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On June 18, the U.S. Supreme Court decided Credit Suisse v. Billing, a precedential case that dealt with the conflict between federal antitrust laws and securities laws, determining which statutory authority would prevail. The court did not decide whether the antitrust claims at issue had merit, but rather only whether the alleged illegal activity was immune from antitrust liability. The Supreme Court held that the conduct in question, which was legal under the securities laws, was immune from the application of the antitrust laws. In Credit Suisse, investors of securities alleged that certain underwriters’ “tie-in” and “laddering” arrangements inflated the securities’ price, in violation of Section 1 of the Sherman Act and other federal and state antitrust laws. Reversing the 2nd U.S. Circuit Court of Appeals, the Supreme Court held that the defendants could not be liable for violations of Section 1 of the Sherman Act and other federal and state antitrust laws because the securities laws preclude application of the antitrust laws to those practices. In what is viewed as a victory for Wall Street, this decision reduces the antitrust exposure for securities firms. It could also have potential ramifications in other areas of federal and state regulation when the legislature has been equally silent on antitrust immunity. Credit Suisse is a class action lawsuit brought by and on behalf of investors against several Wall Street firms for conduct on IPOs during the technology boom that allegedly violated state and federal antitrust laws. Plaintiffs alleged that major investment banks and institutional investors engaged in a conspiracy to inflate initial public offering prices for dot-com companies during the 1990s, manipulating the prices of roughly 900 Internet and technology stocks sold in IPOs. The complaint alleges that the plaintiffs paid inflated prices, generating billions of dollars in profits for the underwriters, as well as their customers. The plaintiffs are a class of tens of thousands of investors who contend that leading investment banks are responsible for losses that IPO investors and aftermarket buyers suffered when the 19902 technical “bubble” burst. The class plaintiffs contend that the actions of the investment banks violate Section 1 of the Sherman Act and related state antitrust laws. The district court dismissed the complaints, relying on two key 1975 Supreme Court precedents involving antitrust immunity, Gordon v. New York Stock Exchange and U.S. v. National Association of Securities Dealers, holding that applying the antitrust laws to this litigation would conflict with regulation of the securities offering process. This argument was offered and supported by the SEC. The 2nd Circuit, relying on the same two precedents, reversed. The appellate court held that the conduct in question was not immune from the antitrust laws because Congress did not grant immunity to one of the practices challenged � the allegedly illegal tie-in agreements. Only seven justices decided Credit Suisse. Chief Justice John Roberts removed himself from the case and did not vote when the court granted certiorari in December 2006. Justice Anthony Kennedy recused himself on March 19, days before the court heard oral argument on March 27. Justice Stephen Breyer wrote the opinion for the 7-1 majority, with Justice Clarence Thomas writing the lone dissent. Breyer distilled the issues to a succinct question, stating “[T]he question before us is whether there is a �plain repugnancy’ between these antitrust claims and the federal securities law. See Gordon v. New York Stock Exchange Inc. We conclude that there is. Consequently we must interpret the securities laws as implicitly precluding the application of the antitrust laws to the conduct in this case. See United States v. National Assn. of Securities Dealers Inc.; Silver v. New York Stock Exchange.” Relying on the three prior Supreme Court cases, which explored antitrust preclusion in the securities area, Breyer identified four elements necessary for a “clear incompatibility” finding the conduct in question must fall squarely within the area of securities regulation; there must be clear and adequate SEC authority to regulate that area; there must be active and ongoing SEC regulation; and a serious conflict between the antitrust and securities laws must exist. The fourth element was the only element at issue, with the parties agreeing on the presence of the first three factors. The court found that there was a conflict between the securities laws and the antitrust laws with respect to the conduct in question because permitting antitrust actions here, the court decided, would threaten the securities laws. The court reasoned that there is a fine line separating permissible and impermissible conduct in the securities area and securities-related harm that could be problematic if there is a lack of securities expertise applied by courts when analyzing the same conduct under antitrust standards. Without proper expertise, similar evidence could result in contradictory inferences and the risk of inconsistent court opinions, or even incorrect court opinions, is high, the court stated. Ultimately, applying the antitrust laws to such type of conduct in this complicated area, the court said, could result in prohibiting the exact type of conduct the securities laws are actually trying to encourage. The court acknowledged that this same consequence is at risk in other areas, but because of the importance of IPOs to capital markets, the outcome would be particularly likely and particularly harmful here. In addition, the court held that the need for antitrust regulation in the securities area was particularly small given the SEC’s historic active role as a regulator and their expert ability to take competition into account when regulating. The SEC has historically prohibited and prosecuted the practices at issue in Credit Suisse, but it is important to note that the Supreme Court’s decision does not rely on nor mandate that the SEC continue that course of action. Thomas filed the lone dissent stating that he believed the securities laws are not silent as to the application of the antitrust laws, “Both the Securities Act and the Securities Exchange Act contain broad saving clauses that preserve rights and remedies existing outside of the securities laws.” Thomas in his dissent concluded that “A straightforward application of the saving clauses to this case leads to the conclusion that respondents’ antitrust suits must proceed. Accordingly, we do not need to reconcile any conflict between the securities laws and the antitrust laws. I respectfully dissent.” This is the second blow the Supreme Court has delivered to the plaintiffs’ bar in as many months. First, the court raised the standard for pleading civil antitrust conspiracy claims in Bell Atlantic Corp. v. Twombly and now the court has immunized certain conduct governed by the securities laws. In Twombly, the court held that parallel conduct was not sufficient evidence for an antitrust conspiracy claim, but instead plaintiffs must allege that the companies were actually actively working together. Currently, the majority of the justices in the past two terms seem to be aiming to restrict plaintiffs’ lawsuits under the antitrust laws. The court has consistently narrowed the application of the Sherman Act, and the Robinson Patman Act, and chosen aggressive interpretations of legislative intent. This could be indicative of future antitrust decisions to come out of the Supreme Court or it could turn out to be an attempt to simply resolve conflicts in the circuits and thereby clarify the application of the antitrust laws for plaintiffs and defendants alike. Stay tuned. Carl W. Hittinger is a partner in the litigation group at DLA Piper in its Philadelphia office, where he concentrates his practice in complex commercial litigation with particular emphasis on antitrust and unfair competition matters. Hittinger is also a frequent lecturer and writer on antitrust issues and has extensive experience counseling clients on all aspects of civil and criminal antitrust law. He can be reached at 215-656-2449 or [email protected]. Lesli C. Esposito is a senior associate with DLA Piper in Philadelphia where she focuses her litigation practice on antitrust and unfair competition matters. She was formerly a senior attorney with the Federal Trade Commission’s bureau of competition.

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