plain Ambiguities in the Clear
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