Antitrust and Trade Regulation Alert
June 2007
Authors:
James R. Weiss
+1.202.662.8425
james.weiss@klgates.com
John Longstreth
+1.202.662.8471
john.longstreth@klgates.com
Donald A. Kaplan
+1.202.662.8466
donald.kaplan@klgates.com
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Supreme Court Finds Implied Antitrust
Immunity for Certain Securities Industry
Conduct: Implications for Other
Regulated Industries
This week the Supreme Court broadened the conditions under which extensive federal
regulation of securities industry conduct impliedly immunizes that conduct from antitrust
liability. The Court expressly limited the scope of its opinion to particular actions of
underwriter investment banks in the marketing of new securities, but regulated industries
outside the securities sector will no doubt attempt to apply this expanded test in contending
that the regulatory framework governing their industry also implicitly precludes the
application of the antitrust laws.
The Credit Suisse Case
Credit Suisse v. Billing, No. 05-1157 (June 18, 2007), a 7-1 decision written by Justice
Breyer, granted a sweeping victory to both the securities industry and the Securities and
Exchange Commission (SEC), and dealt a setback to plaintiffs’ class action lawyers and
the Department of Justice’s Antitrust Division. Based upon the SEC’s active regulation
of the conduct, the ruling immunized investment banks from antitrust violations (and the
resulting threat of treble damages) with respect to agreements pertaining to the marketing
of new securities.
In Credit Suisse, a group of 60 investors filed two class action lawsuits against ten
investment banks. Plaintiffs contended that the banks, acting as underwriters for the initial
public offerings (IPOs) of hundreds of technology-related companies during the late-90s
internet boom, formed syndicates and violated antitrust laws by requiring investors to
pay “additional anticompetitive charges” beyond the IPO share price and underwriting
commission. For purposes of its immunity analysis, the Court accepted the assertion that
the actions at issue violated both the securities and antitrust laws.
The Court applied the facts to an expanded judicial test that it used to determine whether
securities regulation “implicitly precludes the application of the antitrust laws.” The test
focused on whether SEC regulation and the antitrust allegations were “clearly incompatible,”
in which case the securities regulation would impliedly immunize the alleged conduct from
the antitrust laws.
The Court included four factors in this incompatibility test: “(1) the existence of regulatory
authority under the securities law to supervise the activities in question; (2) evidence that the
responsible regulatory entities exercise that authority; (3) a resulting risk that the securities
and antitrust laws, if both applicable, would produce conflicting guidance, requirements,
duties, privileges, or standards of conduct” and (4) a determination that the practices
potentially affected by this conflict “lie squarely within an area of financial market activity
that the securities law seeks to regulate.”1
1
Credit Suisse Securities (USA), LLC v. Billing, slip op. 10 (U.S. June 18, 2007).
Antitrust and Trade Regulation Alert
The Court quickly dispatched with all but the third
factor—a possible conflict between the regulatory and
antitrust regimes. Even assuming defendants’ conduct
was unlawful under both securities and antitrust law,
the Court still found a conflict between the regulatory
and antitrust regimes. The Court noted the “threat of
serious antitrust mistakes” when “nonexpert” judges
and juries navigate the complex securities world,
and also found there was only a small “enforcementrelated need for an antitrust lawsuit” because of both
active SEC regulation and the SEC’s consideration of
competitive issues. This finding of “serious conflict”
led the Court to rule that the SEC regulatory regime
impliedly precluded application of the antitrust laws
to the specific conduct alleged.
A Roadmap for the Future:
Credit Suisse and Implied
Antitrust Immunity
Credit Suisse affirmed that judicial determinations
as to whether a regulatory scheme implicitly
precludes antitrust enforcement vary “from statute
to statute, depending upon the relation between the
antitrust laws and the regulatory program . . . and the
relation of the specific conduct at issue to both sets
of laws.” In support of this holding, the Court cited
Justice Kennedy’s 1981 opinion in Phonotele, Inc. v.
American Tel. & Tel. Co., written while he was on the
9th Circuit Court of Appeals.2 Justice Kennedy, who
was recused in Credit Suisse, wrote in Phonotele that
“no simplistic and mechanically universal doctrine of
implied antitrust immunity” exists, and that each case
“is decisively shaped by considerations of the special
aspects of the regulated industry involved.”3
For a variety of reasons, courts have long been
relatively willing to imply antitrust immunity for the
securities industry.4 Credit Suisse noted that allowing
antitrust actions could “threaten serious harm to the
efficient functioning of the securities market” due
to the likely chilling effect on investment banks
concerned about the strong possibility of “nonexpert”
antitrust judges and juries making serious mistakes
and inconsistent rulings when examining complicated
securities issues. In Phonotele, Justice Kennedy
likewise noted the “grave historical crises” associated
with the securities industry and the threat that any
antitrust law tampering with the regulatory regime
constructed around the industry could cause similar
harm to investors and the nation.5 Justice Kennedy
also observed that securities laws have always relied
on self-regulation to police the industry.6
Pervasive regulatory schemes can also be used to bar
or limit antitrust claims even if implied immunity is
not found. Thus, while the Supreme Court has noted
that “[r]epeal of the antitrust laws by implication
is not favored and not casually to be allowed,”7 the
presence of adequate regulatory controls has been
cited to dismiss antitrust claims even without finding
implied immunity from the antitrust laws as in Credit
Suisse. In addition to influencing traditional implied
immunity cases, the kind of cost-benefit analysis
used in Credit Suisse can also support this alternative
judicial rationale for the dismissal of antitrust claims.
In Verizon Communications, Inc. v. Law Offices
of Curtis V. Trinko, LLP, 8 the Supreme Court held
that the “antitrust-specific saving clause” in the
Telecommunications Act of 1996 barred the Court
from finding implied antitrust immunity for the
telecommunications industry. Nonetheless, Trinko
ultimately declined to find an antitrust violation.9
Writing for the Court, Justice Scalia argued that
“antitrust analysis must always be attuned to the
particular structure and circumstances of the industry
at issue,” including the “significance of regulation.”10
Justice Scalia accordingly performed a cost-benefit
analysis of the utility of allowing an antitrust
complaint to proceed as to competitive matters already
addressed by the Telecommunications Act.11 Quoting
Professor Areeda’s landmark antitrust treatise, he
concluded that “the problem should be irremedia[ble]
5
Phonotele, 664 F.2d at 728.
Id. at 727.
7
Gordon, 422 U.S. at 682 (quoting U.S. v. Philadelphia
Nat. Bank, 374 U.S. 321, 350-51 (1963)).
8
540 U.S. 398 (2004).
9
Id. at 416.
10
Id. at 411.
11
Id. at 411-416.
6
2
Phonotele, Inc. v. American Tel. & Tel. Co., 664 F.2d
716 (9th Circ. 1981).
3
Id. at 728.
4
See, e.g., Gordon v. New York Stock Exchange, 422 U.S.
659 (1975); United States v. National Assn. of Securities
Dealers, Inc., 422 U.S. 694 (1975).
June 2007 | 2
Antitrust and Trade Regulation Alert
by antitrust law when compulsory access requires the
court to assume day-to-day controls characteristic of
a regulatory agency.”12 Due to the low likely benefits
and high potential costs of an antitrust action in such
a case, Trinko upheld dismissal of the antitrust claims
even though implied immunity did not exist.
Moreover, precedents that have often been cited to
support the application of the antitrust laws in regulated
industries have been weakened by more recent judicial
and regulatory developments. For example, in Otter
Tail Power Co. v. United States,13 the Supreme Court
allowed a Sherman Act Section 2 claim based on a
refusal to transmit power for a competitor, concluding
that there was no incompatibility with the antitrust
laws because the Federal Power Act contained only
limited authority to order transmission. However, it
is now fairly well settled that any antitrust damages
based on the price paid for electricity or transmission
service are barred by the filed rate doctrine,14 and a
number of antitrust cases have recently been dismissed
on that ground.15 Moreover, in 1992, Congress
granted the Federal Energy Regulatory Commission
(FERC) substantial authority to order regulated power
companies to transmit power for others.16 FERC has
followed up by expanding significantly its regulatory
oversight of transmission.17 These developments
significantly restrict the available antitrust relief that
12
Id. at 415.
410 U.S. 366 (1973).
14
See, e.g., Arkansas Louisiana Gas Co. v. Hall, 453 U.S.
571, 578 (1981); Utilimax.com, Inc., v. PPL Energy Plus,
LLC, 378 F.3d 303 (3d Cir. 2004); see also Square D Co. v.
Niagara Frontier Tariff Bur., 476 U.S. 409, 417 (1986).
15
See, e.g., Wholesale Electricity Antitrust Cases I &
II, Nos. 4204, 4205 (Cal. Ct. App., Fourth District, Feb. 26,
2007) (affirming dismissal of private treble damage
class actions against defendants who allegedly forced
consumers to pay noncompetitive electricity prices
by manipulating the wholesale electricity markets in
California, holding that such claims are within the exclusive
regulatory authority of the Federal Energy Regulatory
Commission, and following the 9th Circuit decisions in
Public Utility Dist. No. 1 of Snohomish County v. Dynegy
Power Marketing, Inc., 384 F.3d 756 (2004) and Public
Utility Dist. No. 1 of Grays Harbor County, Washington v.
Idacorp, Inc., 379 F.3d 641 (2004)).
16
Energy Policy Act of 1992 codified at 16 U.S.C. §§
824j, k.
17
See New York v. FERC, 535 U.S. 1 (2002).
a court could order under the antitrust laws without
running afoul of FERC’s Federal Power Act authority.
Thus, application of Credit Suisse’s four-factor
incompatibility test to the Otter Tail facts today might
yield a different result.
The
Trinko
antitrust
cost-benefit
analysis
foreshadowed the Credit Suisse analysis and points
to the possible future of antitrust claims in closely
regulated industries. Credit Suisse likewise focused
on the relatively minimal benefits of antitrust actions
where competitive checks are already enforced by
an applicable regulatory regime, and compared
them to the significant costs of possible judicial
errors, possible inconsistencies, and added litigation.
Despite Credit Suisse’s language limiting its holding
to the securities industry, other regulated industries
can attempt to pair Credit Suisse’s newly broadened
antitrust immunity test with the Trinko analysis to
seek dismissal of antitrust claims on the grounds that
they are inconsistent with federal regulation.
Credit Suisse represents the third Supreme Court
antitrust case this term,18 and the sixth in the last
eighteen months,19 in which the Court has rejected
expansive theories of antitrust liability and ruled
in favor of antitrust defendants. The trend is clear,
and defense counsel have new tools to challenge
unwarranted attempts to expand antitrust law beyond
its proper bounds.
13
18
The others are Weyerhaeuser Co. v. Ross-Simmons
Hardwood Lumber Co., Inc., No. 05-381, (Feb. 20, 2007)
(predatory buying claims must meet the same strict
standards as predatory selling allegations) and Bell Atlantic
Corp. v. Twombly, No. 05-1126 (May 21, 2007) (plaintiffs
must plead more than a “bare assertion of conspiracy” to
state a claim under Section 1 of the Sherman Act, and must
allege “enough facts to state a claim to relief that is plausible
on its face”).
19
See Independent Ink Inc. v. Illinois Tool Works Inc., 126
S. Ct. 1462 (2006) (no presumption that a patent confers
market power in tying cases); Texaco Inc. v. Dagher, 126
S. Ct. 1276 (2006) (pricing coordination among parties to a
fully integrated joint venture not a per se illegal conspiracy);
Volvo Trucks N. Am. Inc. v. Reeder-Simco GMC Inc., 126 S.
Ct. 860 (2006) (recovery under the Robinson-Patman Act in
competitive solicitation limited to actual competitors for the
solicitation).
June 2007 | 3
Antitrust and Trade Regulation Alert
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