US Exemptions

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The Interplay Between Regulation, Antitrust and Other Public Policy

Antitrust exemptions and immunities are undergoing heightened scrutiny and challenges during the Obama administration, both in the legislature and at the antitrust agencies.

Antitrust exemptions reflect the willingness of a society (as reflected primarily by legislative action) to accept broader social goals in preference to the basic goals of the antitrust laws, to develop alternative schemes to 'regulate' the conduct of market participants, or to succumb to special interests that are disrupted and displeased by competition. Less frequently, an exemption reflects a court's effort to balance what may appear to be competing, but fundamentally important, policy goals on which there has not been legislative guidance.

One can place the US exemptions and immunities to the antitrust laws into four broad categories:

• public policy-based exemptions created by either the legislature or the courts that reflect a belief that the antitrust laws cannot be properly applied to certain conduct because of competing (often Constitutionally-based) policies about the intended reach of the federal antitrust laws (eg, 'free speech', 'states' rights');

• public policy-based exemptions that reflect a belief that the free market principles of the antitrust laws should be secondary to other regulatory or economic goals, especially where there is a relevant regulatory authority charged with monitoring the market and marketing practices (eg, labour or agriculture organisations, insurance, certain aviation agreements);

• special industry exemptions where the broader public policy goals do not seem to justify the antitrust protection given (eg, the Newspaper Preservation Act, the Sports Broadcasting Act; the Shipping Tariff Act); and

• individual immunities granted by law enforcement agencies to obtain testimony or discover wrongdoing (eg, leniency programmes).

Because the last category is not one that is subject to pre-planning (other than getting in serious antitrust trouble but being the first to admit it to the government), it will not be discussed further. Instead, this chapter will focus broadly on the remaining three categories, and particularly on the first two. It will also briefly discuss the intersection between antitrust and administrative regulation, which is the basis for many of the exemptions in category two above.

Perhaps what is most interesting about US antitrust exemptions is the seemingly haphazard way in which those exemptions have come about. Only two - the labour and the agricultural exemptions - were envisioned by Congress during the relatively early days of the creation of the antitrust laws. Others reflect political and judicial responses to the expanding notions of what constituted 'interstate commerce,' which brought new and local activities into the federal antitrust jurisdictional net. When the Sherman Act and Clayton Act were passed in 1890 and 1914, respectively, Congress had assumed many services were not 'commerce' and most local manufacturing and transportation businesses were not engaged in 'interstate commerce'. Thus, the basis for professional baseball's judicially created and still extant exemption in 1922 was that baseball was an 'exhibition' - not 'trade or commerce' - and, therefore, was beyond the jurisdiction of the Sherman Act. The Supreme Court recently reminded us of the anomaly stemming from this decision when it held in American Needle that the National Football League was not a single economic actor for many purposes and, therefore, its licensing contract with Reebok was subject to challenge under the antitrust laws.

By the 1930s, the courts had greatly expanded the reach of 'interstate commerce' and, therefore, the application of the federal antitrust laws to activities that had traditionally not been regarded as 'commerce', let alone 'interstate commerce' (eg, insurance, banking and the learned professions). In response, Congress carved out a number of special exemptions for industries that faced detailed supervision by another federal agency (eg, transportation) or were regulated by the states (eg, insurance). Along the way, Congress created exemptions for other politically important interests (eg, exports) on an ad hoc basis. It is probably fair to say that most of the exemptions that were carved out after adoption of the major US antitrust laws reflect old-fashioned politics more than well-reasoned antitrust policy.

Meanwhile, faced with this same expansion in application of the federal antitrust laws, the courts struggled in many cases with how the laws' broad reach should be tempered to deal with other regulatory schemes that did not contain express exemptions (eg, banking and securities) or that involved the political process. A few judicially created exemptions and limitations on the application of the federal antitrust laws, therefore, developed. In many ways, the judicially created doctrines have proven broader and more important. There are two of particular general interest - the 'state action' doctrine and the Noerr-Pennington doctrine. The former immunises conduct pursuant to state direction, while Noerr-Pennington protects from antitrust liability collective efforts to petition the government to suppress competition. The US Supreme Court has explained that these two exemptions are 'complementary expressions of the principle that the antitrust laws regulate business, not politics; Parker [state action] protects the States' act of governing, and Noerr the citizens' participation in government.'

In addition, there have been a variety of rulings by courts that address the interface between a legal environment regulated by an administrative agency and a court's antitrust jurisdiction. These include notions of 'primary jurisdiction' as well as an acceptance of business justification based on regulation. Each of these is reviewed very briefly below.

Labour and agriculture exemptions

When Congress passed the Clayton Act in 1914, it included section 6 that specifically exempted from the general operation of the antitrust laws the creation of farmer cooperatives and labour unions (section 6 entities) and collective activities by farmers and workers. Section 6 of the Clayton Act responded to some earlier Supreme Court decisions holding that workers and farmers were illegally price-fixing under the Sherman Act when they joined together to market their labour or agricultural products. Section 6 ultimately represents a broad public policy statement. The Supreme Court has explained that, with regard to cooperatives, '[b]y allowing farmers to join together in cooperatives, Congress hoped to bolster their market strength and improve their ability to weather adverse economic periods and to deal with processors and distributors.' The section 6 exemption was expanded by the Capper-Volstead Act in 1922 with regard to agricultural cooperatives and by the Norris-LaGuardia Act in 1936 with regard to labour unions.

Recently, the Capper-Volstead exemption has received serious attention. In August 2009, Agriculture Secretary Tom Vilsack and Attorney General Eric Holder announced that USDA and Justice officials would jointly host public workshops during 2010 to explore competition issues affecting the modern agriculture industry, and several such sessions have taken place. This announcement came in the midst of various cases exploring whether cooperatives can establish supply-side restraints. For example, the United Egg Producers (UEP) has been accused of creating supply-side restraints in the egg market. According to the Humane Society of the United States, UEP created a hen welfare programme that sought only to manipulate the supply of eggs and, thereby, drive up costs. As a result of this accusation, 21 class action lawsuits were filed against UEP and its members. Three of these lawsuits reached a settlement agreement in June 2010, when three of the defendants agreed to pay out US$25 million. UEP continues to deny any wrongdoing.

Previously, several supermarkets in the Northeastern US claimed that Eastern Mushroom Marketing Cooperative Inc (EMMC), implemented a supply-side scheme to artificially inflate the price of mushrooms in violation of the Sherman Act. The EMMC had argued that its activities are squarely within the exemptions granted by Capper-Volstead Act, which permits intra-organisational agreements to fix prices; plaintiffs, meanwhile, asserted that EMMC was created for the sole purpose of price fixing and, to implement its plan, made agreements with non-cooperative organisations. In 2008, the case survived defendant's motion to dismiss for lack of standing and failure to state a claim.

In any case, as these matters face review, there has been little discussion about the reality that the policy underlying the exemptions for agricultural cooperatives and labour unions is much broader than the statutory exemptions that have led to single industry exemptions from antitrust coverage. For example, the Supreme Court has not applied the usual rule that antitrust immunities should be construed as narrowly as possible to agreements or cartels solely among section 6 entities and their members. In this area, the courts tend to focus on the benefit of the questioned activity to entities' members rather than the losses to competition. This section 6 exemption may be lost where an otherwise exempt labour or agricultural party has entered into an unreasonable agreement with a non-protected party or engaged in predation.

Beyond agreements among farmers or workers (the 'statutory exemption' in labour antitrust law), the courts have also developed an additional exemption in the labour area - the 'non-statutory' exemption - to protect union/employer agreements that are part of the collective bargaining system regulated under the National Labor Relations Act. Both labour exemptions have been subject to intensive litigation (especially in the professional sports area) and have been the subject of numerous Supreme Court cases.

The state action doctrine

First recognised in Parker v Brown in 1943, the state action doctrine is a judicially created exemption to the application of the federal antitrust laws where a state has imposed a restraint on competition. The state action doctrine immunises anti-competitive conduct by private parties if a two-part test can be satisfied: the challenged restraint must be 'clearly articulated and affirmatively expressed as state policy'; and the policy must be 'actively supervised' by the state itself.

Determining whether both of these elements exist in any given situation has led to significant disputes, including a recent Ninth Circuit case. In Shames v California Travel and Tourism Commission (CTTC), the Ninth Circuit sought to clarify its application of the two-prong test for state action immunity. The Ninth Circuit held that a state policy has been clearly articulated and affirmatively expressed - and the first prong of the test has satisfied - when the anti-competitive conduct is authorised, even if it is not specifically compelled.

The other issue that is often reflected in the litigation over the doctrine is determining who is the 'state' for purposes of the doctrine's application. The Shames case also addressed this issue. The Ninth Circuit held that the 'state' can be represented by a quasi-governmental organisation that has both public and private interests.

The state action doctrine must, and should, seem quite strange to people within the European Union. The Treaty on the Functioning of the European Union (like its predecessor treaties) recognises the supremacy of Community law; it has specific articles addressing (and generally condemning) such things as state monopolies. In the US, however, and in the absence of clear intent by the federal government to the contrary, the state action doctrine specifically allows a state to withdraw a sector of the economy from the competitive forces of the marketplace. As one court of appeals recently explained, '[w]hile individual anti-competitive acts of state governments may be considered unwise or counterproductive, the decision to make such choices lies within the sovereign power of the states. Congress did not intend to override important state interests in passing the Sherman Act.'

The Noerr-Pennington doctrine

The Noerr-Pennington doctrine broadly exempts activities that constitute petitioning the government even if the result sought from the government would be anti-competitive and is done with anti-competitive intent. The basic doctrine was established in 1961 when the Supreme Court held that a joint lobbying and publicity campaign by railroads to restrict competition from trucks was exempt, even though it had elements that were false and misleading. The court explained that imposing Sherman Act liability on the railroads 'would impute to the Sherman Act a purpose to regulate, not business activity, but political activity, a purpose which would have no basis whatever in the legislative history of that Act.' The doctrine has been extended to petitioning all branches of government (legislative, executive and judicial) and also administrative agencies.

In its original Noerr decision, the court also signalled a limitation on application of the doctrine. The court noted that 'there may be situations where a publicity campaign, ostensibly directed towards influencing governmental action, is a mere sham to cover what is actually nothing more than an attempt to interfere directly with the business relationships of a competitor and the application of the Sherman Act would be justified.'

The 'sham' exemption has been heavily litigated, often in the context of whether bringing litigation itself can be viewed to be improper petitioning. One recurrent fact pattern involves the conduct of litigation by companies selling branded pharmaceuticals attempting to prevent generic manufacturers from entering the market based on patent or other intellectual property rights. Recently, for example, in Rochester Drug Co-Op v Braintree Labs, the plaintiffs alleged that the defendant extended its monopoly over a drug by bringing 'sham' infringement claims and, thereby, delaying FDA approval of the generic version of the drug. The defendant moved to dismiss, arguing that the plaintiffs' claims were barred by Noerr-Pennington because a prior court had concluded - in related litigation - that the plaintiffs' claims were totally without merit. Rejecting the defendant's argument, the court ruled that the plaintiffs were not estopped from trying this issue because they were not personally represented in the prior litigation.

Because of the assumption that the Noerr doctrine is largely grounded in the First Amendment right to petition, one of the more interesting issues that arises is the admissibility of evidence relating to petitioning. While all courts agree that the petitioning itself cannot form the basis for antitrust liability, the courts have taken varied approaches to admitting evidence relating to the petitioning process (such as evidence admitted for the purpose of proving anti-competitive intent). For example, in Telecor Communications Inc v Southwestern Bell Telephone Company, the Tenth Circuit Court of Appeals held that a lower court had not acted inappropriately when it admitted into evidence statements made in a petition to a state government agency to show the defendant's improper intent where the court had cautioned the jury about not using the evidence to impose liability for the petitioning itself.

The Noerr-Pennington doctrine lacks a clean European analogue, with the only exception perhaps being the initiation of litigation. The Commission and the Court of First Instance have recognised the fundamental right to access the courts, but have also recognised that an undertaking with a dominant position could bring litigation for the purpose of harassing a competitor with a goal of eliminating competition. In this circumstance, a violation of article 102 would likely be found.

Interplay between federal regulation and antitrust

In a variety of regulatory schemes, the extent to which private (or even governmental) antitrust litigation is contemplated must be addressed.

Express immunity

In some cases, there is an express exemption for a specific industry or specific conduct within a specific industry. See, for example, the Sports Broadcasting Act, 15 USC, sections 1291-95. Where there is an express exemption, the approach is straightforward: the court should review the scope of the exemption and determine whether it applies to the conduct at issue.

Implied immunity

Even if Congress has not explicitly exempted activities from the antitrust laws, courts have occasionally been willing to find implied exemptions where 'necessary to make [the regulatory act] work'. This area has become quite cloudy, and much more heavily litigated, in light of apparently conflicting pronouncements by the US Supreme Court.

In its 2004 Trinko decision, the Supreme Court affirmed the principle that repeals of the antitrust laws by implication are strongly disfavoured, and implied repeals should be found only in cases of 'plain repugnancy between the antitrust and regulatory provisions'. More recently, however, in its 2007 Credit Suisse decision, the Supreme Court found such a repugnancy between securities law and antitrust law as applied to the creation of syndicates to execute initial public offerings for technology companies. As a result, defendants have increasingly argued, and occasionally have been successful arguing, that federal regulation acts as a bar to antitrust litigation. Most of the time, as before the Credit Suisse decision, such arguments fail because some aspect of the regulatory regime leaves room for potential antitrust oversight.

Primary jurisdiction

The notion of primary jurisdiction is not really an immunity, but is simply a question of the appropriate forum to resolve the issue. The doctrine has been applied to stay court antitrust proceedings until an agency determination as well as to dismiss antitrust claims outright (without prejudice to re-file after final agency resolution). Ricci established the boundaries of the primary jurisdiction doctrine in 1973. The court held that an antitrust action should be held in abeyance pending administrative proceedings whenever the agency's consideration of matters within its jurisdiction will materially aid the court in resolving the antitrust issue. Consistent with this holding, primary jurisdiction will be invoked only if the agency action may affect the antitrust claim. Where the questions are essentially legal and do not require agency expertise in forming a decision, however, courts may refuse to invoke the doctrine.

Importantly, as the Second Circuit recently made clear, the boundaries of an agency's jurisdiction must be resolved by the courts, and not by the agency itself.

The filed rate doctrine

One other area that addresses the intersection between regulation and antitrust is the 'filed rate' or Keogh doctrine. This doctrine prohibits a court from revising or allowing damages based on a tariff that has been filed (and hence approved) by a relevant regulatory agency. The doctrine originated in the Supreme Court's 1922 Keogh case where claims alleging damages from rates filed with the Interstate Commerce Commission were dismissed.

Underlying the Keogh doctrine is the notion that a court cannot realistically second-guess the relevant regulatory agency to determine what the rate 'should have been' in the absence of the complained of conduct. In a recent case, Dolan et al v Fidelity National Title Insurance Company, in the Eastern District of New York, the court upheld this principle, in the face of allegations about defendants' misconduct. The court found that 'fraud or other unlawful conduct by the defendant does not preclude the application or effect of the filed rate doctrine.' because a fraud exception would 'be the equivalent of a court deciding what rates are reasonable, which in turn would unduly subvert the regulating agencies' authority.'

While the doctrine does not automatically bar a claim for injunctive relief, it has been held to do so where it would require a court to 'dismantle' the rate that had been presumptively approved by the regulatory agency.


There is a great deal of litigation over the scope of the various exemptions and immunities, and discussion of the interplay between regulation and application of the antitrust laws, because the judicial choices can often be important to both private parties and government agencies. Announcements by the federal antitrust agencies to more closely study and scrunitise exemptions highlight how dynamic this area continues to be. Moreover, many of the exemption laws require courts to make difficult trade-offs between conflicting policies that are often not clearly expressed in the exemption legislation. Therefore, it seems likely that the Supreme Court will continue to be the final arbiter of conflicts created by the lower courts in balancing public policy or special industry exemptions.

Case references

Allen Bradley Co v Local Union No. 3, IBEW, 325 US 797 (1945)

Am Needle Inc v NFL, US _, 1305 S Ct 2201 (2010)

AstraZeneca AB v Mylan Labs Inc, 2010 US Dist LEXIS 50049 (SD.NY 19 May 2010)

Brown v Pro-Football, 518 US 231 (1996)

Credit Suisse Sec (USA), LLC v Billing, 551 US 264 (2007)

Dolan v Fidelity National Title Insurance, 2009 US Dist. LEXIS 95479 (EDNY 17 June 2009)

Electronic Trading Group, LLC v Bank of America Securities LLC, 588 F3d 128 (2d Cir 2009)

Keogh v Chicago & Northwestern Railway Co, 260 US 156 (1922)

Local Union No. 189, Amalgamated Meat Cutters v Jewel Tea Co, 381 US 676 (1965)

Major League Baseball v Crist, 331 F3d 1177 (11th Cir 2003)

National Broiler Marketing Ass'n v United States, 436 US 816 (1978)

Parker v Brown, 317 US 341 (1943)

Ricci v Chicago Mercantile Exchange, 409 US 289 (1973)

Rochester Drug Coop v Braintree Labs, Civ. No. 07-142-SLR, 2010 US Dist. LEXIS 49634 (D. Del. 19 May 2010)

Shames v California Travel and Tourism Commission, 607 F.3d 611 (9th Cir. 2010)

Silver v New York Stock Exchange, 373 US 341 (1963)

In Re Direct Mushroom Purchasers Antitrust Litigation, 621 F. Supp. 2d 274 (E.D. Pa. 2009)

In Re Stock Exchanges Options Trading Litigation, 317 F3d 134 (2nd Cir 2003)

In Re Processed Egg Products Antitrust Litigation, 588 F. Supp. 2d 1366 (JPML 2008)

Telecor Communications Inc v Southwestern Bell Telephone Co, 305 F.3d 1124 (10th Cir 2002)

Verizon Communications Inc v Trinko, 540 US 398 (2004)

In the matter of Union Oil Company of California, Docket No. 9305 (Federal Trade Commission)

United States v Philadelphia National Bank, 374 US 321 (1963)

United States v Borden Co, 308 US 188 (1939)

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