At first glance, the Supreme Court’s decision in Credit Suisse Securities (USA) LLC v. Billing seems to be about Wall Street. But some of the biggest effects of the decision are actually on antitrust law.
In Credit Suisse, the Supreme Court held that the securities laws precluded application of the antitrust laws to certain collaborative activities engaged in by syndicates of underwriters (investment banks) when executing an initial public offering.
The June 18 decision is significant in several respects. First, it expands the scope of antitrust immunity in the securities context. Second, it confirms that the practical costs of antitrust litigation cannot simply be ignored in evaluating an antitrust claim at the pleadings stage. Finally, it continues the Court’s trend of narrowing the scope of the antitrust laws and otherwise significantly raising the bar that antitrust plaintiffs must clear to get into court.
LADDERING AND TYING
The claims in Credit Suisse arose during the stock market bubble of the 1990s, when a flood of technology firms launched IPOs.
A putative class of investors filed a lawsuit claiming that the investment bank syndicates involved in those IPOs had violated the antitrust laws by conspiring not to sell shares of new IPOs unless the buyers of those shares committed (1) to buy additional shares later at escalating prices (“laddering”); (2) to pay excessively high commissions; or (3) to purchase other, less desirable securities from the same banks (“tying”). Plaintiffs claimed that because of the investment banks’ agreements to engage in these practices, the share prices of the IPO securities were artificially inflated, violating, among other things, the commercial bribery provisions of the Robinson-Patman Act. The defendants countered that the securities laws governing IPOs precluded any application of the antitrust laws.
In a 7-1 decision written by Justice Stephen Breyer, the Supreme Court reversed the U.S. Court of Appeals for the 2nd Circuit, which had ruled that the antitrust claims were not precluded. The Supreme Court held that in this context, securities law and antitrust law were “clearly incompatible.”
The Court identified the existence of four factors critical to that determination: (1) the existence of regulatory authority under the securities law to supervise the activities in question; (2) evidence that the responsible regulatory entities exercise that authority; (3) the fact that the conduct at issue is “central to the functioning of well-regulated capital markets”; and (4) a risk that securities and antitrust law would, if both applied, produce conflicting guidance, requirements, duties, privileges, or standards of conduct.
Justice John Paul Stevens concurred only in the judgment, refusing to sign on to the Court’s antitrust immunity analysis and concluding only that the conduct in question was not an antitrust violation. Justice Clarence Thomas dissented on the grounds that savings clauses in the securities statutes preserved the plaintiffs’ antitrust claims.
Credit Suisse represents a broadening of antitrust immunity in the securities context. In previous decisions — such as Silver v. New York Stock Exchange (1963) and Gordon v. New York Stock Exchange (1975) — the Supreme Court had defined the scope of immunity rather narrowly.
In Silver, for example, the Court held that securities and antitrust law should be harmonized as much as possible, rather than “holding one completely ousted” — and that repeal of the antitrust laws should be implied “only to the minimum extent necessary.”
In Gordon, the Court said implied repeal would be found only where there was a “plain repugnancy” between antitrust and securities law. In that case, the plain repugnancy arose because the Securities and Exchange Commission’s attitude toward the practice in question (fixed stockbroker commissions) had recently shifted (from permitting fixed commissions to disapproving of them). This regulatory change, as well as the fact that the SEC had the power to reintroduce fixed commissions in the future, meant that there was a possibility of brokers facing conflicting standards.
In Credit Suisse, however, the SEC had always prohibited the alleged conduct (laddering and tying). Thus, it was virtually certain that both antitrust and securities law would prohibit these practices, making the risk of conflict practically nonexistent.
The Court nevertheless found conflict and identified it in a portion of its opinion notable for its distrust of the ability of federal courts to apply antitrust law properly in this context.
The Court explained that only a “fine, complex, detailed line” separated this prohibited activity from collaborative conduct that the SEC either permits or actively encourages. Securities expertise is required to draw that line, and there was an “unusually high risk” that antitrust judges and juries, lacking that expertise, would “evaluate similar factual circumstances differently,” leading to “unusually serious mistakes.” Such mistakes would likely chill the activities of underwriting syndicates, who play a central role in the functioning of capital markets by supporting the IPO process.
Rather than following the admonition in Silver to minimize the scope of the implied repeal of antitrust law, the Court simply conferred broad-scale immunity — even in the absence of an existing or likely conflict between securities and antitrust law.
In this light, the Court’s decision amounts to a troubling no-confidence vote in the lower federal courts, at least for complex antitrust cases. Although the result that the Court reached in Credit Suisse was undoubtedly correct, there are certainly other contexts where antitrust intersects with a complicated body of law in which many federal courts lack expertise, such as intellectual property. (Most federal judges are not patent lawyers.) The enforcement of patents also plays a “central” role in the American economy by fostering the development of new products and services. If the risk of “mistakes” with securities is high, it is surely equally as high with intellectual property.
To be sure, the joint conduct present in the securities context is much less common in the intellectual property context. And the Federal Circuit, which hears appeals in all patent cases, does possess the requisite expertise that most lower federal courts lack.
Nevertheless, perhaps Credit Suisse will re-energize calls for the creation of more specialized appellate courts — similar to the Federal Circuit — that would have the experience necessary for more detailed line-drawing.
THE COSTS OF ANTITRUST
Credit Suisse also marks the second time this term (the first being in Bell Atlantic Corp. v. Twombly) that the Court has explicitly taken the “costs” of antitrust litigation into significant account in preventing an antitrust case from proceeding past the pleadings stage.
In Twombly, the Court clarified the pleading standard for Sherman Act Section 1 cases, significantly redefining an area of law that had long been thought settled. In reaching its conclusion, the Court noted both that antitrust discovery can be massive and expensive and that federal courts had done a poor job of curtailing abuses. The Court determined that it made little sense to allow plaintiffs who have filed conclusory allegations of conspiracy — without any facts plausibly supporting the conclusion — to survive a Rule 12(b)(6) challenge and impose such costs on defendants and the court system.
The Court in Credit Suisse acknowledged the problems of a related, but slightly different cost — the practical cost of mistaken results — that would chill permissible and economically significant activity. Taken together, these decisions signal that the burdens and expenses of antitrust litigation support subjecting antitrust complaints to rigorous scrutiny at the pleadings stage.
This aspect of Credit Suisse is brought into specific relief by Stevens’ concurring opinion, in which he specifically connected the analysis in the majority opinion to Twombly. (Breyer’s majority opinion makes no reference to Twombly.) Stevens rejected any suggestion — which he sees (correctly) in both cases — that the “burdens of antitrust litigation” or the risk of mistakes is relevant in deciding a pure question of law, such as the ones in Credit Suisse and Twombly. Significantly, however, no other justice joined Stevens — not even Justice Ruth Bader Ginsburg, who (like Stevens) dissented in Twombly.
ANTITRUST ON THE RUN?
Finally, Credit Suisse is yet another in a long line of recent decisions in which the Court has significantly narrowed the scope of antitrust law or otherwise raised the bar for plaintiffs seeking to get their cases into court. In addition to Credit Suisse and Twombly, the Court in Leegin Creative Leather Products Inc. v. PSKS Inc. overturned its century-old decision in Dr. Miles Medical Co. v. John D. Park & Sons Co. (1912) and held that resale price maintenance is no longer per se illegal and should be judged under the rule of reason.
Moreover, in the past four years, the Court also has rejected per se treatment for the internal pricing decisions of a legitimate joint venture in Texaco Inc. v. Dagher (2006); curtailed the scope of the Robinson-Patman Act in Volvo Trucks North America Inc. v. Reeder-Simco GMC Inc. (2006); reversed a long-standing rule presuming market power in patent-tying cases in Illinois Tool Works Inc. v. Independent Ink Inc. (2006); limited the extraterritorial scope of the Sherman Act in F. Hoffman-LaRoche Ltd. v. Empagran S.A. (2004); and held that an alleged breach of a statutory duty to deal with competitors does not state a claim under Section 2 of the Sherman Act in Verizon Communications Inc. v. Law Offices of Curtis V. Trinko (2004).
It is clear that the trend in recent years (and some would argue for far longer) is to roll back — or at least curb — the scope of antitrust law for a wide variety of claims and industries. Certainly, the Court has been extremely tough on creative efforts to expand the reach of antitrust. Although the lure of treble damages and attorney fees is still strong, plaintiffs lawyers now face significantly higher hurdles in attempting to plead and prosecute antitrust claims.
Brian A. Howie is a partner in the D.C. office of Howrey, where he works in the firm’s antitrust and global litigation practices.
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