Coordinated State Antitrust Enforcement: Federalism in the '90s

August 1, 1996 Published Work
The Multimedia Law Report, Reprinted with Permission

The communications industry is experiencing an unprecedented wave of mergers and acquisitions. Merging entities and their counsel are, of course, resigned to the fact that federal regulatory and antitrust enforcement agencies, as well as state public service commissions, must be consulted before most are finalized. It can, however, be unsettling, when the same merger that is being scrutinized by the "feds" also draws the attention of one or more state attorneys general making inquiry under their respective antitrust laws. This article is intended to shed some light, albeit briefly, upon a steadily growing force in the antitrust universe. I respectfully suggest that the communications industry must always consider, in a timely fashion, the possible enforcement options available to state attorneys general, acting in their antitrust enforcement capacities, in the course of evaluating the likely level of antitrust risk with respect to a proposed transaction.


It is startling to me how little seems to be known about the National Association of Attorneys General ("NAAG") Multistate Antitrust Task Force ("Task Force"), despite its profound impact upon national competition policy. Often, only the proverbial knock on the door from the state "Antitrust Police" first acquaints a company or its counsel to the existence of coordinated multistate antitrust enforcement. Targets of a state inquiry are often surprised at both the level of sophistication of state antitrust enforcement officials and the high degree of coordination by the states, both among themselves, and with federal antitrust agencies. In fact, targets and their counsel, in my experience, sometimes cause themselves untold problems by underestimating the capabilities and the resolve of state assistant and deputy attorneys general.

The Task Force, currently chaired by Assistant Attorney General Kevin J. O'Connor of Wisconsin, performs multiple functions on behalf of the state attorneys general who comprise NAAG. These functions include the sharing of confidential information at regular Task Force meetings, the education of state antitrust enforcers at yearly seminars and the coordination of investigative and litigation responsibilities for complex multistate initiatives.

The Task Force is best known for numerous resale price maintenance ("RPM") cases (many, including Nintendo, involving all fifty states), Hartford Fire Insurance Co. v. California (through which the U. S. Supreme Court, inter alia, redefined a "boycott 'under the McCarran-Ferguson Act), several recent bank mergers (including Bank of America/Security Pacific), a very successful amicus curiae intervention program in the U.S. Supreme Court that has helped to reshape federal antitrust law, a litany of innovative health care matters (including hospital mergers and cases attacking most-favored-nation clauses), and the Primestar Partners litigation (concerning the Direct Broadcast Satellite technology market). Some of the RPM matters were coordinated with the Federal Trade Commission ('FTC"), while some bank mergers, many health care initiatives, and the Primestar Partners matter were coordinated with the Antitrust Division of the United States Department of Justice ("DOT').

The Task Force has a formal structure that includes National Vice-Chairs responsible for investigations, policy and legislation, amicus curiae intervention, and education and training, and Regional Vice-Chairs responsible for certain antitrust matters that are not national in scope. It is incumbent upon counsel and client, alike, to understand the structure and the role of the Task Force, including the trend toward joint federal/state enforcement.

Protocol on Criminal Referrals

The "Protocol for Increased State Prosecution of Criminal Antitrust Offenses" illustrates quite well the advanced level of coordinated multistate antitrust enforcement. Announced in March, 1996, the Protocol formalizes heretofore informal referral patterns established over many years on an ad hoc basis by DOJ. The Protocol sets out the criteria for DOJ to consider transferring prosecutorial responsibility for certain antitrust offenses to a state attorney general, including bid rigging and price fixing "in localized markets." A DOJ referral is, obviously, subject to resource availability and the consent of the transferee state. Moreover, in situations where transfer to a state attorney general is deemed inappropriate because, e.g., the state lacks criminal enforcement powers, following a long tradition of cooperation, personnel from a state attorney general's office may be considered for appointment to assist DOJ attorneys in the prosecution of "appropriate local impact cases." As a result, formalized, multi-sovereign resource allocation in the antitrust field is now a reality.

The Protocol was developed from discussions that occurred through a little-known entity, the Executive Working Group for Antitrust ("EW&A"), comprised of key representatives of DOJ, the FTC and NAAG. Since the Bush Administration, the EWG-A has played an important role in coordinating national competition policy by fully integrating the states into the antitrust equation, i.e., the states have become the third prong in the "antitrust triad."

Merger Protocols

In the merger area, Information Sharing Protocols implemented by both the FTC and DOJ with the states, as well as the NAAG Pre-Merger Disclosure Compact ("Compact') illustrate the level of communication, coordination and cooperation that is now commonplace among the antitrust enforcement agencies. The Compact permits the filing of Hart-Scott-Rodino pre-merger documents with a single state, coupled with a pledge by each signatory state not to serve subpoenas during the pendency of the inquiry, as long as the states receive information equivalent to that received by DOJ or the FTC. The Information Sharing Protocols provide a means for the states and the federal agencies to communicate with each other in a timely fashion, so as to avoid duplicative, burdensome and expensive multiple requests for the same information during the merger review process.

Indeed, the 1995 amendment to the FTC Information Sharing Protocol further illustrates the advanced state of federal/state cooperation. The FTC will now share information not previously available to the states during the course of merger investigations, including certain information obtained from third parties, certain information obtained from merging parties who have not consented to disclosure, and certain staff analytic memoranda. These changes should significantly facilitate communication of information and coordination of activities between the FTC and the states, particularly in the time-sensitive merger area.

Trends for the Future

Despite the Clinton Administration's reinvigoration of both DOJ and the FTC as antitrust enforcers, the national presence of the Task Force is unlikely to abate. This observation is supported by the fact that for the first time in antitrust history, DOJ and the states have recently filed several healthcare cases together not just on the same day, but in a single complaint.

Moreover, the states will continue to play a significant role with respect to mergers, including those involving communications and the media. This is so, in part, because the U.S. Supreme Court, in 1990, confirmed the ability of the states to obtain divestiture with respect to consummated mergers and acquisitions, i.e., unscramble the egg. Thus, merging parties are at some considerable risk if they ignore a state or states that possess the knowledge and resources to challenge a merger. Indeed, there have been several instances since 1990 of states undoing or restructuring consummated transactions that had passed through the federal Hart-Scott-Rodino pre-merger review process unscathed.

The Task Force is a vehicle for the transfer of information and the efficient utilization of human resources among the states and with the federal government. I predict that events in the next several years will confirm that government antitrust enforcement is a shared enterprise, in the nature of a joint venture among three equals. The NAAG Multistate Antitrust Task Force is here to stay. Verbum sat sapienti est.