Wednesday, February 29, 2012

Tobacco Firms in Master Settlement Agreement Were Immune from Competitor’s Antitrust Claims

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The U.S. Court of Appeals in Cincinnati has rejected antitrust claims arising out of the 1998 Master Settlement Agreement (MSA)—the multi-billion dollar national tobacco settlement—on Noerr-Pennington and state action immunity grounds. Dismissal of the antitrust claims (2009-1 Trade Cases ¶76,462) was affirmed.

This latest challenge to the implementation of the MSA was brought by a tobacco company that entered the market in 2000, two years after the MSA’s execution. The company originally operated without joining the MSA. In 2004, it joined the MSA by negotiating its agreement with the state attorneys general. Dissatisfied with the agreement, the company attempted to renegotiate its position under the MSA.

In its suit, the company alleged that tobacco manufacturers engaged in a boycott that caused the attorneys general to reject the complaining company’s renegotiation efforts.

Noerr-Pennington Doctrine

The Noerr-Pennington doctrine protects private actors from liability arising from the antitrust injuries caused by their petitioning for government action. Noerr-Pennington immunity applied in this case, according to the court, because the state governments’ actions were the actual cause of the alleged antitrust violations, regardless of the explicit or implicit encouragement of the defending manufacturers.

Moreover, the defending manufacturers did not lose their immunity under the doctrine’s “sham exception.” The sham exception to the Noerr-Pennington doctrine prevented the application of immunity where a defendant’s act of “petitioning” was a mere sham. However, the defending manufacturers petitioned for a specific outcome from the government and succeeded. This was the precise situation that fell outside of the sham exception, the court explained.

State Action Doctrine

Alternatively, the defending cigarette manufacturers were shielded under the state action doctrine from the antitrust claims, the court ruled. The state attorneys general had acted in their sovereign capacities, and not their market participant capacities, in enacting and enforcing the MSA and in deciding to forgo renegotiating with the complaining company.

Although the complaining company did not raise its antitrust claims against the state attorneys general, they were protected by state-action immunity. Thus, the immunity extended to the private entities—the defending manufacturers—involved in the same course of dealing.

The decision is VIBO Corporation, Inc. v. Conway, 2012-1 Trade Cases ¶77,796.

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