Antitrust Exemptions and Immunities (By William Markham © 2021)

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INTRODUCTION

Over the years, Congress and the federal courts have established various immunities from federal antitrust law, removing from its reach specified commercial activities and even entire lines of commerce. Below I examine each of the antitrust immunities, describing its scope, underlying rationale, and intended purpose, and also noting any exceptions and qualifications that limit its applicability. For each immunity, I have also provided citations to the controlling statutory and case-law authorities as well as parenthetical quotations from them. I urge my readers to read the parenthetical quotations, since there is no better way to understand any law or doctrine than to read the original texts.

No unifying principle can explain or anticipate which activities are exempt or immune from federal antitrust law, but most antitrust immunities exist to reconcile inconsistencies between federal antitrust law and some other law, such as the United States Constitution, a federal regulatory scheme, a state regulatory scheme, or the laws of a foreign government. Indeed, I can think of only one antitrust immunity that lies outside this rule — the blanket immunity afforded “the business of baseball” by Justice Holmes in a Supreme Court decision rendered in 1922.[1]Justice Holmes’ stated ground was that baseball was not “interstate commerce” of the kind that Congress was empowered to regulate by the U.S. Constitution’s Commerce Clause, … Continue reading

Since antitrust immunities largely serve to reconcile conflicting laws, and otherwise lack a unifying principle, I have organized my presentation of them below according to which kinds of laws they reconcile. That approach has helped me in the past to understand them better and to argue their merits in different cases with a larger view of the underlying purposes that justify them in the first place.

I add an essential word of caution. It is never sound practice to assume after a short review that a particular activity or line of commerce enjoys an immunity from federal antitrust law. Immunities established by statute depend on the courts’ sometimes changing interpretations of arcane or sparse statutory language. Immunities established by case law generally arise from the courts’ ongoing, varying efforts to reconcile inconsistent laws and resolve the inherent contradictions of our federal system of governance. Complicating matters further, some immunities are conditional, and some are subject to important exceptions. For these reasons, no antitrust immunity can be properly understood or confidently invoked without first conducting a careful review of its controlling authorities, which I have provided in the footnotes below and urge my readers to consider as they read this note.

To take one example among many, the McCarran-Ferguson Act[2]15 U.S.C. §§ 1011-1012grants antitrust immunity to “the business of insurance,” but only so far as it is regulated by state law.[3]See 15 U.S.C.A. § 1012This provision might seem straightforward at first glance, but it always invites the following two inquiries: (1) whether an insurer’s or some other defendant’s challenged practice can be properly characterized as “the business of insurance”; and, if so, (2) whether this practice is regulated by the laws of the state where the plaintiff challenges it. Either or both inquiries can sometimes give rise to knotty problems and close calls that the courts have worked out by a series of decisions. Before an insurer concludes that a particular practice is exempt from federal antitrust law, it should examine these matters carefully. I have provided a more complete discussion of this antitrust immunity below and mention it here only to reinforce my preceding point: antitrust immunities can prove to be a treacherous minefield to those who invoke them without first reading the controlling authorities that explain and qualify them.

FOUR KINDS OF ANTITRUST IMMUNITY

Broadly speaking, Congress and the federal courts have recognized four kinds of antitrust immunity, which I briefly summarize directly below, and which I explain in detail in the ensuing sections of this article.

Noerr-Pennington Immunity for Petitioning Activity.

In two landmark cases known as Noerr and Pennington, the Supreme Court confirmed that federal antitrust law does not abridge the constitutional right to “petition the government for redress,” which is protected by the First and Fourteenth Amendments of the U.S. Constitution. Accordingly, federal antitrust law does not prohibit or condemn any effort undertaken by one or more competitors to influence government policy or obtain any redress from any branch or agency of any federal or state government. The only recognized exceptions to this rule are a competitor’s fraud in an adjudicated proceeding (where the competitor, in furtherance of an anticompetitive scheme, misrepresents a material fact to a court or an administrative tribunal) and a competitor’s sham litigation (where the competitor, in furtherance of an anticompetitive scheme, brings baseless claims against a rival solely to harass the rival and without any prospect of obtaining the requested relief).

Limited State-Action Immunity.

In a series of landmark decisions, the Supreme Court recognized antitrust immunity for activities properly authorized by a state government. To qualify, an act must be either (1) performed directly by an organ of state government (i.e., a state legislature, a state executive such as the governor’s office or a state attorney general, or the state’s courts); or (2) performed directly by a state agency and authorized by a state law that expressly declares or necessarily implies the state’s intention to place such acts beyond the reach of federal antitrust law; or (3) performed by one or more private parties and actively supervised by a state or local agency in accordance with a state law that expressly declares or necessarily implies the state’s intention to place such acts beyond the reach of federal antitrust law. But no state may authorize private parties to engage in conduct that violates federal antitrust law merely for the sake of their own enrichment. An authorizing state law must be one that the state enacts and enforces in furtherance of its sovereign power to regulate its own commerce or protect the health, safety, and welfare of those located within its territory.[4]State-action immunity is a doctrine established and refined by a series of Supreme Court decisions to address the unresolved tension between Congress’ supreme authority to enact laws in … Continue readingRelatedly, local government agencies cannot be held liable for antitrust damages under federal antitrust law, but they can be subjected to a federal antitrust injunction and ordered to pay attorney’s fees and costs to a prevailing plaintiff that procures the injunction.

Express and Implied Federal Immunities

Congress has enacted statutes that by express provision or necessary implication establish various antitrust exemptions for specified commercial activities, and the federal courts have decided how these statutory immunities must be interpreted and enforced. There are many such immunities: each one is distinctive and depends on its authorizing statute and how the courts have interpreted and enforced it. I have listed and generally described all of them below. Also, in 1922 the Supreme Court established a unique antitrust exemption for “the business of baseball,” which Congress subsequently modified only to permit major-league players to accept offers from rival clubs, but otherwise left intact, so that minor-league players and baseball fans are deprived of the protections of federal antitrust law.

Limited Immunities for Foreign Governments and Their Agencies.

Subject to significant exceptions, no court of the United States will rule on a claim or defense that asks it to invalidate an act taken by a foreign sovereign power in its own territory, and no federal court will entertain any claim made against a foreign sovereign or any of its political subdivisions, except as expressly authorized by the Foreign Sovereign Immunities Act of 1976.[5]28 U.S.C. §§ 1604-1607The exceptions to these rules are very broad, and under them it is possible for a party to assert an antitrust claim against a foreign sovereign or its agency so long as the claim concerns strictly commercial activity that harms American exporters, American importers, or domestic American commerce. Nonetheless, the federal courts preserve broad discretion to defer to the State Department and to decline to entertain any such claim.

I explain each of these categories more fully in the following sections of this article.

NOERR-PENNINGTON IMMUNITY FOR PETITIONING ACTIVITY

Antitrust law does not reach legitimate efforts to influence the government’s decisionmaking process or to seek redress from a government institution or agency (“petitioning activity”), even when the avowed or apparent purpose of the effort is to obtain an official grant of a monopoly concession. This broad immunity is called “Noerr-Pennington immunity,” a term that refers to the two Supreme Court decisions that established it.[6]See Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545, 555–56 (2014) (“Under the Noerr–Pennington doctrine—established by Eastern Railroad Presidents Conference v. Noerr … Continue reading

Subject to the below exceptions, petitioning activity is a constitutional right protected by the First and Fourteenth Amendments of the U.S. Constitution. Absent a compelling interest, neither Congress nor any state legislature has the power to subject petitioning activity to antitrust prohibitions, nor was the Sherman Act ever intended to impose any such prohibition, which would not only infringe upon bedrock constitutional rights, but also impair the work of government institutions and agencies.[7]See E. R. R. Presidents Conf. v. Noerr Motor Freight, Inc., 365 U.S. 127, 135 (1961) (“[N]o violation of the [Sherman] Act can be predicated upon mere attempts to influence the passage or … Continue reading

Noerr-Pennington immunity thus safeguards charter rights guaranteed by the First and Fourteenth Amendments of the United States Constitution, which in pertinent part state the following:

Congress shall make no law … abridging the freedom of speech … or the right of the people … to petition the Government for a redress of grievances.”[8]Excerpt from the First Amendment of the U.S. Constitution.

 

“All persons born or naturalized in the United States … are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States….” [9]Excerpt from the Fourteenth Amendment of the U.S. Constitution.

 

Excerpts from the First and Fourteenth Amendments of the United States Constitution

Congress and state legislatures therefore lack authority to enact competition laws that infringe upon these rights or, at best, they must have a compelling, clearly articulated reason for doing so that survives strict scrutiny — i.e., a compelling state interest accomplished by a narrowly drawn restriction on a constitutional right.[10]See Williams-Yulee v. Fla. Bar, 575 U.S. 433, 442–44 (2015) (discussing standard of review for state or federal law that restricts a right guaranteed by the First Amendment, and holding that … Continue readingBut neither Congress nor any state legislature has ever announced any such purpose or enacted any such law.[11]See U.S. Futures Exch., L.L.C. v. Bd. of Trade of the City of Chicago, Inc., 953 F.3d 955, 960 (7th Cir. 2020) (“The [Noerr-Pennington] doctrine flows from First Amendment origins: antitrust laws … Continue reading

Even if Congress were to enact such a law, it would likely fail to survive strict scrutiny, since the law would inhibit members of the public from communicating with the government about their most important concerns.[12]See id., 365 U.S. at 136–38 (“[S]uch a holding would substantially impair the power of government to take actions through its legislature and executive that operate to restrain trade. In a … Continue reading

Accordingly, any market participant can seek redress from the government no matter what prohibitions might appear in the Sherman Act or any other antitrust law. A competitor or group of competitors can even request a government measure that is anticompetitive or monopolistic on its face or in probable effect.[13]See U.S. Futures Exch., 953 F.3d 955, 960.

Protected petitioning activity includes lobbying efforts, civil claims filed in court, administrative claims, publicity campaigns, and all other direct and indirect efforts to influence government policy or obtain specific acts from the government at any level – federal, state or local.[14]Noerr, 365 U.S. at 136 (petitioning activity includes any effort to influence or obtain relief from the legislature or executive branch of government); id. at 139–40 (petitioning activity includes … Continue reading

Suppose, for example, that a private competitor (the “petitioner”) asks a local town board to give it the exclusive right to provide a specified service within town limits, and for various reasons most residents of the town must procure this service from a local provider. Following its regular procedures, the board grants the request, issues corresponding ordinances and regulations, and thereby confers on the petitioner a monopoly over the service in question, exactly as the petitioner intended by making its request. On these facts, the petitioner’s conduct cannot be challenged under the Sherman Act, since the petitioner did nothing other than seek redress from a government agency, and any such effort is entitled to Noerr-Pennington immunity from federal antitrust law.[15]See U.S. Futures Exch., 953 F.3d at 960.

In the foregoing scenario, the local board’s own conduct must be reviewed under the doctrine of state-action immunity, but even if the local board’s grant of a monopoly concession did not qualify for state-action immunity, the local board could not be held liable for antitrust damages. The only antitrust remedy available in this circumstance would be an antitrust injunction and attorney’s fees granted under Section 16 of the Clayton Act.[16]15 U.S.C. § 26.

Exceptions to Noerr-Pennington Immunity: False Representations and Sham Litigation.

There are two narrow exceptions to Noerr-Pennington immunity: first, it does not protect a competitor’s materially false representations of fact made in court or during an administrative adjudication; and, second, it does not protect “sham litigation” – litigation brought in bad faith in order to harass a rival rather than to obtain redress from a court or administrative tribunal.[17]See U.S. Futures Exch., 953 F.3d at 960 (“Noerr-Pennington immunity is not absolute…. Exceptions exist for petitioners who present fraudulent misrepresentations or bring sham lawsuits.”).

Exception for Fraudulent Representations. If a petitioner obtains anticompetitive redress in a court or administrative tribunal by making a false representation of material fact, its petitioning conduct is not entitled to Noerr-Pennington immunity and can constitute predicate conduct that supports an antitrust violation, so long as the other elements of the violation are in place.[18]See U.S. Futures Exch., 953 F.3d at 960 (“Fraudulent misrepresentations made in an adjudicative proceeding before an administrative agency are not protected from antitrust liability. Those made in … Continue reading

For example, a competitor might obtain a patent by fraud, then sue in court to enforce it against a rival, alleging that it holds a valid patent, and that the defendant has infringed upon it. If the defendant can show that the plaintiff procured its patent by fraud, so that its allegations in the court proceeding are likewise fraudulent, the rival can defeat the plaintiff’s patent claim and also establish predicate conduct for an antitrust violation (e.g., the plaintiff has used its ill-gotten patent to restrain or monopolize commerce in violation of federal antitrust law).[19]See Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 174 (1965) (“The enforcement of a patent procured by fraud on the Patent Office may be violative of § 2 of the … Continue reading

Exception for Sham Litigation. Sham litigation arises when a petitioner litigates a baseless claim in bad faith in order to harass or undermine a competitor by involving it in expense, burden, or delay. Where this occurs, the courts have found that the petitioner did not actually petition the government for relief, since it lacked any prospect of obtaining the requested relief, but instead brought and maintained its claims only to harass its rival. To qualify as “sham litigation,” a plaintiff’s claim must meet both of the following criteria: (1) the claim must be “objectively baseless,” which means that it that lacks any reasonable basis in fact or law; and (2) the claim must also be “subjectively baseless,” which means that the plaintiff must have brought it to harass a rival rather than obtain the requested relief.[20]See Pro. Real Est. Invs., Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60–61 (1993) (“PRE”) (“We now outline a two-part definition of ‘sham’ litigation. First, the lawsuit must be … Continue reading

Of note, a claim is said to be “objectively baseless” when the party asserting it lacks reasonable evidence to support its charging allegations, or when these allegations, even if true, would not render the defendant liable to the plaintiff under any arguable interpretation of any law or doctrine. In other words, an objectively baseless claim is one that no reasonable litigant would bring, since the claim cannot possibly succeed on the merits.[21]See PRE, 508 U.S. at 60–61 (an “objectively baseless” lawsuit is one “that no reasonable litigant could realistically expect success on the merits.”).

Some courts have ruled that a competitor’s repeated complaints to numerous administrative tribunals constitute “sham” petitioning, even if a few of them succeed, when the competitor is clearly indifferent to the outcome of its serial complaints and has made them only to harass a rival and delay its application for permission to engage in a regulated commercial activity.[22]See California Motor Transp. Co. v. Trucking Unlimited, 404 U.S. 508, 511–12 (1972) (petitioners’ purported petitioning conduct is a mere sham and therefore not entitled to Noerr-Pennington … Continue reading

The upshot is that the courts draw the following “nice distinction” when reviewing antitrust challenges to petitioning activity: a competitor may ask his government for a monopoly or trade restraint, but it exposes itself to antitrust liability if it seeks to restrain or monopolize commerce by making a material misrepresentation to a court or in an administrative adjudication, or by litigating a baseless claim to harass a rival and without any prospect of prevailing on the merits.[23]See U.S. Futures Exch., 953 F.3d at 960; Hanover 3201 Realty, 806 F.3d at 180.

Limited State-Action Immunity

Under certain circumstances, a state government can lawfully take or authorize acts that otherwise might be unlawful under federal antitrust law. This matter is governed by a series of Supreme Court decisions that explain how Congress’ power to regulate commerce and enforce federal antitrust law interacts with each state’s prerogative to regulate its internal commerce and protect the health, safety, and welfare of those located within its territory.

State Laws and Federal Laws Under Our Federal System: General Principles.

Each state in the United States has sovereign powers and can presumptively exercise general police powers to protect the health, safety, and welfare of its public.[24]See Medtronic, Inc. v. Lohr, 518 U.S. 470, 475 (1996) (“Throughout our history the several States have exercised their police powers to protect the health and safety of their citizens. Because … Continue reading

A state also has limited powers to regulate commerce within its territory (intrastate commerce) even when the regulation has some effect on interstate commerce.[25]See Parker v. Brown, 317 U.S. 341, 359–60 (1943) (“The governments of the states are sovereign within their territory save only as they are subject to the prohibitions of the Constitution or as … Continue reading

Although vested with these powers, a state may not enact a law that is “repugnant” to a federal law, or whose exercise is incompatible with the enforcement of a federal law on the same topic.[26]See Gibbons v. Ogden, 22 U.S. 1, 210–11 (1824) (Where “a law passed by a State, in the exercise of its acknowledged sovereignty, comes into conflict with a law or treaty properly passed by … Continue reading

Congress’ Dormant Power Under the U.S. Constitution’s Commerce Clause.

The foregoing principles have been used to establish the “dormant power” of the Commerce Clause of the U.S. Constitution,[27]See U.S. Constitution, Article I, Section 8, which in pertinent part empowers Congress “to regulate Commerce with foreign Nations, and among the several States….”). which holds that Congress’ authority to regulate interstate commerce impliedly forbids any state to enact a law that either discriminates against interstate commerce or imposes unreasonable burdens on it.[28]See Selevan v. New York Thruway Auth., 584 F.3d 82, 90 (2d Cir. 2009) (“In implementing the Commerce Clause, the Supreme Court has adhered strictly to the principle that the right to engage in … Continue reading

A state therefore cannot enact a law that discriminates against out-of-state commerce (e.g., state laws that on their face or as practiced favor local suppliers over out-of-state suppliers). Nor can a state enforce a law or regulation that unreasonably burdens interstate commerce or results in the state’s regulation of commerce that occurs entirely outside of its jurisdiction.[29]See Selevan, 584 F.3d at 90 (“A state statute or regulation may violate the dormant Commerce Clause only if it (1) clearly discriminates against interstate commerce in favor of intrastate commerce, … Continue reading

Federal Preemption.

Relatedly, a state loses its power to enforce a law when Congress enacts its own law that addresses the same subject-matter and expressly decrees or impliedly requires “federal preemption” of all state laws on the same subject-matter.[30]See Philip Morris Inc. v. Harshbarger, 122 F.3d 58, 67–68 (1st Cir. 1997) (to determine whether a federal law preempts state laws on the same subject-matter, the “crucial inquiry” is whether … Continue reading

State-Action Immunity From Antitrust Liability.

Guided by these principles, the Supreme Court has found that the Sherman Act in particular and all federal antitrust law generally do not preempt state law or apply to the direct acts of a state government.[31]See Parker, 317 U.S. at 350–51 (“We find nothing in the language of the Sherman Act or in its history which suggests that its purpose was to restrain a state or its officers or agents from … Continue readingThis doctrine applies only to laws and direct acts of an organ of a state government — i.e., laws duly enacted and acts directly taken by a state legislature, a governor’s office, a state attorney general, or a state court.[32]See id.

In contrast, the act of a state or local agency is protected by state-action immunity only when it is expressly authorized by a state law that declares or necessarily implies the state’s intent to permit such acts even though they might otherwise violate, or be inconsistent with, federal antitrust law or the national policy in favor of competitive markets.[33]See Cmty. Commc’ns Co. v. City of Boulder, Colo., 455 U.S. 40, 51 (1982) (“[M]unicipal conduct” is immune from federal antitrust law only when undertaken “pursuant to state policy to displace … Continue readingEven so, when a state agency takes acts that lack state-action immunity and violate federal antitrust law, it cannot be held liable for damages under federal antitrust law.[34]See Local Government Antitrust Act of 1984, 15 U.S.C. §§ 34-36 , but it can be subjected to an antitrust injunction — i.e., an injunction granted under Section 16 of the Clayton Act, which is codified at 15 U.S.C. § 26.[35]See Lancaster Cmty. Hosp. v. Antelope Valley Hosp. Dist., 940 F.2d 397, 404 (9th Cir. 1991).A plaintiff that obtains an antitrust injunction against a state agency can recover its attorney’s fees and costs from the agency.[36]See id. (“[The Local Government Antitrust Act of 1984] precludes the recovery of damages, costs, or attorneys fees, on the basis of 15 U.S.C. §§ 15, 15a, or 15c, from local government entities. … Continue reading.

Lastly, the act of a private business can also enjoy “state-action immunity” from federal antitrust law, but only when the following two conditions are met: (1) the private act is expressly authorized by a state law that declares or necessarily implies the state’s intent to permit such acts even though they might otherwise violate, or be inconsistent with, federal antitrust law or the national policy in favor of competitive markets; and (2) a state agency must actively supervise all such private acts to ensure that they are properly performed in accordance with the state law that authorizes them.[37]See California Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97, 105 (1980) (establishing doctrine); F.T.C. v. Phoebe Putney Health Sys., Inc., 568 U.S. 216, 225 (2013) (“[G]iven … Continue reading

Bullet-Point Summary.

The foregoing principles are complicated because our federal system of government is complicated. The bullet points can nevertheless be quickly summarized:

• First, the U.S. Constitution vests supreme authority in Congress to enact laws that govern interstate commerce. Relatedly, each state’s authority to regulate a given matter can be preempted by a federal law, but only if it is clear that Congress, by enacting the law, intended to preempt state laws on the same subject-matter. No such preemption was intended or accomplished by Congress’ enactment of the Sherman Act or any other federal antitrust law. The Constitution therefore permits each state to regulate its internal commerce and protect the health, safety, and welfare of those located within its borders, but a state cannot enact laws that discriminate against interstate commerce or unduly burden it. The bottom line is that each state can regulate its own commerce and protect those within its jurisdiction, so long as it takes reasonable care not to impose unreasonable burdens on the flow of interstate commerce — i.e., so long as its laws and regulations do not (1) purposefully or unreasonably favor local concerns over out-of-state concerns; (2) impede interstate commerce in ways not reasonably related to legitimate local regulation; or (3) purport to regulate wholly out-of-state commerce. Offending state laws can be challenged on these grounds.
• Neither the Sherman Act, nor any other federal antitrust law prohibits or regulates any act directly taken by a sovereign state — i.e., by a state legislature, a Governor’s office, a state attorney general’s office, or a state courthouse.
• A state agency’s acts enjoy state-action immunity only if the acts are expressly authorized by a state law that declares or necessarily implies that such acts may be taken despite any prohibition set forth in federal antitrust law. Regardless, no state agency can be held liable for damages under federal antitrust law, but a stage agency can be regulated by an antitrust injunction (i.e., an injunction issued under Section 16 of the Clayton Act) and ordered to pay attorney’s fees and costs incurred by a plaintiff to procure the injunction (as is authorized under Section 16 of the Clayton Act, which is codified at 15 U.S.C. § 26).
• Private acts enjoy state-action immunity when the following two conditions are met: (1) the acts are expressly authorized by a state law that declares or necessarily implies that any such act may be taken despite any prohibition set forth in federal antitrust law; and (2) a state agency must enforce the authorizing state law and actively supervise the private acts that it authorizes. But no state can enact a law that merely authorizes private parties to monopolize or restrain trade without any view to regulating intrastate commerce or protecting the health, safety or welfare of those located in the state.
• Lastly, the term “state agency,” as used here, refers to any political subdivision of a state government, such as a state regulatory agency, a municipality, a county board, etc. This can raise difficult judgment calls when a local agency delegates authority to, say, a hospital board or some other quasi-public agency dominated by private economic actors.

EXPRESS AND IMPLIED ANTITRUST IMMUNITIES ESTABLISHED BY FEDERAL LAW

Congress has promulgated various laws that confer limited or conditional immunity from federal antitrust law, and the federal courts have interpreted and applied these immunities and also established one of their own — the immunity that is incongruously and indefensibly granted to the “business of baseball.”

Statutory Immunities.

The principal statutory immunities are as follows:

• The “business of insurance,” but only so far as it is regulated by state law.[38]See McCarran-Ferguson Act of 1945, which is codified at 15 U.S.C. §§ 1011-1012.
• Export associations whose dealings cause no harm to other American exporters, American importers, or domestic American commerce.[39]See Webb-Pomerene Act of 1918, which is codified at 15 U.S.C. §§ 61-65; see also Export Trading Company Act of 1982, which is codified at 15 U.S.C. § 6a.
• American export activity that causes no harm to any American exporter, American importer, or domestic American commerce.[40]See Foreign Trade Antitrust Improvements Act of 1982, which is codified at 15 U.S.C. § 6a.
• International ocean commerce regulated by the Shipping Act of 1984.[41]46 U.S.C. §§ 1701-1720
• Labor-union activity.[42]See Norris-LaGuardia Act of 1932, which is codified at 29 U.S.C. §§ 101-115, as well as Section 6 of the Clayton Act of 1914, which is codified at 15 U.S.C. § 17.
• Agricultural and fishing cooperatives formed to market and sell farm and fish products.[43]See Section 6 of the Clayton Act and the Capper-Volstead Act of 1922, which is codified at 7 U.S.C. § 291.
• Healthcare providers’ procedures for peer review.[44]See Health Care Quality Improvement Act of 1986, which is codified at 42 U.S.C. §§ 11, 111.
• Activity that supports national security and has been approved by the Department of Justice and the FTC, including commercial activity that contribute to the “expansion of productive capacity and supply beyond levels needed to meet essential civilian demand.”[45]See 50 U.S.C. § 2062
• Joint research and development conducted by small businesses and approved by the Small Business Administration.(((See 15 U.S.C. § 638.)))
• One newspaper’s acquisition of a failing newspaper, provided that the acquired newspaper’s independent operations remain intact, and subject to express approval from the United States Department of Justice.[46]See Newspaper Preservation Act in 1970, which is codified at 15 U.S.C. §§ 1801-1804.
• Bank mergers, which are governed by the Bank Merger Act of 1966.[47]See 12 U.S.C.§ 1828c.
• Soft-drink distribution agreements.[48]See Soft Drink Interbrand Competition Act, which is codified at 15 U.S.C. §§ 3501–3503.
• Gift annuities.[49]See Charitable Donation Antitrust Immunity Act of 1997, which is codified at 15 U.S.C. § 37(a).
• Medical-resident matching.[50]See Pension Funding Equity Act of 2004, which is codified at 15 U.S.C. § 37b(b)(2).

The Business of Baseball.

In a ruling in 1922, the Supreme Court established a general exemption from federal antitrust law for “the business of baseball.”[51]See Federal Baseball Club v. National League, 259 U.S. 200, 208-09 (1922) (finding that the “business of baseball” did not constitute interstate commerce that Congress had authority to regulate); … Continue reading

The baseball exemption is an outlier. It was granted by Justice Holmes in a Supreme Court decision in 1922 on the ground that baseball was not “interstate commerce” of the kind that Congress could lawfully regulate under the Constitution’s Commerce Clause.[52]See Federal Baseball, 259 U.S. 200, 208-09 (1922).Thereafter, the Supreme Court abrogated this approach to Commerce Clause,[53]See Wickard v. Filburn, 317 U.S. 111, 124 (1942) (“The commerce power is not confined in its exercise to the regulation of commerce among the states. It extends to those activities intrastate which … Continue readingbut in two subsequent decisions it expressly preserved the baseball exemption, finding that participants in the baseball industry had relied on the exemption for so long that they would suffer an injustice if it were removed retroactively by an unexpected court decision: instead, the Supreme Court ruled, the baseball exemption could be properly repealed or modified only by a new act of legislation passed by Congress.[54]See Toolson, 346 U.S. 356–57; Flood, 407 U.S. at 283.

More than forty years later, Congress finally afforded limited relief by enacting the Curt Flood Act of 1998, which granted antitrust protections only for the “employment of major league baseball players to play baseball at the major league level.”[55]See the Curt Flood Act of 1998, which is codified at 15 U.S.C. § 26b.But Congress otherwise declined to repeal the baseball exemption, and the federal courts have repeatedly ruled that, absent any such act of Congress, the baseball exemption must remain intact so far as it was not repealed by the Curt Flood Act.[56]See, e.g., City of San Jose v. Off. of the Com’r of Baseball, 776 F.3d 686, 690–91 (9th Cir. 2015).

Of note, the 1922 ruling in Federal Baseball suggested that baseball could be properly reviewed under state antitrust law —  a point emphasized by a leading authority on antitrust law.[57]See Phillip E. Areeda (late) & Herbert Hovenkamp, Antitrust Law: An Analysis of Antitrust Principles and Their Application ¶251. (4th and 5th Editions 2015-2021) (“”[B]eginning with Justice … Continue readingBut here too the federal courts denied this relief, finding that baseball is interstate and national in character and thus requires uniform antitrust regulation (!)[58]See Major League Baseball v. Crist, 331 F.3d 1177, 1185 (11th Cir. 2003) (finding that baseball is interstate in character and therefore requires uniform national regulation, and that the chosen … Continue readingThe federal courts have thus gone out of their way to place baseball in a no-man’s land of antitrust impunity that is not granted to any other sport or other kind of professional entertainment.

The owners of major-league baseball teams thus enjoy a singular immunity from both federal and state antitrust protection. The result is that minor-league baseball players, baseball fans, and candidate cities lack any antitrust protection. This gap in the law arose because of a 1922 court ruling whose precepts have since been abrogated, and it remains in place because Congress has failed to rescue baseball from the superseded court ruling, except to afford major-league players antitrust protections when negotiating big-league employment contracts. Fans, cities, and minor-leaguers have thus been left to fend for themselves without basic antitrust protections. Baseball, a distinctly American sport, thus lacks the time-honored American remedy for marketplace abuses — antitrust remedies. It is long past time to end this indefensible anomaly.

The Business of Insurance.

As briefly noted above, the McCarran-Ferguson Act of 1945 (15 U.S.C. §§ 1011-1012) establishes a significant antitrust exemption for the “business of insurance”: the principal federal antitrust statutes – the Sherman Act, the Clayton Act, and the FTC Act – do not reach any insurance activity that is regulated by the state where it is challenged.

Of note, the McCarran-Ferguson Act does not exempt insurance companies (insurers), but only their insurance activities (the “business of insurance”). An insurer therefore cannot receive McCarran-Ferguson immunity if it is sued for an antitrust violation that it allegedly committed when engaged in some other kind of commerce, but only when the challenge concerns its insurance transactions and closely related matters that it must perform in order to engage in them.[59]see Grp. Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 210–11 (1979) (“The statutory language [of the McCarran-Ferguson Act] does not exempt the business of insurance companies from … Continue reading

The business of insurance therefore concerns activities by which an insurer assumes and “spreads” specified risks in exchange for fees.[60]See id.

Applying this rule, the courts have found that the business of insurance principally concerns (1) insurance contracts (or insurance policies) between an insurer and its insureds, including their negotiation, essential terms and conditions, interpretation, and enforcement; (2) the rates (prices) that insurers charge for different kinds of insurance contracts; (3) insurers’ advertising of insurance contracts; (4) the licensing of insurers and their agents; and (5) other, closely related tasks.[61]See Sec. & Exch. Comm’n v. Nat’l Sec., Inc., 393 U.S. 453, 460, 89 S. Ct. 564, 568–69, 21 L. Ed. 2d 668 (1969).

Other activities performed by insurers do not qualify, including an insurer’s issuance of a variable annuity contract (under which the annuitant bears all of the risk);[62]see Sec. & Exch. Comm’n v. Variable Annuity Life Ins. Co. of Am., 359 U.S. 65, 73 (1959).an insurer’s use of its own network of pharmacies to lessen its own costs when fulfilling its obligations to insureds;[63]see Royal Drug, 440 U.S. 205, 214 (1979).and other arrangements by which insurers lessen their costs to fulfill obligations to their insureds.[64]see, e.g., Pireno v. New York State Chiropractic Association, 650 F.2d 387 (2d Cir. 1981); St. Bernard Hospital v. Hospital Service Assn. of New Orleans, Inc., 618 F.2d 1140, 1145 (5th Cir. 1980); … Continue reading

In some cases, it is not obvious whether the insurer’s challenged practice is part of the business of insurance, but the best litmus test is usually to determine whether the practice entails the insurer’s assumption of risks otherwise borne by its insureds in exchange for fees; the more removed its practice is from this essential work, the less likely it is to be deemed the business of insurance that qualifies for McCarran-Ferguson immunity so long as it is subject to state regulation where it is challenged.[65]See Royal Drug, 440 U.S. at 211.

Implied Federal Immunities.

The federal courts have also found that federal antitrust law can be partly or wholly displaced by federal regulatory schemes, such as the Securities Exchange Act of 1934, which regulates stock exchanges and broker-dealers of securities. An implied immunity from antitrust law is disfavored, however, and so far as possible the courts try to reconcile federal antitrust law with federal regulatory schemes.[66]See Silver v. New York Stock Exch., 373 U.S. 341, 357 (1963) (“The Securities Exchange Act contains no express exemption from the antitrust laws…. This means that any repealer of the … Continue reading

Limited Immunity for Foreign Governments and Their Agencies

Special rules govern antitrust claims brought against a foreign government or its agency (i.e., a political subdivision of a sovereign foreign government). The common-law doctrine of acts of state governs any claim that challenges acts committed by a sovereign government in its own territory, and all other claims against foreign governments and their agencies are governed by a highly technical federal statute entitled the Foreign Sovereign Immunities Act.

The Doctrine of Acts of State.

The doctrine of acts of state bars any claim that challenges an act directly taken by a sovereign foreign government within its own territory. Here is how the Supreme Court explained acts of state in a landmark case decided in 1897:

Every sovereign State is bound to respect the independence of every other sovereign State, and the courts of one country will not sit in judgment on the acts of the government of another done within its own territory. Redress of grievances by reason of such acts must be obtained through the means open to be availed of by sovereign powers as between themselves.

 

Underhill v. Hernandez, 168 U.S. 250, 252 (1897).

Federal courts in the United States decline to review or adjudicate any such act, since doing so would encroach upon the prerogatives and powers of the Executive Branch or the Legislative Branch of the federal government, which are responsible for establishing and conducting the foreign policy of the United States.[67]See W.S. Kirkpatrick & Co. v. Env’t Tectonics Corp., Int’l, 493 U.S. 400, 404 (1990) (In earlier times, the doctrine of acts of state “rest[ed] upon the highest considerations of … Continue reading

More specifically, the doctrine bars any claim or defense by which a litigant asks a federal court in the United States to invalidate an official act of a sovereign foreign government taken within its own territory: no American court will entertain any such claim or defense.[68]See id. 493 U.S. at 405 (“[T]he act of state doctrine [is] applicable [when] the relief sought or the defense interposed would have required a court in the United States to declare invalid the … Continue reading

In one decision that has since been strongly criticized, the Ninth Circuit invoked the doctrine to justify its refusal to subject the operations of OPEC to federal antitrust law notwithstanding their profound effect on domestic American commerce.[69]See Int’l Ass’n of Machinists & Aerospace Workers, (IAM) v. Org. of Petroleum Exporting Countries (OPEC), 649 F.2d 1354, 1361–62 (9th Cir. 1981), disapproved of by Siderman de Blake … Continue reading

The Doctrine of Sovereign Immunity and The Foreign Sovereign Immunities Act 1976.

Sovereign immunity is an ancient immunity by which independent nation-states respected one another’s sovereignty and declined to permit a citizen of any nation-state to bring suit in his home country against a foreign government.[70]See Samantar v. Yousuf, 560 U.S. 305, 311 (2010) (“The doctrine of foreign sovereign immunity developed as a matter of common law…. [I]n Schooner Exchange v. McFaddon, 7 Cranch 116, 3 … Continue reading

This doctrine evolved over time. In the United States, when a federal court received a private claim against a foreign government, it was required to heed the guidance of the State Department, which from 1952 onward purported to observe the “restrictive” version of sovereign immunity to decide whether the claim could proceed: under this doctrine, a foreign sovereign could be sued in a U.S. federal court on a claim that concerned its commercial activity in the United States, but not on a claim that concerned its sovereign or “public” acts.[71]See Tachiona v. Mugabe, 169 F. Supp. 2d 259, 268–73 (S.D.N.Y. 2001), aff’d in part, rev’d in part and remanded sub nom. Tachiona v. United States, 386 F.3d 205 (2d Cir. 2004) (provided extended … Continue reading

But the State Department did not always follow its own stated guidelines, often preferring instead to use an ad hoc approach, by which it found ways to permit claims against disliked adversaries and to reject those made against friendly allies. Its guidance on these matters, which was binding on federal courts, lacked consistent reasoning or a sufficient regard for the commercial rights of American citizens wronged by the practices of foreign governments and their agencies.[72]See id.

Federal judges, members of Congress, and various commentators expressed their misgivings about this practice, and Congress eventually intervened to enact the Foreign Sovereign Immunities Act of 1976, which is codified at 28 U.S.C. §§ 1604-1607, and which replaced the State Department’s inconsistently applied restrictive version of sovereign immunity.[73]See id.The principal aim was to afford predictable rules, so that Americans engaged in foreign commerce or affected by it would have a clear understanding of their rights under American law against foreign sovereigns that caused them harm in commercial dealings.[74]id.

The Foreign Sovereign Immunities Act is codified at 28 U.S.C. §§ 1604-1607 and seemingly inverts the ancient rule on sovereign immunity. Under this law, foreign governments and their political subdivisions (collectively, “foreign sovereigns”), cannot be sued in a United States federal court for (1) punitive damages in any case or (2) claims other than the following categories of claims, all of which are expressly allowed, and which apparently cover many if not most kinds of claims:

• Waiver of Sovereign Immunity. Any claim that a foreign sovereign defendant permits to be maintained against it in the United States (waiver of immunity).
• Commercial Claims. Any claim that arises from a foreign sovereign’s commercial activity in the United States or its commercial activity abroad that has had a “direct effect in the United States.”
• Recovery of Ill-Gotten Property. Any claim against a foreign sovereign to recover property taken in violation of international law (or its fruits), so long as the ill-gotten property is either (a) located in the United States and used in commercial activity; or (b) held by a foreign sovereign that engages in commercial activity in the United States.
• Vindicating Property Rights. Any claim against a foreign sovereign to establish either (a) a right to real property located in the United States; or (b) a right by succession to any property located in the United States.
• Torts. Any claim against a foreign sovereign for a tort committed by its officer or employee during the course of duty; but any such claim is limited to compensatory damages for harm to a person or property in the United States.
• Compelling Arbitration. Any claim against a foreign sovereign to compel arbitration proceedings authorized by a contract.
• Maritime Liens. Admiralty proceedings to enforce a maritime lien for commercial debt against a foreign sovereign’s vessel or cargo.
• Damages for Acts of Terrorism. Any claim against a foreign sovereign to recover losses for physical injury or death caused by an act of terrorism committed or abetted by the sovereign’s officer or employee during the course of duty.
• Counterclaims. Certain counterclaims made by a counterclaimant whom the foreign sovereign has sued in a federal district court.

In other words, foreign sovereigns cannot be sued in a U.S. federal court for punitive damages or claims not expressly allowed under 28 U.S.C. §§ 1605-1607, but the allowed claims are for various kinds of commercial claims, property claims, torts, maritime liens, arbitration orders, acts of terrorism, and counterclaims, as well as any claim for which a foreign sovereign has waived its sovereign immunity. That is a far cry from ancient sovereign immunity, which protected each foreign sovereign from all claims that a private citizen might wish to bring against it in his home country. Under the Foreign Sovereign Immunities Act, private American citizens can sue foreign sovereigns in U.S. federal court for many if not most kinds of claims, but subject to the specific limitations described above. A private American citizen therefore can usually sue a foreign sovereign or its agency for any antitrust claim that concerns commercial activity in the United States or commercial activity abroad that has had a direct, substantial effect on domestic commercial activities.[75]See 28 U.S.C. §§ 1604-1607.

The Doctrine of Judicial Comity.

Nonetheless, the federal courts have discretion to decline to adjudicate an antitrust challenge to commercial activity that occurs in the foreign commerce of the United States and is therefore subject to federal antitrust law, but is more appropriately resolved by a foreign tribunal in accordance with its own laws. This discretionary immunity is often referred to as “judicial comity” and affords antitrust immunity on a case-by-case basis when (1) the foreign tribunal has the stronger interest in applying its own laws to the case in question; or (2) the United States intervenes in the case to affirm that its foreign policy favors referring the case to the foreign tribunal for resolution according to its own laws.[76]See F. Hoffmann-La Roche Ltd. v. Empagran S.A., 542 U.S. 155, 163–66 (2004).

Article by William Markham, San Diego Attorney. © 2021.