* Member of New York Bar.

** Professor and Director, Institute for Consumer Antitrust Studies, Loyola University Chicago School of

Law; Of Counsel, Kaye Scholer LLP.

1 If there is a retrenchment in federal antitrust enforcement over the next several years, then the "cluster

bomb effect" -- that is, in effect, "messy" antitrust federalism -- will be less pronounced, with the federal

authorities yielding through inaction to increased state and private enforcement. See discussion of "positive

antitrust federalism" in note 2, below.

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CONTEMPORARY ANTITRUST FEDERALISM:

CLUSTER BOMBS OR ROUGH JUSTICE?

By: Richard Wolframm

Spencer Weber Wallerr*

The period spanning 1992-2000 was a time of significant federal and state antitrust

activity. A major contribution to this activity was the proliferation of high-profile antitrust cases

in which a single nexus of facts and conduct spawns multiple actions at both the state and federal

levels. Chief Judge Richard Posner of the Seventh Circuit Court of Appeals has disapprovingly

called this "the cluster bomb effect." This development has dramatically increased potential

antitrust liability for defendants and it raises complex questions about the interrelationship of

federal, state and private enforcement actions and about the line between "duplicative" and non-

duplicative litigation.1

This phenomenon -- the subject of this chapter -- is one manifestation of antitrust

federalism. Antitrust federalism is the judicial recognition of multiple sources of enforcement

authority: the federal antitrust agencies (the Department of Justice and the Federal Trade

Commission), the states and private litigants. Each may sue, under federal and/or state law, and,

increasingly -- or at least over the past eight years -- they have been suing over the same facts

2 Another facet of antitrust federalism, not discussed in depth herein, is the ability of one sovereign to act

when the other has chosen not to act. This has been called "positive antitrust federalism." See Jean

Wegman Burns, Embracing Both Faces of Antitrust Federalism: Parker and ARC America Corp., 68

Antitrust L.J. 29 (2000); see also Spencer W eber Waller, Bringing Globalism Home: Lessons from

Antitrust and Beyond, 32 Loy. U. Chi. L. J. 113, 134-136 (2000). Hence states can challenge mergers

which have received the blessing of the federal government and states may permit indirect purchasers to sue

under state antitrust law even though federal antitrust case law prohibits such suits. See California v. ARC

America, 495 U.S. 271 (1990); see also Michael S. Jacobs, Lessons from the Pharmaceutical Antitrust

Litigation: Ind irect Purchasers, Antitrust Standing, and Antitrust Federalism, 42 St. Louis L.J. 59 (1998).

During the Reagan administration, state enforcement was credited with keeping alive the enforcement of

resale price maintenance and merger cases at a time when the federal government brought few such cases.

If the Bush administration retrenches on antitrust enforcement, "positive antitrust federalism" will once

again be ascendant, with the states again increasing their antitrust enforcement activity in order to take up

slack at the federal enforcement level.

Yet another facet of antitrust federalism, also not discussed herein, is the state action doctrine, in which a

state (or municipality acting pursuant to state delegation) can substitute regulation for competition if it is

sufficiently clear in its legislative or administrative mandate. In addition, the state can further insulate

private parties from antitrust liability if it supervises the anticompetitive conduct it has mandated . See

Burns, supra , characterizing this form of antitrust federalism as "negative antitrust federalism."

3 Under Sect. 4(c) of the Clayton Act, a state can sue for treble damages in its parens patriae capacity on

behalf of its natural person residents. Section 4(c) states in part: "Any attorney general of a State may

bring a civil action in the name of such state, as parens patriae on behalf of natural persons residing in such

State . . .for injury sustained by such natural persons to their property by reason of any violation of the

Sherman Act. The court shall exclude from the amount of monetary relief awarded in such action any

amount of monetary relief (A) which duplicates amounts which have been awarded for the same injury, or

(B) which is properly allocable to (i) natural persons who have excluded their claims pursuant to subsection

(b)(2) of this section, and (ii) any business entity."

NY B 1189857 .12

and conduct. Rules of order have to be devised; without a hierarchy of rights, it may be that no

one gets anything, or the undeserving get something and the deserving get nothing.2

The potential enforcers lining up at -- or pushing their way to -- the "bar" in any given

case are either the DOJ or the FTC, a state or states suing as both direct purchasers and parens

patriae3 on behalf of their natural citizens, and both direct and indirect purchasers bringing their

own private treble damage suits under federal and state law. Some or all of these parties may

sue in any given action. The potential conflicts among plaintiffs and the opportunities for

multiple recovery have become an important feature of a number of recent cases. Examples

include the monopolization suit against Microsoft by the DOJ and 19 state attorneys general,

followed by multiple private treble damage suits under both state and federal law; the Mylan suit

4 Richard Posner, "Antitrust in the New Economy," Remarks at Sept. 14, 2000 AU/ABA conference,

reprinted in 68 Antitrust L.J. 925 (2201).

5 Id.

6 See James May, Antitrust Practice and Procedure in the Formative Era: The Constitutional and

Conceptual Reach of State Antitrust Law, 1880-1918 , 135 U. Pa. L. Rev. 495 (1987).

NY B 1189857 .13

brought by the FTC and various state enforcers, followed by private litigation; the Nine West

resale price maintenance cases brought by the FTC, the states and private litigants; the Vitamins

Inc. price-fixing case brought by the DOJ, the states and various private parties; and numerous

other pending and recently resolved cases.

The multiplicity of actors, with their differing motivations and incentives, has become a

thorny litigation issue and a controversial policy issue. Judge Posner, perhaps as a result of his

participation as a mediator in the Microsoft litigation, has decried the "cluster bomb effect" of

multiple enforcement as detrimental to antitrust enforcement and criticized the states as

inefficient enforcers and free riders on the efforts of the federal agencies.4 In Judge Posner's

view, the result is too many enforcers and the "effect is to lengthen out the original lawsuit,

complicate settlement, magnify and protract the uncertainty engendered by the litigation, and

increase litigation costs."5

The states and private parties suing under state law understandably view things quite

differently. Historically, state enforcement substantially preceded the enactment of the Sherman

Act itself.6 The states' ability to sue on their own behalf and on behalf of their citizens is

enshrined in federal legislation. Their ability to enact their own state antitrust statutes and

empower their officials and private parties to sue under them flows from their sovereign status

under the Constitution. The states factually dispute, and resent, the free-rider label, pointing to

important antitrust litigation where either the states acted before the federal government or where

7 One prominent example is Hartford F ire Ins. Co. v. California, 509 U.S. 764 (1993) (antitrust suit by 19

states against insurance companies, following decision by DOJ not to accept states' invitation to investigate

the industry). See also Caro le R. Dons, Another View on State Antitrust Enforcement -- A Reply to Judge

Posner, 69 Antitrust L.J. 345 (2001).

8 Vermont Attorney General William H. Sorrell, a propos of the settlement of the Vitamins Inc. state actions,

put the point as follows: "This extraordinary result was achieved largely because the state attorneys general

effectively organized and intervened in this matter on a multistate basis, thereby avoiding a protracted state-

by-state litigation process." (http://www.state.vt.us/aatg/press10102000 .htm.) See also the National

Association of Attorneys General at http://www.naag.org/about/vision.cfm (describing as one of its goals

the promotion of cooperation and coordination on interstate legal matters to foster a more responsive and

efficient legal system for state citizens).

NY B 1189857 .14

the federal government took no action at all.7 They also point to the efficiency enhancing

aspects of pooling resources and of collective investigation and prosecution of nationwide

cases.8 Finally, the states have always argued, and it has long been considered one of the

mainstays of antitrust federalism, that the state attorneys general are more sensitively attuned to

the issues affecting the citizens of their states than the federal antitrust agencies can be. In some

respects they can therefore better represent the public interest, even at the risk of coming under

the sway of interest groups representing competitors of a potential antitru