Commission Statement Sets Forth the Elements Needed to Establish "Active Supervision" as Part of State Action Defense
The Federal Trade Commission today announced a proposed settlement with Indiana Household Movers and Warehousemen, Inc. (IHM&W), under which the corporation, which represents approximately 70 household goods movers doing business in Indiana, will be barred from filing collective intrastate rate tariffs with the State's Department of Revenue. According to the Commission's complaint, in filing such tariffs on behalf of its members, IHM&W illegally reduced competition for household goods moving services within Indiana by establishing and maintaining collective rates to the detriment of consumers using household goods moving services.
The agreement announced today contains a significant Commission commentary on the scope of the "state action" defense in light of the Supreme Court's landmark decision in FTC v. Ticor Title Insurance Co, 504 U.S. 621 (1992). In that case the Supreme Court established a rigorous standard that must be met in order for firms to rely on the state action doctrine to gain immunity for private price fixing agreements. The doctrine dates back to a 1943 Supreme Court decision which held that, in light of the States' status as sovereign entities, Congress did not intend the Sherman Act - a primary U.S. antitrust law - to apply to the activities of the States themselves. As a result, in limited circumstances, the Court has ruled that the activities of certain private firms conducted under state authority may be immune from federal antitrust scrutiny. The question before the Commission in this case was whether the state action defense immunized IHM&W's conduct.
"This case provides guidance to the business community regarding the standards that must be met to immunize anticompetitive conduct as an activity of the state," said Joe Simons, Director of the FTC's Bureau of Competition. "The Commission concluded that IHM&W's price fixing was not actively supervised by the State of Indiana, and thus, did not qualify for immunity."
The Commission's Complaint
According to the FTC's complaint, IHM&W has violated, and continues to violate, Section 5 of the FTC Act by engaging in a combination and conspiracy, an agreement, concerted action or unfair and unlawful acts, policies, and practices the purpose or effect of which has been to illegally reduce competition among movers in the household goods moving industry.
The complaint states that IHM&W is an association organized for, and serving, its members that do business in Indiana. One of the association's primary functions is to prepare and file tariffs and supplements on behalf of its members with the Indiana Department of Revenue. These tariffs and supplements contain rates and charges for the intrastate and local transportation of household goods and related services.
As alleged in the complaint, IHM&W is engaged in initiating, preparing, developing, disseminating, and taking other actions to establish and maintain collective rates. The complaint concludes that such rates, which are uniform and agreed on by association members, have the purpose or effect of fixing, establishing, or stabilizing rates for the transportation of household goods within Indiana. The complaint charges such conduct is anticompetitive, because it has the effect of raising, fixing, and stabilizing the price of the movement of household goods to the detriment of the state's consumers.
The State Action Doctrine
Under the state action doctrine, although the actions of some private firms may be immune from antitrust scrutiny - if they are conducted pursuant to state authority - the states may not simply authorize private parties to violate the antitrust laws. That is, to utilize the state action doctrine as a defense for allegedly anticompetitive conduct, the private party must show that its conduct meets a strict two-pronged standard established by the U.S. Supreme Court. First, "the challenged restraint must be 'one clearly articulated and affirmatively expressed as state policy'" and second, "the policy must be 'actively supervised' by the state itself."
In this case, therefore, IHM&W is required to show that the State of Indiana "clearly articulated and affirmatively expressed as state policy," its desire to replace competition with a regulatory scheme such as the one established through the filing of collective tariffs. According to the Commission, while Indiana law specifically contemplates common carriers' entering into "joint rates" under certain circumstances, to employ the state action defense successfully, IHM&W has to show that this or some other provision of state law constitutes a clear expression of state policy to displace competition and allow for collective rate-making among competitors.
To meet the second prong of the standard, IHM&W has to demonstrate "active supervision" by state officials of its allegedly anticompetitive conduct. This rigorous standard is designed to ensure that a private party's anticompetitive action is shielded from antitrust liability only when "the State has effectively made [the challenged] conduct its own." That is, IHM&W would have to show state officials have engaged in a "pointed re-examination" of the private conduct and "have and exercise[d] authority" over the challenged anticompetitive conduct.
In sum, in evaluating whether alleged anticompetitive activity by a private firm meets the standards of the state action defense, the goal is to determine whether the conduct meets the state legislature's stated criteria and whether "the State has exercised sufficient independent judgment and control so that the details of the rates or prices have been established as a product of deliberate state intervention, not simply by agreement among private parties." In considering this matter, the Commission concluded that IHM&W's conduct is not immune from antitrust enforcement under the second prong of the state action defense.
A more detailed discussion of the state action doctrine - and specifically the Supreme Court's standard of active supervision - as well as a description of the doctrine's impact on, and relation to, this case is provided in the Commission's analysis to aid public comment, which is available on the FTC's Web site at the address provided below.
Terms of the Proposed Order
Under the terms of the proposed consent order, IHM&W is subject to a cease and desist order barring it from its practice of filing tariffs containing collective intrastate rates. To preserve competition in the future, IHM&W also is barred from filing a tariff that contains collective intrastate rates that are the product of an agreement among movers in Indiana. In addition, IHM&W is barred from exchanging information or engaging in other activities that would facilitate member movers in agreeing on the rates contained in their intrastate tariffs. Further, the proposed order bars IHM&W from maintaining a tariff committee or agreeing with movers to implement any automatic intrastate rate increases.
To address current anticompetitive actions, the proposed order requires IHM&W to cancel all tariffs it has filed with the state that contain intrastate collective rates. This provision will ensure that such rates now on file in Indiana will no longer be in force, allowing for competitive rates in the future. The proposed order also requires IHM&W to cancel any provisions in its governing documents that allow it to engage in conduct similar to that alleged in the Commission's complaint. Lastly, IHM&W will be required to send a letter to each of its members explaining the terms of the order and to inform the Commission of any organizational changes that could impact its ability to comply with these terms.
The proposed order does provide IHM&W with an opportunity to attempt to modify its terms in the future, but only if it can demonstrate that the state action defense would immunize its conduct, allowing it to engage in collective rate-making.
The Commission vote to approve the proposed consent order was 5-0. The proposed order will be subject to public comment for 30 days, until April 16, 2003, after which the Commission will decide whether to make it final. Comments should be sent to: Federal Trade Commission, Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, DC 20580.
NOTE: A consent order is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.
Copies of the complaint, proposed consent order, and an analysis to aid public comment are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC's Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, D.C. 20580, Electronic Mail: firstname.lastname@example.org ; Telephone (202) 326-3300. For more information on the laws that the FTC enforces, the Commission has published "Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws," which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.
(FTC File No. 021-0015)
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