Last Wednesday, the Wisconsin Supreme Court heard oral argument on whether to reinstate an antitrust lawsuit against taverns around the University of Wisconsin (story here). In 2002, the taverns agreed to eliminate drink specials after 8:00 PM on Fridays and Saturdays. A group of students filed a class action lawsuit against the taverns for injunctive relief and damages, claiming that the agreement constituted an illegal conspiracy in restraint of trade.
Well it sure as heck seems so, at least under federal antitrust law. The competing taverns agreed with each other not to offer discounts. The U.S. Supreme Court held in Catalano v. Target Sales that an agreement to eliminate interest-free short-term credit, which is effectively an agreement to deny discounts, is per se illegal. Similarly, the taverns’ express agreement to refrain from selling more booze for less money would seem to be per se illegal. It matters not that the competitors were seeking some desirable social end (less binge drinking, etc.); antitrust does not permit them to pursue that end by reducing competition. That’s the lesson of Professional Engineers, in which the Supreme Court, in condemning a price-fixing agreement purportedly aimed at providing safer buildings, emphasized that “the statutory policy precludes inquiry into the question whether competition is good or bad.”
The Wisconsin Court of Appeals, though, held that the taverns’ agreement was immune from antitrust scrutiny because the taverns entered their voluntary agreement under pressure from local government officials. That pressure, the court concluded, created a sort of state action immunity. Never mind that the government never actually acted. The fact that the handwriting was on the wall — that the taverns believed the city government would impose restrictions if they didn’t do so themselves — effectively turned the private agreement into state action, immune from antitrust scrutiny. Under this reasoning, a group of competitors could immunize their anticompetitive agreement by demonstrating simply that some government official was merely threatening to impose the agreement at issue.
The potential for mischief here should be obvious. Normally, to get state action immunity for a competition-reducing agreement, a group of competitors must convince legislators or regulators actually to impose the competition-limiting policy (or, at a minimum, to authorize self-regulation by the competitors). Adversely affected groups (consumer groups, etc.) will generally have some opportunity to argue against the policy at issue, and a majority of the state decision makers will have to approve it. Under the approach of the Wisconsin court of appeals, there is no need for an official decision by a state legislature or regulatory body — a single official’s threat to act in the future could be enough to insulate a private competition-limiting agreement. That threat could occur without any input by adversely affected parties and without approval of the majority of legislators or members of the regulatory body.
Many, many anti-consumer initiatives succeed because the “bad guys” — the ones who stand to gain from a reduction in competition — are able to front some “good guys” who convince the government that there’s some social value in the competition-reducing rule. It’s exactly what happened with Prohibition: the bootleggers, who stood to make a killing off the reduction in supplies of alcohol, put up the Baptists, who favored Prohibition for all the right reasons, to be their mouthpieces. Once the Baptists convinced the government to restrict supplies of alcohol, the bootleggers made out like bandits.
The reasoning of the Wisconsin Court of Appeals would exacerbate the bootleggers and Baptists problem, for the Baptists would no longer need to convince the government actually to impose the restriction at issue. As long as the Baptists could convince some government officials to threaten the restriction at issue, the bootleggers could respond by voluntarily limiting competition amongst themselves.
(Of course, the real lesson here is that Columbia, Missouri is a much cooler college town than Madison, Wisconsin.)
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And a completely unrelated but more interesting follow-up question: Does Leegin change the outcome in Midcal?
Fantastic. All this over $1 pitchers on a Tuesday night.
But seriously, there are two prongs to the state action immunity test: (1) clear articulation of state policy, and (2) active supervision. Midcal & 324 Liquor both rejected state action immunity where the state failed to satisfy this second prong. So even if we accept that a restraint compelled by threatened state action constitutes a clearly articulated government policy, where is the active supervision in this case?
Prof Stancil:
You two postings contain many misrepresentations regarding the case as you certainly know given your acknowledged work on it.
Posting 1:
“Thom — Disclaimer: I served as counsel to the defendants in that case before leaving private practice for the academy. Happy to debate the specifics more fully if you like, but a couple of thoughts:”
I am counsel for plaintiffs and would love to debate the specifics with you. I look forward to your response.
“First, the record developed on summary judgment and on appeal demonstrates that the case involved far more than mere ‘pressure’ from regulators.”
I thought regulatory pressure comes from the enactment of laws? Since when does a single alder apply regulatory pressure in the absence of law? Under your theory, municipal officials could never unlawfully join a private cartel.
“Rather, the regulators (and the University of Wisconsin, and the Robert Wood Johnson Foundation, each made defendants in a follow-on federal antitrust lawsuit filed by the same plaintiff’s attorney) effectively delivered an ultimatum to the defendants — solve this problem (student overconsumption allegedly produced by drink specials) yourselves or we will ban ALL drink specials, city-wide, 24/7. It was against this backdrop that the defendant taverns acted.”
So the threat of legislation has the same impact of actual legislation? Doesn’t this throw the rule of law concept out the window?
So you acknowlege that the bars solved the problem by themselves? And that the problem was excess output. And the solution was an agreement to eliminate discounts on the bars two busiest nights? And that is not a price-fixing conspiracy in your judgment? I hope your students get a discount.
You mention the federal case so you know that the price fixing conspiracy allegedly began in the early 1990s. So is it your argument that the public nature of the conspiracy in 2002-2004 immunizes all past collusive activity?
“I acknowledge the slippery slope problem in general, but it’s not present here — borrowing the 6th Circuit’s helpful state action/Parker formulation, the City of Madison here was the “effective decisionmaker,†notwithstanding the purportedly private character of the alleged agreement.”
Why is the slippery slope problem “not present here”? is it because we already are at the bottom of the slope?
As you know the winning defense below was implied repeal — the wis state legislature has implicitly repealed the application of the antitrust laws to the tavern industry. Taverns may fix prices with impunity.
In the federal case — for state action to apply -as you know there must be both clear articulation and active supervision of the anticompetitive conduct? Here there is neither as you know. The city was not the effective decisionmaker with respect to the private agreement. As alder bruer testified:
Q: So even if the city had concluded that there weren’t any public benefits of the voluntary ban of drink specials, the city would not have taken any action to end that ban, correct?
A: It wasn’t our role to end it. We didn’t legislate it.
(incidently Bruer, your “effective decisionmaker” also testified contrary to his sworn affidavit that he did not tell the bars to fix prices but rather to better train servers, avoid over capacity, etc. (e.g., follow the law, not violate the law by fixing prices).)
“While I would agree that the case should be decidedly narrowly on the precise record before the Wisconsin Supreme Court, that record supports immunity.”
What specific facts in the record supports immunity? Upon what legal theory is immunity based? Are you saying you don’t think the decision you support should have precedential value? Why not? What is so special about the facts here, other than the bars and city officials were pretending that they were acting lawfully when they always knew otherwise (as they state in their press release announcing the agreement (drafted by bar owner/lawyer)– “we have our reservations about engaging in what could be considered illegal ‘collusion in restraint of trade,’ but we feel this proactive position can cut through the fog and confusion surrounding the role of drink specials and disorderly behavior.”)
“Second, this set of facts is not going to come up often.”
What set of facts? Crooked bar owners fixing prices? Or crooked bars fixing prices in public and pretending to be good guys? How often is too often? Should we immunize the first five cases and then start to hold people accountable for their law breaking?
“Without going into detail, it is absolutely clear on the summary judgment record (the case was decided by one of the ablest state court trial judges in Wisconsin) that the defendants (a) didn’t want to do anything (in part because their competitive landscape involves more than the other campus-area bars) and (b) they didn’t have any choice.”
When you say that none of the bar owners wanted to fix prices, is not that intent and motivation? As you know intent was not at issue before the court.
Since when is it a defense for a price fixer to say he didn’t want to fix prices? If they did not want to fix prices why did they? You say they had no choice?? Well they could have chosen not to fix prices, right? Am I missing something here?
“I’m not denying the problems inherent in a regime granting immunity for self-regulation under threat of regulation, but they can be dealt with via an appropriately skeptical standard — one that demands that the regulator both had the authority to regulate and was the effective decisionmaker.”
You think the city of madison has the authority to set the bars drink prices? Could they also set maximum prices or just minimum prices? What other consumer products do yuou think the city to regulate the price of for the express purpose of reducing output? But of course we digress because as everyone acknowledges, there was no regulation here, just threats of regulation.
“Set the bar as high as you like on the latter; the defendants here still qualify.”
What about if we say the standatrd is there must be a law? Do you consider that to be a high standard? Do the defendants qualify for immunity under that standard?
“Third, there are decent longitudinal incentive arguments against immunity in this case. They’re like the arguments used to support strict textualist statutory interpretation on the theory that preventing regulators from abdicating their responsibility to others (esp. the courts) is a good thing. Here, one could argue that denying immunity to this specific set of defendants, however unfair to them under the circumstances, will prevent further informal regulation-by-threat in the future.”
are you saying that holding people accountable for their crimes may deter others from doing likewise? So why is it even remotely unfair to hold the bars accountable here? Do you think they should at least have to disgorge what they profited from their cartel?
“But this raises an empirical question: how much of this sort of informal regulation is there, and what effect would it have if we were to require formal gov’t action every single time? I don’t know the answer to that question.”
How much price fixing is out there? And should we allow it or rather should we only allow it when the government has acted and made it lawful? Are you being serious, prof?
Posting 2:
“Josh and Thom — your position is eminently reasonable, and I share your concerns in general terms. There is a ‘self-regulation’ slippery slope here, and regulatory accountability is important.”
There is no slope. Regulations requires laws. Self regulation by competitors regarding their pricing is called price fixing. It is illegal when lawyers do it and it certainly is illegal when taverns do it.
“Of course, the record here reflects an enormous amount of credit-taking on the part of regulators: the ‘conspiracy’ was announced at a public press conference. Elected and University officials shared the podium with leaders of the local bar owners’ trade association. That credit-taking implies accountability.”
Actually, credit taking implies complicity. Accountability flows from legislation. Remember that “rule of law” concept from law school?
Also, the photos I have don’t show anyone at the podium but three bar owners when they announced their “voluntary ban on drink specials.” But how is that relevant to anything, prof?
So you acknowledge that “leaders of the local bar onwers’ trade association” (i.e., competitors) announced they were going to eliminate discounts on their two busiest nights. You teach your student that is not price fixing? Or that it is only price fixing if they were not told to do so by a single elected official?
“Just to be clear, I’m certainly not arguing in favor of a broad expansion of Parker/Noerr, for all the reasons raised in your post and the comments. Rather, I think that in this sui generis context, the defendants deserve a way out of the “damned if you do . . . †box.”
You are not asking for a broad expansion of Parker/Noerr, you are asking for an elimination of Parker/Noerr.
As for the poor defendants, they belong in a box known as a prison cell. As do those who facilitate their (still ongoing) conspiracy through intentional falsehoods. When you left private practice for the academy, didn’t someone tell you to leave your bullshit behind?
“More broadly, I wonder how to balance the accountability, public choice, and ‘fox guarding the henhouse’ concerns you raise against the realities of informal regulation in the municipal context.”
What are the realities of informal price regulation in the municipal context? Does it happen alot? Does that not trouble you?
“As you can probably divine from my earlier comment, I’d probably allow for an ‘effective decisionmaker’ standard in lieu of requiring formal regulatory action, but I’d set the bar for proving it pretty darned high. That approach is not without costs, but it’s intuitively attractive to me.”
What is intuitively attractive to me prof is to punish price fixers and their accomplices and make them compensate those they unlawfully overcharged.
Steve Uhr — counsel for plaintiffs
Josh and Thom — your position is eminently reasonable, and I share your concerns in general terms. There is a “self-regulation” slippery slope here, and regulatory accountability is important.
Of course, the record here reflects an enormous amount of credit-taking on the part of regulators: the “conspiracy” was announced at a public press conference. Elected and University officials shared the podium with leaders of the local bar owners’ trade association. That credit-taking implies accountability.
Just to be clear, I’m certainly not arguing in favor of a broad expansion of Parker/Noerr, for all the reasons raised in your post and the comments. Rather, I think that in this sui generis context, the defendants deserve a way out of the “damned if you do . . . ” box. More broadly, I wonder how to balance the accountability, public choice, and “fox guarding the henhouse” concerns you raise against the realities of informal regulation in the municipal context. As you can probably divine from my earlier comment, I’d probably allow for an “effective decisionmaker” standard in lieu of requiring formal regulatory action, but I’d set the bar for proving it pretty darned high. That approach is not without costs, but it’s intuitively attractive to me.
Paul S.–Thanks for the comment. (You too, other Paul….)
The facts as stated in the appellate court’s opinion do sound pretty peculiar (i.e., the “threat” was pretty clear and extreme). But, largely for the reasons Josh articulates, I’m still troubled by resting state action on unofficial threats rather than official action (or, at a minimum, delegation of self-regulatory authority). It will be interesting to see what the Wis. S. Ct. does. Shall we wager?
Paul: on the record as you describe it, this sort of expansion of state action to “collusion in the shadow of regulatory threat” still strikes me as problematic. One reason the law typically requires the state to actually “act” in some formal sense for state action to apply is so that there is accountability to constituents, e.g. we are not left in the shadowy area where the private actors can hide behind cloak of the state while nobody at the state level if really held accountable for the decision to displace competition. You’re obviously far more familiar with the record here than I (or maybe anyone!) and so maybe it was the case that these informal threats amounted to something that roughly approximates state action in a manner that the “effective decision-making” was “nearly as if” they had actually engaged in state action. Even if this is true, by my lights, there is certainly some benefit to withholding immunity from these “almost but not quite” actions of the state.
Thom — Disclaimer: I served as counsel to the defendants in that case before leaving private practice for the academy. Happy to debate the specifics more fully if you like, but a couple of thoughts:
First, the record developed on summary judgment and on appeal demonstrates that the case involved far more than mere “pressure” from regulators. Rather, the regulators (and the University of Wisconsin, and the Robert Wood Johnson Foundation, each made defendants in a follow-on federal antitrust lawsuit filed by the same plaintiff’s attorney) effectively delivered an ultimatum to the defendants — solve this problem (student overconsumption allegedly produced by drink specials) yourselves or we will ban ALL drink specials, city-wide, 24/7. It was against this backdrop that the defendant taverns acted.
I acknowledge the slippery slope problem in general, but it’s not present here — borrowing the 6th Circuit’s helpful state action/Parker formulation, the City of Madison here was the “effective decisionmaker,” notwithstanding the purportedly private character of the alleged agreement. While I would agree that the case should be decidedly narrowly on the precise record before the Wisconsin Supreme Court, that record supports immunity.
Second, this set of facts is not going to come up often. Without going into detail, it is absolutely clear on the summary judgment record (the case was decided by one of the ablest state court trial judges in Wisconsin) that the defendants (a) didn’t want to do anything (in part because their competitive landscape involves more than the other campus-area bars) and (b) they didn’t have any choice. I’m not denying the problems inherent in a regime granting immunity for self-regulation under threat of regulation, but they can be dealt with via an appropriately skeptical standard — one that demands that the regulator both had the authority to regulate and was the effective decisionmaker. Set the bar as high as you like on the latter; the defendants here still qualify.
Third, there are decent longitudinal incentive arguments against immunity in this case. They’re like the arguments used to support strict textualist statutory interpretation on the theory that preventing regulators from abdicating their responsibility to others (esp. the courts) is a good thing. Here, one could argue that denying immunity to this specific set of defendants, however unfair to them under the circumstances, will prevent further informal regulation-by-threat in the future. But this raises an empirical question: how much of this sort of informal regulation is there, and what effect would it have if we were to require formal gov’t action every single time? I don’t know the answer to that question.
This is very troubling and one can only hope that this is overturned or, in the alternative, applied in the future on these specific facts(low barrier of entry businesses that have been traditionally viewed as a danger to society, etc).
I wonder how long this “agreement” between the bars will hold. There is a tremendous opportunity, at least in the short term, for one of these bars to break the agreement thus packing their bars again with drink special seeking drinkers. If a bar in the current agreement chooses not to break, then there is tremendous opportunity for someone else (perhaps the plaintiffs) to open up a bar and pack it up with drink special drinkers.