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Supreme Court to Hear Arguments on Contours of "State Action" Exemption to Antitrust Laws

On November 26, 2012, the U.S. Supreme Court will hear arguments in the only case this term to squarely raise antitrust issues. The case, FTC v. Phoebe Putney Health System, Inc., raises several issues related to the "state action" exemption to the federal antitrust laws. This case, along with another Federal Trade Commission ("FTC") matter involving a North Carolina dental board on appeal in the 4th Circuit, should provide clearer antitrust guidance to doctors, dentists, lawyers, accountants and others arguably acting under the authority of a state, such as through licensure boards.

Since 1941, Georgia law has allowed counties to create hospital authorities to acquire and run hospitals. The Hospital Authority of Albany-Dougherty County was established immediately after the law's passage and shortly thereafter acquired Phoebe Putney Memorial Hospital. The Authority has run the hospital ever since, the last several years through two wholly-owned subsidiaries. In 2010, the Authority gave permission for one of the subsidiaries to negotiate the purchase of the other hospital in the county, Palmyra Medical Center, from a private entity. The negotiations were successful and the Authority approved the transaction late in 2010.

In April 2011, the FTC initiated an administrative challenge to the acquisition as an anti-competitive merger and sought a preliminary injunction in district court. Both the district court and 11th Circuit denied the injunction request under the "state action" exemption to the antitrust laws. In particular, both courts found that the Georgia law's delegation of powers to hospital authorities, including the power to acquire other hospitals, was a "clear articulation" of a policy to displace competition because such mergers were a "foreseeable result" of the legislation. Neither court thought that having the acquisition made through the Authority's private subsidiaries precluded application of the exemption.

The Supreme Court has held that actions by a state as a sovereign trump the federal antitrust laws. Subdivisions of a state such as the Authority, however, are not sovereign and their actions are immune from prosecution under the antitrust laws only if the state legislature "clearly articulated" a policy to displace competition. If private parties are implementing that policy, they must be "actively supervised" by the state itself.

In this case, the FTC objects to a finding of a "clear articulation" where the action being challenged is just a "foreseeable result" of the state action. Instead, the FTC urges the Court to require that the clear articulation be made explicitly and clearly by the legislature or that the anti-competitive effect be a "necessary" or "inherent" effect of the state action. The FTC also believes that these private hospital parties were not "actively supervised". The Authority and Phoebe parties respond that the lower courts' "foreseeable results" standard was correct and correctly applied. In addition, the Authority and Phoebe parties argue that the "active supervision" prong is not necessary here because either 1) the Authority, not the hospitals, was taking the action; or, if rejected, 2) the hospitals were agents of the state-created Authority.

The case has attracted several amicus briefs. Perhaps the most important comes from the American Medical Association urging the Court not to rule in this case in such a way that the state action doctrine would not be available to state or local medical licensure boards that contained competitors. Here, the AMA is referring to another current FTC challenge to allegedly anti-competitive actions by a state-sponsored health care agency, this one involving a North Carolina dental licensure board with private dentist members. That case has been fully briefed for the 4th Circuit but oral argument has not yet been scheduled. These two cases are the latest examples of a decade-long effort by the FTC to obtain clear guidance from the courts on the limits of the state action exemption.

Clients acting at the behest of a governmental entity — such as serving on the local licensure board for insurance, real estate or other professionals — need to be aware of the current limits to the state action doctrine and the possibility that those limits might be further explained by the Court in this case.

© 2023 ArentFox Schiff LLPNational Law Review, Volume II, Number 304
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About this Author

ArentFox Schiff is a pioneer in manufacturer-pricing litigation, and continues to work with clients around the globe to address complex antitrust problems.

Our experience spans the spectrum of federal and state antitrust practice: contracts, pricing, and distribution strategy; litigation; government investigations; and matters involving the intersection of intellectual property and antitrust.

We have worked with nearly every industry, ranging from trade associations, health care, and finance, to fashion, insurance,...

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