State-Action Doctrine Narrowed as FTC Challenges Increase

In recent years, FTC and private challenges have become an increasingly important part of federal antitrust enforcement. From 2009-2012 alone, the FTC challenged nine consummated mergers, making up one-fifth of the FTC's total merger challenges.

One such challenge received the highest level of review earlier this year.  On February 19, 2013, the U.S. Supreme Court limited the availability of state action immunity that allows local government to avoid federal antitrust liability.  The case, FTC v. Phoebe Putney Health System Inc., arose as the result of a 1941 Georgia law allowing the creation of hospital authorities as public bodies to oversee public health needs of Georgia communities.  One such hospital authority, the Hospital Authority of Albany-Dougherty County was subsequently created. The Authority acquired hospitals throughout the area and leased them to two non-profit corporations.  When the Authority later gave one of the corporations approval to buy the only remaining non-Authority owned hospital in the area, the FTC cried monopoly.

The state action doctrine gives "state and municipal authorities immunity from federal antitrust lawsuits for actions taken pursuant to a clearly expressed state policy that, when legislated, had foreseeable anti-competitive effects." (Legal Information Institute, law.cornell.edu.)  The immunity further applies to non-state actors if (1) there is a clearly articulated policy to displace competition, and (2) the state actively supervises the policy or activity.

The Supreme Court, in a unanimous decision, held the state action doctrine does not apply in this situation. Not only did the Georgia legislature not show a clear intent to allow anti-competitive activity through the passage of the Hospital Authorities Law, but that anti-competitive activity was not a foreseeable result of the state's grant of authority to the local government. While the Authority has general powers to participate in the marketplace, Justice Sotomayor wrote, the state action doctrine does not allow them to use those powers anti-competitively.

This decision marks a narrowing of the of the state action doctrine that may extend beyond public hospital authorities to local governments and private actors engaged in a variety of activities.  One implication of this case seems to be that local governments must be able to point to some statement or other evidence that the state legislature granted it "authority to act or regulate anticompetitively" in order to prevail on a state-doctrine argument.

As these challenges have become more common in recent years, local governments and private actors may now find themselves tangled in litigation after mergers and other transactions have already been completed and believed to be immune from federal antitrust laws.