Demystifying antitrust state action doctrine.

AuthorSemeraro, Steven

Sometimes the most mystifying thing about legal doctrine is why so many commentators find it so mystifying. And so it is with antitrust state action doctrine. The federal antitrust laws do not apply to business activities that are the foreseeable result of a state regulatory program so long as public actors, as opposed to private ones, supervise the conduct in question. Commentators aplenty have bemoaned the doctrine's theoretical incoherence -- labeling it a practical mess that cannot be applied predictably.(1) The Court, they say, has simply failed to articulate a coherent theory to differentiate its conflicting decisions. For example, the doctrine has been used to exempt from antitrust scrutiny colluding motor carriers,(2) but not colluding insurance carriers,(3) even though both were subject to state regulatory schemes. At least four major law review articles have attempted to explain existing antitrust state action doctrine.(4) Unfortunately, they rely on four different theories and propose four different tests to determine when state regulation exempts private parties from federal antitrust scrutiny.

This theoretical ambiguity does not bode well for the myriad state-federal regulatory conflicts destined to arise in the next century. New approaches to telecommunications convergence,(5) efforts to regulate internet commerce,(6) and continued deregulation of utilities(7) are but three examples sure to lead to regulatory schemes with varying goals and techniques that differ widely among states and municipalities as well as the federal government.

For example, suppose that a state seeks to regulate advertising on the start-up pages of internet service providers. Advertising restrictions ordinarily raise serious antitrust concerns,(8) and antitrust surely will play a role in evaluating such a regulated environment. But when will antitrust doctrine lead regulatory policy? When will it support other policy considerations? And when should it get out of the way? To avoid a hopeless legal tangle over the line where regulation ends and antitrust begins (or is it the other way around?), a clear theory explaining antitrust state action doctrine must be found.

This Article has two purposes: (1) to articulate a descriptive theory to explain current antitrust state action doctrine, and (2) to evaluate that theory on normative grounds in comparison to the alternative theories and tests suggested by prior commentators. As to the descriptive project, the Article demystifies current antitrust state action doctrine by showing that it distinguishes government actors who are trusted to advance the collective good from businesspersons whose decisions are intended to advance their own interest in maximizing profit.(9) The doctrine is a by-product of our society's longstanding belief in two spheres of decisionmaking, public and private. This social organization, which might be called the status choice model assumes that individuals can choose to further either public-interested goals or self-interested goals, and social welfare can be maximized by dual spheres of public-interested governmental decisionmaking and self-interested private decisionmaking, each governed by appropriate background rules. Criticism of antitrust state action doctrine has invariably missed this distinction and -- implicitly or explicitly -- assumed that public actors seek to serve selfish interests just like private actors do.(10) No wonder current doctrine appears so mystifying to so many commentators.

As to the normative project, this Article concludes that current doctrine as explained by the status choice model provides an understandable and satisfying way to distinguish permissible from impermissible state regulation given modern American society's dual belief in self-interested private decisionmaking and public-interested government decisionmaking. Although one may fault current doctrine for requiring judges to rely on inherently uncertain intuitions about the extent and importance of government involvement in regulatory decisions, this intuitive test is as practical as any of the alternatives.

More importantly, current doctrine reinforces a healthy ideology that recognizes our individual capacity to put self interest aside and act in the public interest. By assuming that public actors behave as selfishly as private actors do, prior commentators deny this capacity and radically transform the world that antitrust state action doctrine seeks to order. Of even greater concern are the disturbing implications of these proposals. The focus on self-interested government decisionmaking is more than inaccurate; it is part of a disturbing trend in legal scholarship to accept, without analysis or reflection, stories of a world in which social life is determined entirely by selfish desire. Rules designed to govern such a world help create and cement in place a social order driven by self interest while masking our intuitive recognition that such an unhappy social ordering is not innate, and in fact does not -- or at least need not -- govern our lives.(11)

Part I first describes current antitrust state action doctrine. It then explains the status choice model and cites examples of American legal thought dating back to the The Federalist Papers and continuing through modern doctrine that rest on this model of social organization. The concluding Sub-Parts articulate the Article's primary descriptive thesis -- that antitrust state action doctrine also rests on the status choice model -- and responds to likely criticism of that thesis.

Part II sets out the leading commentary and explains how that commentary has failed on its own terms to achieve its stated goal of explaining current doctrine.

Part III takes up the normative question of whether current doctrine, as explained by the status choice model, or one of the alternatives proposed by the leading commentators, provides the soundest basis for distinguishing permissible from impermissible state regulation. First, this Part concludes that neither current doctrine nor any of the proposed alternatives offer definitive and coherent answers in complicated regulatory situations. Current doctrine does, however, provide a reasonable and practical way to approach the problem that the alternatives do not. Second, this Part raises the more important criticism of the leading commentary: that it fails to perceive the distinction between public-spirited governmental behavior and self-interested business behavior. This Part concludes that the assumption that public actors pursue their own self interest does not bring theoretical coherence to the doctrine and poses the ideological risk of reading our desirable capacity for public-interested decisionmaking out of our social conception of government actors. Third, this Part provides a normative argument in favor of current doctrine as explained by the status choice model and responds to likely criticism of that argument.


    This Part describes current antitrust state action doctrine and the status choice model of social organization. It then shows how legal doctrine in several distinct areas rests on status choice and, through case law, demonstrates that current antitrust state action doctrine also rests on this model of social organization. Finally, it responds to likely criticism that current doctrine actually rests on some theory of federalism.

    1. Antitrust State Action Doctrine

      When Congress enacted the Sherman Act in 1890, the prevailing interpretation of the Commerce Clause(12) was sufficiently narrow that conflicts between antitrust and state regulation of the economy were at most a remote consideration.(13) Cases considering what is now known as antitrust state action were thus quite rare.(14) The New Deal's expansion of economic regulation and the permissible scope of federal law under the Commerce Clause redefined the landscape. Then, in 1943, the Supreme Court directly confronted the relationship between federal antitrust law and state regulation in Parker v. Brown.(15)

      Parker involved a California regulatory program that restricted the supply of raisins in order to limit competition among raisin growers and maintain price levels.(16) The program helped producers at the expense of consumers, apparently conflicting directly with federal competition policy.(17) A unanimous Court nevertheless held that federal law did not preempt the regulatory program, because the Sherman Act was not meant "to restrain state action or official action directed by a state."(18) The Court distinguished between a state authorizing private parties to act anticompetitively, which presumably would violate the antitrust laws via the Supremacy Clause, and a state itself -- either directly or through supervised private parties -- regulating commerce, which is exempt from antitrust scrutiny.(19)

      After Parker, antitrust state action doctrine remained virtually dormant for three decades.(20) From the mid-1970s through the early 1990s, in contrast, the Court decided more than a dozen antitrust state action cases.(21) By the mid-1980s, the Court had developed a two-part test, asking whether the state (1) "clearly articulated" its intent to displace competition with regulation; and (2) "actively supervised" the private parties in the regulated market.(22)

      As applied, the test asks first whether the state has articulated a general intent to displace the forces of the free market with some form of state regulation.(23) To be state action in this context, an anticompetitive by-product of economic regulation need only be a foreseeable result of a particular statute. It need not be compelled or even necessary to the regulatory scheme.(24) More specifically, to satisfy the "clear articulation" prong of the test, a party must be able to point to legislation that has been (or, if not yet interpreted, could reasonably be) read by state courts...

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