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October Term, 2012

February 19, 2013

Today the Supreme Court issued one decision, described below, of interest to the business community.

Antitrust—State Action Doctrine

Federal Trade Commission v. Phoebe Putney Health System, Inc., No. 11-1160

Under the “state-action immunity” doctrine, when a local governmental entity acts pursuant to a clearly articulated and affirmatively expressed state policy to displace competition, it is exempt from scrutiny under the federal antitrust laws. Today, in a unanimous decision authored by Justice Sotomayor, the Supreme Court held that a Georgia law that creates special-purpose public entities called hospital authorities and gives those entities general corporate powers does not include authorization to use those powers anticompetitively. Because the Court’s decision clarifies the elements necessary for the state-action doctrine to apply and the scope of the doctrine’s applicability, it is of interest to businesses (including hospitals) that are subject to supervision by state authorities.

Georgia’s Hospital Authorities Law authorizes each county and municipality to create “hospital authorities,” which “exercise public and essential governmental functions” and have “all the powers necessary or convenient to carry out and effectuate” the Law’s purposes. Ga. Code Ann. §31–7–75. The Law grants hospital authorities a number of specific powers, including the power to purchase, lease, and operate hospitals.

There are only two hospitals in Dougherty County, Georgia: Phoebe Putney Memorial Hospital and Palmyra Medical Center. Memorial is operated by two nonprofit corporations (Phoebe Putney Health System, Inc., and its subsidiary), which in turn are owned by a hospital authority created under the Law—the Hospital Authority of Albany-Dougherty County.

In 2010, the Hospital Authority approved a plan under which it would purchase Palmyra with Phoebe Putney’s funds and then lease the facility back to Phoebe Putney for $1 per year. The Federal Trade Commission challenged the transaction as a violation of the Clayton Act, but the Eleventh Circuit affirmed the district court’s conclusion that the state-action doctrine exempted the transaction from antitrust scrutiny.

The Supreme Court reversed, explaining that state-action immunity “will only attach to the activities of local governmental entities if they are undertaken pursuant to a ‘clearly articulated and affirmatively expressed’ state policy to displace competition.” Slip Op. 8. Noting that “‘state-action immunity is disfavored,’” the Court found “no evidence the State affirmatively contemplated that hospital authorities would displace competition by consolidating hospital ownership.” Slip op. 8-9. Although the Law authorized the Hospital Authority to acquire and lease hospitals, those powers “mirror general powers routinely conferred by state law upon private corporations” that “typically are used in ways that raise no federal antitrust concerns.” Slip Op. 9-10. And although “state-action immunity applies if the anticompetitive effect was the ‘foreseeable result’ of what the State authorized” (Slip Op. 8), “‘simple permission to play in a market’ does not ‘foreseeably entail permission to roughhouse in that market unlawfully.’” Slip Op. 13. Because the Law neither contained “a ‘clear articulation’ of the State’s intent to displace competition” nor authorized conduct that was “inherently anticompetitive,” the Court held that state-action immunity did not apply. Slip Op. 12.

Any questions about this case should be directed to John Roberti (+1 202 263 3428) in our Washington office or Richard Steuer (+1 212 506 2530) in our New York office.

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