State-action immunity and Section 5 of the FTC Act.

Author:Crane, Daniel A.
 
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The state-action immunity doctrine of Parker v. Brown immunizes anticompetitive state regulations from preemption by federal antitrust law so long as the state takes conspicuous ownership of its anticompetitive policy. In its 1943 Parker decision, the Supreme Court justified this doctrine, observing that no evidence of a congressional will to preempt state law appears in the Sherman Act's legislative history or context. In addition, commentators generally assume that the New Deal court was anxious to avoid re-entangling the federal judiciary in Lochner-style substantive due process analysis. The Supreme Court has observed, without deciding, that the Federal Trade Commission might not be bound by the Parker doctrine but instead enjoys "superior preemption" authority under Section 5 of the FTC Act. Drawing on the FTC Act's legislative history and its institutional distinctiveness from Sherman Act enforcement, this Article makes an affirmative case for FTC super-preemption power over anticompetitive state laws

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TABLE OF CONTENTS

INTRODUCTION I. THE PARKER REGIME AND THE FTC A. Parker in the Shadow of Lochner B. The Midcal Test and Representation Reinforcement C. Does the Parker Regime Apply to the FTC? II. THE FTC ACT AND SUPERIOR PREEMPTION IN HISTORICAL CONTEXT A. State Corporate Law Failure, Preemptive Federal Incorporation, and the FTC and Clayton Acts B. The FTC, the ICC, and the Shreveport Rate Case 1. The ICC and the Shreveport Rate Case 2. The Federal Trade Commission and the ICC III. Differentiation and the Parker Doctrine A. The Ghosts of Lochner and the FTC B. Institutional Constraints and Capacities IV. FTC ENFORCEMENT IN A WORLD WITHOUT PARKER CONSTRAINTS A. Cost-Benefit Analysis B. Heightened Means-Ends Rationality C. Hard Look Review CONCLUSION INTRODUCTION

Commercial regulations by state and local governments teem with restrictions on competition. Well-known examples include restrictive occupational licensing rules, (1) cartel-like limitations on transportation-service providers, (2) product-distribution rules limiting competition against automobile retailers, (3) restrictions on sharing services like Airbnb, (4) and municipal prohibitions on street-food vendors. (5) Often, these restrictions result from economic interest-group parochialism and asymmetries between the concentrated interests of incumbent producers and the diffuse interests of consumers. (6) The results can be pernicious. Anticompetitive regulatory restrictions raise prices to consumers and create barriers to entry and innovation.

The federal government is hardly immune from interest-group capture of its own, but it plays a limited role in policing the worst excesses of parochial state legislation. Three federal legal doctrines--two constitutional and one statutory--place some degree of constraint on anticompetitive state legislation. (7) State regulations may be unconstitutional under the dormant, or negative, commerce clause if they unjustifiably discriminate against out-of-state commerce or burden commerce without legitimate justification. (8) State restrictions may fail rational basis review under the Fourteenth Amendment's equal protection clause if they have no objective basis other than to erect competitive barriers to protect economic special interests. (9) And, finally, under some circumstances, state regulations that delegate the power to restrict competition to nonstate actors must yield to the Sherman Act's procompetition policy. (10)

Although federal law imposes some restraint on anticompetitive state and local regulation, its touch is relatively light and deferential. All three of the doctrines just discussed received a strong and lasting imprint of post-Lochner gun-shyness during the New Deal era, as the Supreme Court retreated from a period of perceived excess in federal judicial oversight of state socioeconomic regulation. (11) In the post-New Deal order, the three doctrines aligned to allow only modest federal inquiry into anticompetitive state and local restrictions, allowing many of the most parochial schemes to escape searching federal scrutiny.

This Article addresses the statutory prong--federal antitrust preemption of state law--in the wider context of constitutional and institutional history. In particular, it examines the assumed, but never decided, position that the United States Federal Trade Commission ("FTC") lacks any preemptive power over anticompetitive state and local regulations, apart from the relatively light preemptive reach of the Sherman Act. It asserts, to the contrary, that the best historically informed and institutionally sound reading of Section 5 of the Federal Trade Commission Act suggests that the FTC should enjoy what the Supreme Court has hypothesized as "superior preemption authority" over state and local regulations that unduly restrict competition. (12)

As a matter of legal doctrine, the question of the FTC's preemptive authority originates in the Supreme Court's seminal 1943 decision in Parker v. Brown. (13) In Parker, the Court held that "[t]here is no suggestion of a purpose to restrain state action in the [Sherman] Act's legislative history." (14) The resulting state-action immunity doctrine sharply limited any preemptive scope of the Sherman Act over anticompetitive state regulations. (15) Parker also rejected a dormant commerce clause challenge to the state regulation at issue. (16) The case thus showcased the Court's uniform reluctance to permit any strand of federal law--constitutional or statutory--to revive Lochnerism.

Neither Parker nor its progeny squarely addressed whether antitrust enforcement by the FTC should be bound by the same constraints. While occasionally asserting the possibility of a more preemptive scope of action, (17) the FTC has historically acquiesced in litigating state-action issues under the doctrinal framework established in Parker and its progeny. (18) In recent years, however, the FTC has shown renewed interest in challenging or otherwise discouraging the adoption of anticompetitive state or local regulations. It has succeeded in some cases, but the Parker doctrine keeps the FTC hamstrung from mounting a more robust set of challenges.

A reexamination of the FTC Act's context and history, as well as the commission's institutional distinctiveness, suggests that the Parker doctrine is misapplied to the FTC. Although federal preemption was not squarely addressed in the statute, important themes concerning the FTC's relationship to the Interstate Commerce Commission and state corporation law set a very different stage for the FTC Act than had been in existence two and a half decades earlier, prior to the Sherman Act. And, from the perspective of institutional design, the FTC shares few of the attributes of Sherman Act enforcement that lead to concerns about excessive federal judicial control over state economic regulation. (19) In short, despite decades of acquiescence, the case for application of the Parker doctrine to the FTC is weaker than generally assumed, and the benefits of not applying it are potentially strong. An FTC with greater preemptive power over state regulation could play a salutary role in policing nakedly or inconsiderately anticompetitive state regulations, and thereby promote good government, innovation, and consumer welfare.

The remainder of this Article proceeds as follows: Part I introduces the Parker state-action immunity doctrine in its historical context. It frames the doctrine as an offshoot of anti-Loc/mer reaction, doctrinally homogenized during the New Deal with the retreating "negative" Commerce Clause and equal protection and substantive due process doctrines as applied to socioeconomic regulation. It briefly surveys the emergence of a Parker state-action doctrine oriented toward the political process and reflects on its failure to check rampant anticompetitive regulation by state and local governments. Finally, Part I diagnoses the causes and consequences of the Federal Trade Commission's acquiescence in the application of the Parker doctrine to FTC enforcement.

Part II advances an argument based on historical context and legislative history against application of the Parker doctrine to the FTC. In particular, it draws on two distinctive background facets of the FTC's legislative history to show that, unlike the Sherman Act of 1890, the FTC Act of 1914 evidences a congressional concern with anticompetitive state regulation. First, the FTC Act emerged from a Progressive Era reaction to weaknesses in state corporation law and proposals for a preemptive federal incorporation regime. Although Congress ultimately rejected the federal incorporation model, it did so in the belief that the creation of a new federal commission could solve the problems created by state facilitation of anticompetitive behavior that had occurred in the previous decades through the race to the bottom in state corporate law. Second, the FTC Act's legislative history evidences a congressional belief that the FTC would have powers akin to that of the Interstate Commerce Commission. (20) Shortly before the Senate took up the FTC Act, the Supreme Court handed down its landmark decision in the Shreveport Rate Case, holding that the ICC enjoyed preemptive power over inconsistent state regulations. (21) The Shreveport Rate Case was highly salient at the time of the FTC Act's passage and was discussed--implicitly, if not explicitly--in the legislative history by both skeptics and proponents of the bill. (22) Hence, congressional references to the FTC as a generalist ICC for competition should be understood to imply a congressional understanding that the FTC would enjoy preemptive powers over state regulations that might facilitate anticompetitive behavior.

Part III articulates institutionally grounded reasons for reading Section 5 of the FTC Act as more preemptive than the Sherman Act--or "superior preempt[ive]," (23) in the...

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