Publishers, Apple Conspire to Fix Prices of E-Books: State Attorneys General

This posting was written by John W. Arden.

Publishers Penguin, Simon & Schuster, and MacMillan have conspired with Apple, Inc. to fix the sales prices of electronic books, according to an antitrust lawsuit filed by 16 state attorneys general in the federal district court in Austin.

The publishers and Apple were charged with a horizontal conspiracy to raise e-book retail prices in violation of Sec. 1 of the Sherman Act and the antitrust laws of the 16 states. The complaint, filed today, seeks injunctive relief, an award of trebled damages, civil fines, and attorneys’ fess and costs.

The lawsuit was based on a two-year investigation into allegations that the defendants conspired to raise e-book prices. The investigation—led by the Texas Attorney General’s office and coordinated by the Connecticut Attorney General and the U.S. Department of Justice—revealed that Penguin, Simon & Schuster, and MacMillan conspired with other publishers and Apple to artificially raise prices by imposing a distribution model in which the publishers set prices for bestsellers at $12.99 and $14.99, according to the Texas Attorney General.

The complaint charges that when Apple entered the e-book market, the publishers and Apple agreed to adopt an agency distribution model—rather than the traditional wholesale distribution model—to allow them to fix prices. Because the publishers agreed to charge the same prices, retail price competition was eliminated and customers paid more than $100 million in overcharges.

Prior to filing suit, the states reached an agreement in principle with publishers Harper Collins and Hachette on issues of injunctive relief and consumer restitution.

Text of a news release on the lawsuit appears here on the Texas Attorney General’s website. The 56-page complaint in State of Texas v. Penguin Group (USA) Inc. appears here.

Bridgestone Agrees to Plead Guilty to Fixing Prices for Marine Hose

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

Bridgestone Corporation has agreed to plead guilty and to pay a $28 million criminal fine for its role in conspiracies to rig bids and to make corrupt payments to foreign government officials in Latin America related to the sale of marine hose and other industrial products, the Department of Justice announced yesterday.

The company has agreed to cooperate with the Justice Department in its ongoing investigations and has committed to extensive remediation and to enhance its compliance program and internal controls.

Conspiracy to Rig Bids, Fix Prices, Allocate Markets

According to a two-count criminal information filed on September 15 in the federal district court in Houston, the Japan-based Bridgestone conspired to rig bids, fix prices, and allocate market shares of marine hose in the United States and elsewhere in violation of Sec. 1 of the Sherman Act and, separately, conspired to make corrupt payments to government officials in various Latin American countries to obtain and retain business in violation of the Foreign Corrupt Practices Act (FCPA). The challenged conduct took place between 1999 and 2007.

As part of the antitrust conspiracy, Bridgestone and others allegedly agreed to allocate shares of the marine hose market, agreed to establish a price list for marine hose in order to implement and monitor the conspiracy, and agreed not to compete for one another’s customers through bid rigging.

Payments to Government Officials

With respect to the FCPA count, Bridgestone was charged with authorizing and approving corrupt payments to foreign government officials employed at state-owned entities in order to secure sales of marine hose in Mexico and other Latin America countries. The 11-page criminal information details e-mail exchanges purportedly detailing the company’s efforts to influence foreign officials through local sales agents.

Bridgestone, best known for its tires, is the fifth company to be charged in the Department of Justice Antitrust Division’s investigation into bid rigging in the marine products industry.

Last year, Parker ITR S.R.L. of Italy agreed to plead guilty and to pay a $2.29 million criminal fine for its role in the conspiracy. Two subsidiaries of the Swedish company Trelleborg AB, one based in Virginia and the other in France, agreed to plead guilty and pay a total of $11 million in criminal fines in 2009. British marine hose manufacturer Dunlop Oil & Marine Ltd. agreed to plead guilty and pay $4.54 million fine in 2008. Manuli Rubber Industries SpA of Italy also agreed to plead guilty to similar charges and to pay more than $2 million in criminal fines.

In addition, a number of industry executives have been charged with participating in the marine hose conspiracy, including Bridgestone’s former general manager of international engineered products, Misao Hioki.

While most of the executives have pleaded guilty, two have been acquitted. In 2008, an Italian national and a Florida man who both worked for Manuli were found not guilty of participating in the antitrust conspiracy by a jury in West Palm Beach, Florida. A German national and former executive with Dunlop's former parent company—Phoenix AG—who was indicted in 2007 is awaiting trial.

Company’s Response

Bridgestone issued in statement today, saying that the $28 million fine is a significant reduction from the applicable sentencing guidelines due to the company’s “extraordinary” cooperation in the investigation and remediation efforts. As part of the remediation efforts, Bridgestone has dismantled its International Engineered Products Department, closed its Houston office of Bridgestone Industrial Products of America, Inc., terminated many of its third party agents, and taken remedial actions with respect to its employees.

The Justice Department has been investigating Bridgestone’s involvement in international cartel activities relating to the sale of marine hose since May 2007, according to the statement.

The case is U.S. v. Bridgestone Corp., Criminal No. H-11-651.

A Department of Justice press release on the development appears here. Bridgestone’s statement appears here.

Price Fixing Claims Against Transpacific Air Carriers Dismissed

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

Although a federal district court in San Francisco has determined that a conspiracy to fix the prices of transpacific air passenger travel was plausibly alleged, a motion to dismiss the Sherman Act claims based on the Foreign Trade Antitrust Improvements Act (FTAIA) was granted.

The action was brought on behalf of a class of individuals who purchased air transportation services from one or more of the 26 defending airlines that included at least one flight segment between the United States and Asia/Oceania.

The plaintiffs alleged that, beginning around January 2000, the airlines agreed, and began, to impose air passengers air fare increases, including fuel surcharge increases, that were in substantial lockstep both in their timing and amount. They sought to recover overcharges associated with flights originating in Asia.

Plausible Conspiracy

The plaintiffs specifically alleged that the defending airlines reached various agreements to coordinate pricing. They detailed certain communications between the airlines which supported an inference of conspiracy.

Among other things, the plaintiffs alleged that

(1) The defendants participated in various code-sharing agreements and professional alliances “reinforce and facilitate the conspiracy”;

(2) There was a “pattern of identical or virtually identical pricing by [D]efendants’ closest competitors on routes between the United States and Asia and Oceania”;

(3) The defending airlines charged “identical fuel surcharges for passenger traffic from Hong Kong, including to the United States”; and

(4) The U.S. Department of Justice, the European Commission, and other competition authorities were investigating price fixing of passenger and cargo fares.

Foreign Trade Antitrust Improvements Act

The court ruled that it lacked subject matter jurisdiction over the claims of foreign injury. The FTAIA limited a court’s subject matter jurisdiction over Sherman Act claims involving foreign commerce, according to the court. Under the FTAIA, the Sherman Act does not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless the conduct had a direct, substantial, and reasonably foreseeable effect on domestic commerce, and such effect gives rise to the plaintiff's claim.

The challenged conduct did not fall within the “import trade or commerce” or “domestic effects” exception to the FTAIA. The plaintiffs' price fixing claims (1) did not involve import commerce; and (2) did not have domestic effects that give rise to the complaining individuals’ foreign claims.

The term “import” generally denoted a product or service that had been brought into the United States from abroad. It was too great a leap to equate air passenger travel with the importing of people, or to characterize air passengers as a product or service.

Domestic Effect, Harm

Moreover, the complaining individuals' allegations of domestic effect and, indeed, their overall theory of harm, were insufficient, the court decided. While a direct effect on U.S. trade or commerce could be based on the fact that U.S. residents and citizens paid more for air passenger transportation as a result of the alleged conspiracy, the complaining individuals could not establish that the domestic effect actually caused the foreign injury.

The foreign injury was the result not of the domestic effect, but of the global price fixing conspiracy that caused the domestic effect. The domestic effects exception required proximate causation. The plaintiffs contended that “the prices for travel originating in foreign countries and travel originating in the U.S. are inextricably bound up with and dependent on each other”; however, “bound up” was not proximate causation.

The fact that the plaintiffs' foreign injuries were not caused by the domestic effect of the global conspiracy also prevented them from establishing standing. Their claims for foreign injuries were not the type of injury Congress intended to prevent through the Sherman Act, in the court's view.

The airlines, individually and jointly raised a number of other bases for dismissal. The court rejected assertions that the act of state doctrine, state action doctrine, and the implied preclusion doctrine barred the price fixing claims.

The May 9 decision, In Re Transpacific Passenger Air Transportation Antitrust Litigation, will appear at 2011-1 Trade Cases ¶77,446.

Supply Restrictions, Price Increases Might Demonstrate Illegal Price Fixing

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

Manufacturers of containerboard, the principal raw material used to make linerboard and corrugated boxes, could have engaged in price fixing in violation of Sec. 1 of the Sherman Act by allegedly undertaking a course of conduct that included contemporaneous supply restrictions and price increases, the federal district court in Chicago has ruled. A motion to dismiss the claims was denied.

The complaining putative consumer class provided specific allegations of more than “mere modest capacity reductions,” the court found.

Conscious Parallelism

While there may have been some variation in the amount and timing of reduction, that variation was not substantial enough to overcome the otherwise strong suggestion of conscious parallelism.

Likewise, the plaintiffs’ allegations of consistent parallel price increases were enough to make a threshold showing of conscious parallelism, in the court’s view.

Additional contextual factors offered by the plaintiffs further supported a plausible inference of an unlawful agreement among the defending manufacturers, the court added.

Among these were:

(1) Specific capacity and pricing decisions made by the defendants that were contrary to their self-interest;

(2) The close temporal proximity of price increases and capacity reductions to trade association and industry events; and

(3) The susceptibility of the containerboard industry to collusion, owing to its consolidated nature, barriers to entry, inelasticity of demand, cost structures, and commodity-like products.

The April 8 decision is Kleen Products, LLC v. Packaging Corp. of America, 2011-1 Trade Cases ¶ 77,414.

Dell’s Price Fixing Claims Against Display Panel Suppliers Survive Dismissal

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

The Foreign Trade Antitrust Improvements Act (FTAIA) did not require dismissal of Dell Inc.’s claims that suppliers of thin film transistor-liquid crystal display (TFT-LCD) panels engaged in a global price fixing conspiracy, the federal district court in San Francisco has ruled.

Generally, the FTAIA excludes from the reach of the Sherman Act anticompetitive conduct that causes only foreign injury.

Dell, a direct purchaser of both TFT-LCD panels and finished products that incorporate TFT-LCD panels, brought claims against numerous domestic and foreign defendants. The complaint alleged that defendants Sharp Corp., Hitachi Displays Ltd., and Epson Imaging Devices Corp. had pled guilty to criminal charges of conspiring to fix TFT-LCD panel prices, and that Sharp and Hitachi admitted that they conspired to fix prices as to Dell.

Dell asserted that it was an intended victim of the price fixing conspiracy and that the conspiracy was carried out, in part, in the United States.

Foreign Transactions

Some of the claims were based on master purchase agreements (MPAs) between Dell and certain of the defendants, the terms of which made clear that the transactions included foreign transactions between the defendants and Dell’s foreign affiliates.

The defending suppliers did not dispute that the federal district court had jurisdiction over claims based on products that they imported into the United States. However, they unsuccessfully argued that the court lacked jurisdiction over any claim based on a transaction that occurred outside the United States.

Foreign Injury, Domestic Effect of Conspiracy

The court rejected the defending supplier's contentions that Dell did not allege sufficient facts to establish that its foreign injury (paying higher prices abroad) was proximately caused by any domestic effect of the alleged conspiracy. Dell alleged that an important domestic effect of the conspiracy was the setting of a global price for all TFT-LCD products purchased from the defendants, which was negotiated at the technology company's Texas headquarters.

The negotiated worldwide price applied to all TFT-LCD products, wherever purchased, and was binding on the technology company and its subsidiaries. These allegations established a link between the challenged conduct, its domestic effect, and the technology company’s foreign injury.

The technology company pleaded sufficient facts to establish that the MPAs and subsequent price negotiations were a domestic effect of the alleged conspiracy that proximately caused its foreign injury, according to the court.

The March 16 decision is In re: TFT-LCD (Flat Panel) Antitrust Litigation, 2011-1 Trade Cases ¶77,382.

High Gasoline Prices on Island Not the Result of Price Fixing

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

Gas station operators on the island of Martha’s Vineyard in Massachusetts did not engage in price fixing in violation of the Sherman Act, despite maintaining prices that were considerably higher than on the Cape Cod mainland, the U.S. Court of Appeals in Boston has decided.

Summary judgment in favor of the gas station operators on the claims brought by summer and year-round island residents, as well as an island real estate agency, was affirmed.

Conspiracy v. Independent Parallel Pricing

Though features of the retail gasoline market on Martha’s Vineyard—including barriers to entry, inelastic consumer demand, and product homogeneity—made it susceptible to efforts by gas stations to sustain anticompetitive prices, those features facilitated not only conspiratorial pricing but also merely interdependent parallel pricing, the court stated.

Knowing these features of the market, each gas station operator was likely to reach its own independent conclusion that its best interests involved keeping prices high, including following price changes by a price "leader" (if one emerged), in confidence that the other station owners would reach the same independent conclusion.

There was no evidence or suggestion that the business risk, to any station on the island, of raising its prices was so great as to require communication among stations before any one of them would venture it, the court observed.

“Plus Factors”

Much of the evidence offered by the complaining island residents as "plus factors" for an inference of conspiracy did no more than corroborate that the Martha’s Vineyard gasoline market was an oligopolistic market highly conducive to parallel pricing, the court explained.

These "plus factors" included:

(1) The defendants’ parallel holding or increasing of prices while the wholesale cost declined;

(2) Deposition testimony by station operators that they did not know what margin over cost they needed to charge to turn a profit;

(3) The defendants’ motive to conspire;

(4) Barriers to entry;

(5) Inelastic demand; and

(6) Stable relative market shares over time among the four defendants.

This evidence did not explain whether the parallel pricing was achieved by agreement or mere interdependent decisions.

The remaining evidence of plus factors was that collusion could be revealed by variations in price from region to region (i.e. Martha’s Vineyard to Cape Cod), one defendant’s employment of a consultant to lobby for the denial of a petition for a new gas station on the island, and certain communications between two of the defendants’ principals.

This evidence did not tend to exclude the possibility that the alleged conspirators acted independently.

Thus, the evidence was not sufficient to permit a reasonable inference that the defendants’ behavior was more than mere conscious parallelism, the court concluded.

The decision is White v. R.M. Packer Co., Inc., 2011-1 Trade Cases ¶77,352.

Paper Purchasers' Price Fixing Claims Rejected

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

The federal district court in Bridgeport, Connecticut, has rejected price fixing claims brought by direct purchasers of commercial grade paper used for printing catalogues and magazines against paper company Stora Enso.

The complaining direct purchasers failed to create a genuine issue of material fact that an agreement between Stora Enso and rival UPM-Kymmene Corp. (UPM) affected the prices charged for publication paper in the United States. Summary judgment was granted in favor of Stora Enso.

Justice Department Investigation

The purchasers brought suit shortly after the Department of Justice made public that it was investigating the publication paper industry in 2004. In 2006, a federal grand jury in Connecticut issued a one-count indictment charging Stora Enso North America Corp. and other unnamed co-conspirators with price fixing from August 2002 to June 2003. Charges were not brought against UPM, which had entered into a full immunity agreement with the Justice Department.

The case against Stora Enso proceeded to trial in July 2007. At trial, a UPM executive testified about conversations with a Stora Enso executive. The jury ultimately acquitted Stora Enso (See U.S. No. 4855, ¶45,106).

Private Suit

In the private direct purchaser litigation, Stora Enso moved for summary judgment on the ground that the plaintiffs failed to proffer any evidence, direct or circumstantial, that Stora Enso and UPM, through their executives, agreed to engage in an illegal price fixing conspiracy.

The direct purchasers offered the criminal trial testimony of the UPM executive as direct evidence. However, the testimony could not reasonably be interpreted as direct evidence or proof of an agreement to raise, fix, or stabilize future prices of publication paper.

The testimony could be characterized as an exchange of information that each entity had already independently decided to follow price increase announcements, the court explained.

The court also determined that the circumstantial evidence offered by the purchasers was not enough to overcome Stora Enso's motion for summary judgment.

Parallel Price Increases, Capacity Reduction

Three industry-wide, parallel price increases and a capacity reduction were insufficient to demonstrate a conspiracy, the court held. In order to establish a conspiracy, the complaining purchasers had to come forward with additional facts that tended to exclude the possibility that the paper companies acted independently, in their own self-interest, when engaging in the parallel conduct.

The susceptibility of the market to illegal collusion and suspect communications between paper industry executives did not, without more, exclude the possibility of independent action. The complaining purchasers’ evidence did not tend to exclude the possibility that Stora Enso acted in accordance with independent, permissible business justification when following a rival’s price increase, the court decided.

The decision is In Re: Publication Paper Antitrust Litigation, 2010-2 Trade Cases ¶77,293.

Resale Price Fixing Claims Against Mattress Maker Lacked Support

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

Consumers failed to support their resale price fixing claims against Tempur-Pedic North America, Inc., the manufacturer of visco-elastic Tempur-Pedic foam mattresses, the U.S. Court of Appeals in Atlanta has ruled.

The consumers challenged the manufacturer's practice of setting the minimum retail prices the distributors could charge for its mattresses and adhering to those minimum prices in the sales it made through its website.

The appellate court explained that vertical resale price maintenance claims had to be evaluated using rule of reason analysis. Under rule of reason analysis, complaining consumers had to show either actual or potential harm to competition. Regardless of whether the consumers alleged actual or potential harm to competition, they had to identify the relevant market in which the harm occurred.

Relevant Market

The consumers' skimpy allegations of the relevant submarket limited to visco-elastic foam mattresses were legally insufficient to support vertical resale price maintenance claims, the court ruled. The consumers argued that, because their complaint was dismissed on a Federal Rule of Civil Procedure 12(b)(6) motion, they did not have the chance to add facts in discovery which would have established visco-elastic foam mattresses as a separate relevant
product submarket.

The consumers nevertheless had the obligation to indicate that they could provide evidence plausibly suggesting the definition of the alleged submarket, the court explained. The complaint alleges, without elaboration, that “[v]isco-elastic foam mattresses comprise a relevant product market, or submarket, separate and distinct from the market for mattresses generally, under the federal antitrust laws.”

This conclusory statement merely begged the question of what, exactly, made foam mattresses comprise this submarket. The complaint provided no factual allegations of the cross-elasticity of demand or other indications of price sensitivity that would indicate whether consumerstreated visco-elastic foam mattresses differently than they did mattresses
in general.

Even if the consumers had alleged a proper relevant market, they failed to adequately allege that the retail price maintenance agreements had anticompetitive effects.

Horizontal Price Fixing

The consumers' horizontal price fixing claims against Tempur-Pedic were also rejected. They argued that the mattress maker's dual-distribution system—under which its mattresses were sold both through its authorized distributors and directly to consumers through the manufacturer's own website—constituted a horizontal price fixing conspiracy.

The consumers did not, however, meet their burden to present allegations showing why an inference that the manufacturer and its distributors entered into a price fixing agreement was more plausible than an inference that the manufacturers and distributors set prices independently and happened to set the same price because it made economic sense to do so.

Potential costs to the manufacturer of fixing prices with its distributors would have outweighed any benefits that the manufacturer would have realized by doing so, particularly where independent economic activity would have yielded the same benefits with none of the costs.

The December 2 decision is Jacobs v. Tempur-Pedic International, Inc. It will appear at 2010-2 Trade Cases ¶77,250.

Air Cargo Firm Agrees to Plead Guilty to Price Fixing, Pay Criminal Fine

This posting was written by John W. Arden.

Polar Air Cargo LLC has agreed to plead guilty and to pay a $17.4 million criminal fine for its role in a conspiracy to fix prices in the air transportation industry, the U.S. Department of Justice announced on September 2.

The air cargo firm joined and participated in a conspiracy to fix the cargo rates charged to some customers for international air cargo shipments between the U.S. and Australia from at least as early as January 1, 2000 through April 30, 2003, according to a one-count felony charge filed in the U.S. District Court for the District of Columbia.

The Long Beach, California company carried out the conspiracy by agreeing on certain components of cargo rates during meetings, in conversations, and through communications with co-conspirators. As part of the conspiracy, Polar Air Cargo monitored and enforced adherence to agreed-upon rates.

The price fixing charges carry a maximum fine of $10 million for offenses committed before June 22, 2004. The fine may be increased to twice the gain derived from the crime or twice the loss suffered by victims of the crime, if either amount is greater than the statutory maximum fine.

In the plea agreement, which is subject to court approval, Polar Air Cargo agreed to cooperate with the Justice Department’s ongoing antitrust investigation.

Polar Air Cargo becomes the 17th airline charged in an ongoing investigation into price fixing in the air transportation industry. More than $1.6 billion in criminal fines have been imposed. Four executives have been sentenced to serve prison time, while charges are pending against three other executives.

Airlines that have pleaded guilty to antitrust charges are British Airways Plc, Korean Air Lines Co. Ltd., Qantas Airways Limited, Japan Airlines International Co. Ltd., Martinar Holland N.V., Cathay Pacific Airways Limited., SAS Cargo Group A/S, Societe Air France, Koninklijke Luchtvaart Maatschappij N.V. (KLM Royal Dutch Airlines), EL AL Israel Airlines Ltd., LAN Cargo Airlines Co. Ltd., Areolinhas Brasileiras S.A., Cargolux Airlines International S.A., Nippon Cargo Airlines Co. Ltd., Northwest Airlines LLC, and Asiana Airlines Inc.

Airline executives who have pleaded guilty are Bruce McCaffrey of Qantas, Keith Packer of British Airways, Franciscus Johannes de Jong of Martinair, and Timothy Pfeil of SAS.

In August 2009, Jan Lillieborg, former vice president of global sales for SAS Cargo, was indicted for participating in a conspiracy to suppress and eliminate competition by allocating customers and coordinating surcharge increases for international air shipments to and from the United States.

On August 26, 2010, Joo Ahn Kang, former president of Asiana, and Chung Sik Kwak, former vice president of the Americas region of Asiana, were indicted for participating in a conspiracy to suppress and eliminate competition by fixing passenger airfares for travel between the U.S. and Korea.

Ninth Circuit Asked to Rehear Appeal of Antitrust State Action Immunity Decision

This posting was written by John W. Arden.

The American Antitrust Institute has filed an amicus brief, urging the U.S. Court of Appeals in San Francisco to rehear the appeal of a decision “that expands the state action defense to immunize alleged price fixing by car rental companies in California.”

On June 8, the appeals court held that the California Travel and Tourism Commission (CTTC) was shielded by the state action immunity doctrine from consumers’ claims that it conspired with passenger rental car companies to pass on CTTC tourism assessments to consumers (Shames v. California Travel and Tourism Commission, 2010-1 Trade Cases ¶77,044).

As required for state action immunity, the CTTC’s alleged anticompetitive conduct constituted an authorized and reasonably foreseeable result of a statutory authorization, the Ninth Circuit ruled. The California legislature had explicitly authorized tourism assessment fees on passenger car rentals in order to fund the promotion of state tourism. It appeared that the legislature envisioned the fee being uniformly passed on to rental car customers, according to the court.

Consumers had argued that active state supervision was required because the CTTC was industry-controlled. However, the appeals court held that state supervision was irrelevant because the CTTC was a state agency created by statute to promote tourism in California.

The dismissal of the consumers’ horizontal price fixing claims by the federal district court in San Diego (2008-2 Trade Cases ¶76,370) was upheld by the Ninth Circuit.

Amicus Brief

In its amicus brief supporting the plaintiffs’ petition for rehearing, the American Antitrust Institute (AAI) argued that rehearing is necessary because “the panel decision rests on a misunderstanding of both prongs of the `state action’ defense.”

"If left standing, this decision will encourage the misuse of state statutes to immunize unauthorized and unjustified agreements in restraint of trade to the detriment of the economy and in conflict with our fundamental national policy in favor of free and open competitive markets."

Specifically, the panel inferred immunity even the state law could not reasonably be read to authorize or even contemplate the alleged underlying illegal conduct—“namely a price-fixing cartel intended to exploit consumers and defeat the ordinary market process,” the AAI charged.

The panel interpreted a statute that permits an individual passenger car rental company to pass on some or all of the assessment to customers as authorizing competing businesses to agree collectively and with the CTTC to pass on the entire assessment, as well as airport concession fees, according to the amicus brief.

The AAI alleged that the panel exempted the CTTC from any active state supervision requirement, treating it as equivalent to a traditional state agency, even though the CTTC was dominated by private interests.

Supreme Court Standards

These rulings could not be reconciled with U.S. Supreme Court standards for the application of state action defense to private or quasi-governmental action, as set out in California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc, 445 U.S. 97, 1980-1 Trade Cases ¶63,201, the brief asserted.

According to the standards, the state must (1) clearly articulate its intention to replace competition with regulation in a sector of the economy and (2) actively supervise the regulatory scheme to ensure that it operates in the public interest.

The AAI argues that the California Tourism Marketing Act neither allows the CTTC or its participants to regulate the prices or pricing policies of car rental firms nor creates standards for reviewing the reasonableness of the pricing or pricing policies.

In addition, the Ninth Circuit panel erroneously conferred the status of state agency on the CTTC, therefore avoiding the requirement of active state supervision, the brief alleged. In reality, the CTTC is controlled by private industry in the very markets that the CTTC purports to regulate. As such, it is not a state agency for the purposes of state action immunity, the AAA argued.

The brief is Shames v. California Travel and Tourism Commission, No. 08-56750, United States Court of Appeals for the Ninth Circuit. Text of the brief appears here.

American Antitrust Institute

The American Antitrust Institute is an independent, non-profit education, research, and advocacy organization based in Washington, D.C. Its stated mission is to “increase the role of competition, assure that competition works in the interests of consumers, and challenge abuses of concentrated economic power in the American and world economy.” Further information about the AAI appears here on the organization’s website.