Clarifying State Action Immunity under the Antitrust Laws: FTC V. Phoebe Putney Health System, Inc

Article excerpt

INTRODUCTION

The tension between federalism and national competition policy has come to a head. The state action doctrine finds its basis in principles of federalism, permitting states to replace free competition with alternative regulatory regimes they believe better serve the public interest. (1) In many instances, state exemption of certain conduct from the antitrust laws poses greater harm to competition than private price-fixing arrangements, (2) and the resulting decrease in competition is not offset by the achievement of the social benefits the legislatures sought in implementing the exemption. (3) Therefore, public restraints have a unique ability to undermine the regime of free competition that provides the basis of federal and state commerce policies. Nevertheless, preservation of federalism remains an important rationale for protecting such restraints. Judicial application of the doctrine has become muddled since the inception of state action immunity in the seminal case of Parker v. Brown. (4) The elusive contours of the doctrine have caused circuit splits and overbroad application that threatens to subvert the goals of both federalism and competition. (5)

The recent United States Court of Appeals for the Eleventh Circuit decision in Federal Trade Commission v. Phoebe Putney Health System, Inc. (6) epitomizes the concerns associated with misapplication of state action immunity. The United States Supreme Court recently granted the Federal Trade Commission's (the "FTC") petition for certiorari and now has the opportunity to more clearly define the contours of the doctrine. (7) The case involved a merger between private hospitals under an alleged sham authorization by a state hospital authority. (8) Allegations of a sham transaction test the boundaries of the state action doctrine and implicate the interpretation of a two-pronged test designed to determine whether consumer welfare-reducing conduct taken pursuant to purported state authorization is immune from antitrust challenge. (9)

In Part I of this Article, I set forth the current landscape of the state action doctrine. (10) In Part II, I explain the FTC's and the Eleventh Circuit's applications of the doctrine, highlighting the main points of contention that warrant clarification by the United States Supreme Court. (11) I discuss the Court's interpretive options on certiorari in Part III. (12) There, I argue the Court should impose a higher standard than the Eleventh Circuit under the first prong of the test, which asks whether a state has clearly articulated a policy of displacing competition. (13) I also explain a conflict between the FTC and Eleventh Circuit under the second prong of the test, which asks whether private parties acting pursuant to a clearly articulated policy are actively supervised by the state. (14) I explain that both incorrectly interpret the implications of a sham transaction, and I resolve the resulting conflict through the lens of federalism principles and consideration of alternative checks on unnecessarily anticompetitive state action. (15) Finally, in Part IV, I present alternative options that can be taken to ensure the state action doctrine does not lead to the joint destruction of federalism and competition. (16)

I. PRIMER ON STATE ACTION IMMUNITY

A. THE BASIC DOCTRINE: PARKER V. BROWN AND ITS PROGENY

State action immunity is rooted in principles of federalism and finds its basis in the 1943 U.S. Supreme Court case of Parker v. Brown. (17) In Parker, the Court held that the State of California did not violate the Sherman Antitrust Act by enacting legislation that permitted raisin growers in the state to fix prices. (18) A raisin producer challenged a California program that authorized "stabilization" of the raisin market through state-controlled output. (19) The producer argued the program constituted a "contract, combination ... or conspiracy, in restraint of trade" in violation of section one of the Sherman Act. …