The state action antitrust exemption, also known as the state action immunity doctrine, is used by antitrust defendants to shield themselves against antitrust liability in instances where their anticompetitive conduct, if not under the aegis of state policy, would have been deemed a violation of federal antitrust law. Under the Midcal test, a court may grant state action immunity to a defendant if it is proven that the alleged anticompetitive conduct is pursuant to a clearly-articulated state policy and has been actively supervised by the state.
This paper evaluates the role, function, and definition of the state action exemption in the context of transforming regulated energy markets into competitive ones. In examining the manner in which lower courts have applied the state action antitrust exemption, this paper concludes that a broad application of the state action would hinder state efforts to open up the electrical markets for competing new entrants. The challenge for policymakers in establishing pro-competition policies is in implementing them within old regulatory structures originally intended to delegate authority to regulatory entities such as utilities which have traditionally dominated the electrical market. In effect, broad application of state action would interfere with any competitive efforts because it would continue to preserve old regulatory structures and protect traditionally dominant suppliers in the market.
Careful analysis of major state action cases helps illuminate the problem and reveals a window into the possible solution. In applying the Midcal test, courts have used the foreseeability standard first established in the landmark Supreme Court case, Town of Hallie v. City of Eau Claire, inconsistently. This paper suggests that this Hallian foreseeability standard, if tied to the clearly-articulated state policy prong of the Midcal test, could help courts narrow the application state action.
Ultimately, state action represents a federalism issue and it raises jurisdictional paradoxes. On the one hand, it stands for a state's right to regulate domestic public policy; on the other, it exempts a defendant from federal antitrust liability if the Midcal test is satisfied. Finally, delegated authority to regulatory agencies allows for another means of jurisdictional scrutiny - that of the declaratory rulings from the state commissions.
