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Once again, the 3rd U.S. Circuit Court of Appeals has rejected an antitrust challenge to the $200 billion settlement between the top four tobacco companies and 46 states, finding that while the mega-deal did result in stifled competition, the state officials who agreed to it are immune from suit. The settlement survived its first challenge in June 2001 when the 3rd Circuit rejected a suit brought by cigarette wholesalers who complained that the settlement had created an “output cartel” that protects the major tobacco companies from future competition by financially rewarding smaller tobacco companies for remaining small and punishing them if they increased their market share. In A.D. Bedell Wholesale Co. Inc. v. Philip Morris Inc., the court held that since the settlement was struck with the government — the 46 states — the tobacco companies were immune under the Noerr-Pennington doctrine from being sued for antitrust violations. Now, in Mariana v. Fisher, a challenge brought by a group of Pennsylvania smokers, the court has ruled that the Noerr-Pennington doctrine also protects the Pennsylvania officials who agreed to and are enforcing the settlement. Once again, the court held that the plaintiffs had shown that the settlement resulted in a true antitrust violation, but found that since the government was involved, it was immune from suit. In the settlement, the four major tobacco companies — Philip Morris, R.J. Reynolds, Brown & Williamson, and Lorillard Tobacco — agreed to pay billions of dollars and to restrict their marketing of cigarettes. In return, the settling states agreed to provisions that were designed to ensure that the four major companies would not lose any of their combined 98 percent market share. The four companies had feared that cigarette manufacturers that had been left out of the settlement would be able to expand their market share or enter the market by offering lower prices. To prevent that, the settlement included a “Renegade Clause” that allowed smaller tobacco companies to join the settlement and pay nothing if they promised not to increase their market share above 125 percent of their 1997 market share. Any smaller company that opted not to sign on to the settlement faced the prospect of personal injury suits and would be required to pay into a state fund to cover any judgments against it. In the court challenges to the settlement, the wholesalers, and now the Pennsylvania smokers, argued that the settlement enabled the four major companies to cling to their 98 percent market share, thereby creating an unregulated cartel. As a result, they argued, the big companies have been able to raise prices without fear of significant competition and without any monitoring, regulation, or active supervision by the states. Since the settlement, the suit said, the big companies have raised wholesale prices of cigarettes by nearly 60 percent while losing less than 5 percent of their market share. In Bedell, the 3rd Circuit agreed that the plaintiffs had identified a true antitrust violation. Writing for the court, Judge Anthony J. Scirica said: “An agreement which has the purpose and effect of reducing output is illegal under Section 1 of the Sherman Act.” But Scirica found that the challenge nonetheless failed because the tobacco companies were protected by the Noerr-Pennington doctrine. Generally, Noerr-Pennington protects anyone who petitions the government for redress from later being sued. But until Bedell, the courts had never extended the doctrine to protect those who settle lawsuits with states. Scirica said he saw “no reason to distinguish between settlement agreements and other aspects of litigation between private actors and the government which give rise to antitrust immunity.” The rationale for the doctrine applies, Scirica found, because “freedom from the threat of antitrust liability should apply to settlement agreements as it does to other more traditional petitioning activities.” Now, in Mariana v. Fisher, the 3rd Circuit has ruled that Noerr-Pennington immunity also applies to the Pennsylvania officials who agreed to the settlement because they were petitioning the courts. “Although Noerr-Pennington immunity typically applies to private, not public, actors, this would not be the first time an appellate court has applied such immunity to public actors,” Judge Dolores K. Sloviter wrote, noting that both the 2nd and 9th Circuits had extended Noerr-Pennington immunity to government actors. Sloviter found that U.S. District Judge Sylvia H. Rambo of the Middle District of Pennsylvania was correct in holding that Attorney General Mike Fisher was entitled to immunity because he was petitioning the courts “to recover damages which the Commonwealth and its citizens have sustained as a result of the unlawful and concerted actions of the [tobacco companies].” Noerr-Pennington should not be limited to private actors, Sloviter found, because “governmental petitioning is as crucial to the modern democracy as is that of private parties.” As a result, Sloviter said she agreed with Rambo that “by instituting a lawsuit against the tobacco companies on behalf of the commonwealth and lobbying the Legislature to pass [enabling statutes], defendants engaged in petitioning activities that qualify for Noerr-Pennington immunity.” Sloviter was joined by 3rd Circuit Judge Richard L. Nygaard and visiting 9th Circuit Senior Judge Arthur L. Alarcon.

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