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In the past decade, state antitrust enforcers have emerged as major players in shaping national antitrust policy. They now enjoy unprecedented prestige and sit with representatives of the Federal Trade Commission and the Department of Justice’s Antitrust Division to discuss antitrust policy decisions at the close of each American Bar Association Antitrust Section spring meeting. The situation has not always been so rosy for the states; their ascent has been arduous. But looking to the future, the states are likely to play a key role in shaping the antitrust agenda of the new Bush administration and beyond. Historically, antitrust enforcement has been the province of the federal government through the Antitrust Division and the FTC. States, however, are no strangers to antitrust issues. Before the enactment of the Sherman Act in 1890, most antitrust enforcement was done at the state level. And after the Sherman Act was adopted, many states adopted “little Sherman Acts.” The bulk of enforcement activity, nevertheless, proceeded at the federal level for many years. GROWING INFLUENCE The role of the states in antitrust enforcement began to change in the mid-1970s for several reasons. First, Congress enacted the Hart-Scott-Rodino Antitrust Improvements Act of 1976. That law authorized state attorneys general to bring price-fixing claims on behalf of consumers. It aimed to reduce the number of civil antitrust actions filed by private citizens and to streamline class action damage recoveries in civil antitrust suits. Second, in the same year, Congress passed the Crime Control Act of 1976, which provided funding for state antitrust enforcement programs, thus encouraging states to upgrade antitrust enforcement programs. Third, at about the same time, state attorneys general — among them future Sens. Jeff Bingaman, D-N.M., John Danforth, R-Mo., Slade Gordon, R-Wash., and Warren Rudman, R-N.H. — began pursuing active antitrust enforcement agendas. They found that antitrust activism was widely viewed as protecting consumers, which translated into votes at election time. Also, the Reagan administration in 1981 brought a change in antitrust enforcement philosophy and resource allocation at the federal level. The Antitrust Division’s budget was slashed and its enforcement personnel reduced. It moved away from resource-intensive, industry-wide price-fixing investigations that had characterized enforcement efforts in the 1960s and 1970s to criminal prosecutions in narrowly defined areas, primarily bid-rigging in government procurement cases. In addition, the Justice Department in 1982 promulgated Merger Guidelines, which were much more hospitable to merger activity than the harsh Supreme Court case law of the 1960s and guidelines implemented by the Johnson administration in 1968 (which essentially followed the Court’s case law). Moreover, some politicians called for relaxing federal antitrust enforcement, on the theory that such laws made American firms less competitive in the world arena. Then-Secretary of Commerce Malcolm Baldrige urged repealing sections of the Clayton Act governing mergers. Congress enacted legislation to ease antitrust scrutiny of joint research ventures and eliminated the treble damages remedy in antitrust actions against municipalities. In the twinkling of an eye, civil antitrust enforcement at the federal level ground to a halt. As a direct result, private civil actions for treble damages, historically dependent on government efforts to detect and prosecute antitrust violations, fell dramatically. This created an enforcement void, and the states jumped into it. But like uninvited guests, they were not always welcome at the table set by the federal government. Networking through the National Association of Attorneys General, states began to undertake industry-wide price-fixing investigations and other enforcement initiatives. Reacting to the perceived lack of federal merger enforcement under the 1982 Merger Guidelines, states (again through the NAAG) issued their own guidelines that were more restrictive than the federal guidelines. Although the states did not bring enforcement actions tied specifically to state guidelines, these conflicting statements of antitrust policy created significant friction with federal authorities. But the federal and state enforcers eventually came to terms with each other. During the first Bush and the Clinton administrations, state and federal regulators developed a functional, if at times uneasy, working relationship. That state-federal alliance came to full fruition in the Microsoft case, which featured unprecedented cooperation between officials from the different governments when 19 states jointly prosecuted the case with the federal government. HERE TO STAY The power that the state antitrust enforcers have built up over the past two decades is unlikely to go away, for a few reasons. State officials have learned that active antitrust enforcement makes political and economic sense. Bringing suit benefits consumers, and consumers vote for those who have worked on their behalf. A strong record on antitrust enforcement is a valuable asset for a state attorney general seeking re-election or political advancement. Also, state enforcers, mirroring developments in the private sector, are likely to take advantage of the increasing number of state statutes that permit indirect purchasers, such as consumers, to sue price-fixers in state courts. (The Supreme Court barred such prosecutions under the federal enforcement statutes.) And some retrenchment in antitrust enforcement in the Bush administration is likely. New FTC Chairman Timothy Muris has expressed concern that his predecessor at the FTC and the courts has not given sufficient weight to the efficiency-enhancing effect of some mergers. Put another way, Muris might have been reluctant to contest some mergers — for example, the recent attempted merger by Heinz and Beech-Nut in the baby food industry, challenged by the FTC and struck down by the courts. Any retrenchment would create a new enforcement gap that states would be likely to fill — though that gap is apt to be far smaller than the one that emerged in the Reagan era. SHARING POWER So state enforcers are here to stay as players on the antitrust field. As we look into the future, it is imperative that state and federal entities work in tandem to maximize consumer welfare. There are several specific steps they can take together to further the common good. Local matters. The states should continue to investigate and prosecute local antitrust violations, including bid rigging and price fixing in government procurement. Ordinarily, these cases will be smaller than those that appear on the radar screens of federal enforcers. If it appears that the misconduct has a significant interstate element, the matter should be referred to federal authorities for prosecution. Transferring federal prosecutions. Where feasible, federal actions involving bid rigging or price fixing in state procurements should be referred to the states. In so doing, federal enforcers will free up personnel and money to devote to resource-intensive federal actions of national or international scope. Cooperation in merger investigations. The federal government should continue taking the lead role in merger enforcement. Only those states where the merger will have a significant economic impact should investigate the transaction. In these cases, federal enforcers should cooperate with the states and share discovery materials and other information. The states, under those circumstances, should agree not to work at cross- purposes with the federal government by invoking pre-complaint demands or to enjoin the mergers. Ordinarily, state and federal enforcers should be able to agree on whether to challenge a given merger. When they cannot, and state authorities believe that a challenge is appropriate, state regulators may contest the merger. But cases where state interests have been so significant as to trump a federal decision to permit the merger have been, and will continue to be, the exception to the rule. Supporting federal prosecutions. Rather than conduct independent investigations, states may choose to support federal actions by providing personnel and access to relevant information where that information is available. States may also choose to support federal actions by instituting their own related actions. Although some critics view such state actions as free riding, others point out that such actions serve to increase deterrence and assure that companies will surrender ill-gotten gains. Amicus briefs. States may file amicus briefs in appropriate cases to make known their views on particular issues. EMPHASIZING COOPERATION Even with the best efforts at cooperation between the federal and state governments, there will be bumps in the road ahead. State regulators continue to seek a greater role in policy decisions, but federal enforcers still see themselves as the senior partners in any cooperative investigative venture. Federal enforcers also realize that if they fail to act in a particular situation, state officials will be there to fill any void. At the same time, state enforcers must be realistic in assessing their limitations. State antitrust enforcement is likely to remain underfinanced, understaffed, underutilized, and underappreciated. While the federal government has no monopoly on antitrust talent, it does have superior resources and far greater depth than state operations. But there is a clearly defined role for states in antitrust enforcement. And by rising above disputes over who calls the shots, all antitrust enforcers will be better able to achieve their ultimate goal of preserving free markets for the benefit of consumers. Edward D. Cavanagh is a professor at St. John’s University School of Law and of counsel at Morgan, Lewis & Bockius in New York City.

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