The Supreme Court of the United States’ recent ruling in North Carolina State Board of Dental Examiners v. Federal Trade Commission held that in order for a state agency controlled by active market participants to receive federal antitrust immunity under the state-action doctrine, that agency must be actively supervised by the state. State licensing boards and other agencies that include market participants should take careful note of the decision’s potentially wide-reaching effects.
On August 14, the U.S. District Court for the Southern District of Mississippi issued an opinion finding that state regulations bolstered one antitrust claim and hindered another in an ongoing dispute between a northern Mississippi convenience store chain, Major Mart, and an Anheuser-Busch InBev (ABI, a/k/a “Red Network”) distributor, Mitchell Distributing Company.
In Mississippi, by statute, like those of many other states, beer manufacturers must designate exclusive sales territories for each brand. Mitchell holds the exclusive right to sell ABI brands to retailers in the counties in which Major Mart operates its 11 convenience stores.
The relationship between Mitchell and Major Mart started to break down in 2010, when Major Mart claimed that it was receiving inaccurate and confusing price information from Mitchell. Major Mart asked Mitchell for compensation of lost profits due to the incorrect pricing information. Mitchell denied the request, and Major Mart decided later to remove ABI displays and signs, lower the prices of competitors’ products, and reduce the cooler space allocated to ABI in some of its stores. According to Major Mart’s complaint, Mitchell retaliated by (1) demanding shelving allocation that represented ABI’s market share of approximately 70 percent, (2) demanding price parity with competing products of ABI, (3) changing its deliveries to Major Mart stores to once a week so as to fill up Major Mart’s coolers and storerooms, leaving no room for competitor products and (4) delivering on Fridays so that Major Mart stores would not have cold beer on the “best selling day of the week.”
After litigation was first initiated, the parties reached a settlement in 2011, agreeing that Mitchell would increase its deliveries to at least twice per week and Major Mart would reconsider shelf space allocation and increase prices on competing brands of beers to the same price as ABI products. This temporary resolution, however, failed when Major Mart did not reallocate its shelf space. In response, Mitchell once again cut deliveries to one day per week and thereafter began to provide sales coupons and promotional giveaways exclusively to Major Mart’s competitors. Major Mart also claimed that Mitchell delivered beer that was close to the end of its shelf-life, replaced fresher beer Major Mart had with older beer and missed deliveries during key dates, including July 4 and just as students were returning to college. Eventually, Major Mart sued.
Major Mart alleged that Mitchell engaged in monopolization and attempted monopolization in violation of the Sherman Act and price discrimination in violation of the Robinson-Patman Act. In response, Mitchell filed a motion for summary judgment asserting that the Sherman Act did not apply, as (1) Mitchell’s actions were immunized by the State Action Doctrine—the principle that the Sherman Act does not apply to states acting in their capacities as sovereigns—and (2) Mitchell’s actions, which occurred solely in Mississippi, did not affect interstate commerce—as required for Sherman Act jurisdiction.
Quickly discarding the State Action Doctrine assertion, the court noted that to qualify as a state’s action, conduct must be “undertaken pursuant to [...]
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On May 31, the Federal Trade Commission (FTC) recorded yet another victory in its continuing efforts to limit the scope and application of antitrust immunity under the state action doctrine. The Fourth Circuit ruled that the North Carolina State Board of Dental Examiners’ efforts to block non-dentists from providing teeth-whitening services was not entitled to antitrust immunity because the Board’s activities were not actively supervised by the state. North Carolina State Board of Dental Examiners v. Federal Trade Commission, Case No. 12-1172 (4th Cir. May 31, 2013).
The case focused on the activities of the North Carolina state agency, which is composed of several practicing dentists, a dental hygienist and a consumer representative. The Board licenses dentists in the state and is otherwise empowered to take disciplinary measures against licensees. Beginning in approximately 2003, in response to complaints from dentists practicing in the state, the Board opened numerous investigations into teeth-whitening services provided by non-dentists. As a result of these investigations, the Board issued dozens of cease-and-desist letters to such service providers and sought to restrict the market to licensed dentists by other means.
The Board’s activity attracted the attention of the FTC, which issued an administrative complaint in 2010 charging that the Board violated the FTC Act by acting to exclude non-dentist teeth whiteners from the market in North Carolina. A trial on the merits before an administrative law judge found the Board had violated the Act. On appeal, the FTC affirmed and entered a final order enjoining the Board from, among other things, continuing to unilaterally issue extra-judicial orders to teeth-whitening services in North Carolina. The Fourth Circuit’s decision came in response to the Board’s petition for review of the FTC’s order.
The Board maintained that it was a state entity created to regulate the practice of dentistry, which encompassed the teeth-whitening services. Under the state action doctrine, private parties may claim immunity from the antitrust laws if they act according to a “clearly articulated and affirmatively expresses state policy,” and their behavior is “actively supervised by the State itself.” California Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc. (445 U.S. 97, 105 (1980). Municipalities and sub-state entities benefit from a less restrictive test. Such entities must act pursuant to a “state policy to displace competition with regulation or monopoly public service.” FTC v. Phoebe Putney Health System, Inc., 133 S. Ct. 1003, 1010 (2013). These entities are not required to demonstrate the “active state supervision” required under the two-prong Midcal test because with such entities there is little danger that their activities involve a private anti-competitive activities. Town of Hallie v. City of Eau Claire, 471 U.S. 34, 47 (1985).
Relying on its status as a state entity, the Board maintained that it was not subject to the “active supervision” prong required under Midcal. The FTC countered that entities like the Board, regulatory bodies made up of market participants, were subject to the stricter Midcal test. The FTC focused on the need to [...]
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by Jeffrey Brennan, Ashley Fischer, David Marx and Carrie Amezcua
In oral argument in FTC v. Phoebe Putney Health System, Supreme Court Justices focused on whether the state legislature clearly articulated a state policy to displace competition with regulation, in a case challenging the application of the state action doctrine to a hospital merger to monopoly.
To read the full article, click here.
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