Announced Action for June 4, 2004

For Your Information

Commission authorization of joint amicus brief filing: The Commission has authorized the filing of a joint amicus brief with the U.S. Department of Justice (DOJ) in Jackson Tennessee Hospital Co., No. 04-5387 (6th Cir.). This case concerns several defendants, including: a public hospital district; an affiliated corporation that, together with the district, operates a hospital in Jackson, TN; and the Tennessee Blue Cross/Blue Shield organization. The plaintiff is a private corporation that owns and operates a competing hospital, and contends that the defendants entered into a series of anticompetitive agreements that violated Sections 1 and 2 of the Sherman Act by precluding doctors and managed care organizations from doing business with the plaintiff.

In issuing its ruling, the district court granted the defendants’ motion to dismiss the case, based on the state action doctrine. The court based its ruling on whether “the anticompetitive effects are the logical and foreseeable result of the broad authority to own, operate, and manage hospitals and other health care facilities that [two Tennessee statutes] conferred upon private act hospital authorities such as the District.” The court also noted that one of the statutes in question “provides the broad powers it confers are to be exercised, ‘regardless of the competitive consequences thereof.’” (quoting Tenn. Code Ann. Sec. 7-57-502(c)).

The Joint FTC/DOJ Brief

According to the joint FTC/DOJ brief, the district court in this case failed to follow existing case law governing the state action doctrine with respect to anticompetitive conduct. Specifically, the brief contends that the court improperly concluded that the district was exempt from antitrust enforcement because the state had given it broad authority, comparable to that of private firms, to operate and manage health care facilities.

“The district court’s reasoning robs of meaning the Supreme Court’s repeated admonitions that an indispensable component of the state action doctrine is a state policy to displace competition by a sovereign act of government,” the brief states. “The court’s reasoning would allow subordinate state entities participating in commercial markets to nullify the pro-competitive national policy embodied in the Sherman Act in the absence of any state policy determination that anticompetitive conduct serves the public interest. Indeed, the district court’s reasoning displaces federal antitrust law even if, as in this case, the state acted to promote competition rather than displace it.”

The brief further states that: 1) The state action doctrine protects subordinate state entities from liability under federal antitrust laws only when they act pursuant to state policy to displace competition with an alternative means of advancing the public interest; 2) the district court erred in holding conduct exempt from the Sherman Act in the absence of a state policy to displace competition; and 3) the district court’s erroneous state action analysis has potential serious consequences, including the potential to undercut state policy as well as federal law.

In conclusion, the brief states that “[g]ranting a nonsovereign entity a license to violate federal antitrust laws when the state has merely authorized participation in a competitive market ‘would impair the goals Congress sought to achieve by those laws . . . without furthering the policy underlying the Parker exemption.’” (quoting City of Lafayette v. Louisianan Power & Light Co., 435 U.S. 389, 415 (1978).

The FTC’s State Action Task Force

The joint FTC/DOJ brief is the most recent of the Commission’s efforts to clarify the scope of the state action doctrine. In response to concerns about the expanding scope of the doctrine, Chairman Muris assembled a task force of FTC staff in the summer of 2001 to examine the issue. In the fall of 2003, the State Action Task Force issued a report – available at http://www.ftc.gov/opa/2003/09/stateaction.htm – summarizing its conclusions and findings. The Task Force Report also recommended a number of specific clarifications of the doctrine, including more rigorous application of the “clear articulation” and “active supervision” requirements. The Task Force has attempted to implement the Report’s recommendations through a number of other recent matters as well, including: an amicus brief in the Sixth Circuit’s Brentwood Academy case (November 2003); an antitrust enforcement action against the South Carolina Board of Dentistry (September 2003); and a negotiated consent order with Indiana Movers and Warehousemen, Inc. (March 2003).

“The state action doctrine can have significant benefits, but over-broad interpretations impose significant costs on consumers,” said Todd Zywicki, Director of the FTC’s Office of Policy Planning. “The Task Force has identified instances in which parties with a direct financial interest in the regulated field have attempted to characterize their own protectionist efforts as the will of the state. The Supreme Court never intended to shield such conduct from antitrust enforcement.” The Commission vote authorizing the amicus brief, which can be found as a link to this press release on the FTC’s Web site, was 5-0. (FTC File No. P042116; the staff contact is John Delacourt, Office of Policy Planning, 202-326-3754.)

Copies of the documents mentioned in this release 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, DC 20580. Call toll-free: 1-877-FTC-HELP.

Contact Information

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