Antitrust observers are familiar with the two-part Midcal test for the immunity of state regulation from federal antitrust laws: the state must clearly articulate its policy to displace competition and must "actively supervise" any private conduct pursuant to the policy. But state action need not meet these requirements if it is "unilateral" and therefore does not conflict with Section 1. Only if a state-authorized restraint is "hybrid," combining state and private action in a way that resembles a prohibited agreement, need the restraint satisfy Midcal.
In this article, John Lopatka and Bill Page examine the history and current importance of the distinction between unilateral and hybrid restraints. Although the Supreme Court's precedents are not entirely consistent, the authors argue that a unilateral restraint is one in which governmental actors define the extent of consumer harm, while a hybrid restraint is one in which the government "empowers private actors to exercise discretion as to the nature or level of consumer injury in a way that closely resembles an antitrust violation." They examine the emergence of this principle in the context of state restraints that are analogous to resale price maintenance. They then examine recent appellate decisions characterizing horizontal restraints as hybrid. In this part, the authors argue that antitrust law reaches "not only state authorized express collusion but state practices that significantly facilitate tacit collusion and serve no competitively benign purpose."
Antitrust differs from most forms of economic regulation in its reliance on sporadic judicial intervention in markets to penalize conduct that reduces consumer welfare.1 Over the past century, the Supreme Court has developed a complicated set of antitrust categories, prescribing forms and levels of scrutiny of various practices, based upon their likelihood of harming consumers by reducing economic efficiency.2 The Court formulated these rules to address private practices-those that firms adopted without governmental support other than the market framework of contract and property law. But antitrust regulation often applies to markets that are subject to more continuous and pervasive regulation. Where the source of this regulation is state or local law, the question is whether antitrust and state regulation can coexist or whether one must yield to the other. The Supreme Court has developed yet another intricate body of doctrines to address this issue and its manifold variations. The most celebrated part of this doctrine is state action immunity,3 announced in the 1943 case of Parker v. Brown4 and elaborated in numerous decisions since then.5 That doctrine protects the state from liability for its anticompetitive acts and protects private parties from liability for actions undertaken pursuant to a clearly articulated state policy and actively supervised by the state.
But there is another, less prominent, dimension of the Court's approach to state-supported restraints.6 The Court has rejected some antitrust challenges to state or local regulations on the grounds that they did not conflict with antitrust law and were therefore valid regardless of whether they met the requirements of immunity. State regulation does not conflict with antitrust law simply because it reduces competition. For a conflict to exist, the implementation of the regulation must amount to a violation of the substantive rules of antitrust. For example, in Fisher v. City of Berkeley,7 the Court held that a municipal rent control scheme, which all but eliminated price competition, did not conflict with antitrust law because it "unilaterally" imposed rents on landlords.8 Because there was no "contract, combination, . . . or conspiracy," there was no violation of Section 1 of the Sherman Act and, thus, no need to invoke Parker immunity.9 By contrast, in California Retail Liquor Dealers Ass'n v. Midcal Aluminum, …