Antitrust Process and Vertical Deference: Judicial Review of State Regulatory Inaction

Courts struggle with the tension between national competition laws, on the one hand, and state and local regulation, on the other – especially as traditional governmental functions are privatized and as economic regulation advances beyond its traditional role to address market monitoring. This Article defends a process-based account of the state action antitrust exception against alternative interpretations, such as the substantive efficiency preemption approach recently advanced by Richard Squire, and elaborates on what such a process-based account would entail for courts addressing the role of state economic regulation as a defense in antitrust cases. It recasts the debate as focused around delegation issues and judicial deference to regulation – traditionally issues of administrative law. State action antitrust exception issues frequently are invoked where state officials fail to act or only act partially to regulate, as is increasingly common where states privatize governmental functions or attempt to deregulate, or implement competition policies of their own. As I shall argue, in such contexts a delegation model, which focuses on the conditions under which state legislative bodies have made delegations, whether agency regulators have standards, and the reasons provided by state and local officials for regulatory inaction, provides a more powerful and principled approach for evaluating the interaction between regulation and antitrust litigation than alternative approaches. A process-based account of the state action exception recognizes federalism and efficiency as important values, but changes the primary emphasis of the judicial inquiry. Federalism values and economic efficiency may well be advanced by applications of the state action exception, but that does not require courts to ground their decisions in individual cases entirely on federal preemption legal analysis or on an assessment of the substantive efficiency of state or local regulation. On a process-based account, federalism goals could be advanced by state and local political processes as much as by federal courts attempting to identify and apply the substantive values in broad federal statutes such as the Sherman Act. Moreover, a process-based account of antitrust defenses, such as the state action exception, recognizes the possibility that economic efficiency can inform the application of the substantive standards of antitrust law without requiring economic efficiency to be the primary focus in evaluating every governmental program, particularly at the state and local level. By discouraging courts from directly addressing economic efficiency concerns before addressing the merits of an antitrust violation, such an approach promotes judicial economy and, if properly cabined, can also have a positive effect on the behavior of private groups in the lawmaking process. Even within alternative accounts that give priority to federalism or economic efficiency, the delegation approach should be used to inform the evidentiary assessment of procedure, serving as predicate any judicial decision to extend a state action antitrust exception. The Article proceeds in four parts. Part I discusses the problems with current formulations and applications of the antitrust state action exception, which no one finds satisfactory. As I argue, traditional approaches, such as a federal preemption-oriented understanding of state action doctrine, have serious limitations given a state and local regulatory environment that is increasingly characterized by regulatory transition and inaction. Part II introduces Chevron, the predominant paradigm for judicial review of regulation in administrative law, highlighting its delegation structure and aspects of it that are useful to understanding the problems state regulation present for antitrust law. Part III explains limits to the analogy between Chevron step one and the clear articulation requirement for antitrust state action. Part IV draws an analogy to step two of Chevron and analyzes the implications of recasting the state action antitrust exception to focus on agency reasons, not power or history. The Article concludes by addressing the kinds of reasons that should suffice for purposes of addressing active regulatory supervision at the state and local level as a predicate to extending an antitrust state action exception