National Association of Attorneys General

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Recent Competition Advocacy by State Attorneys General

Emily Myers, Antitrust and Special Projects Counsel

As enforcers of state and federal antitrust laws and as chief legal officers of their jurisdictions, Attorneys General have a strong interest in protecting and preserving competition. Competition advocacy is an important part of their antitrust authority. Multistate groups of Attorneys General have filed briefs in several recent proceedings.

Nine West FTC Petition — Twenty-seven states1 filed a brief opposing a petition filed with the Federal Trade Commission by Nine West Footwear Group, a manufacturer of women’s shoes. Nine West’s petition sought an end to the injunctive relief provisions of a March 2000 settlement between Nine West and the FTC. The states urged the Commission to deny Nine West’s petition.

The 2000 settlement resolved FTC claims that Nine West had engaged in retail price maintenance with certain dealers. The FTC settlement was entered at the same time as a settlement between Nine West and the Attorneys General of all 56 states and jurisdictions. The states obtained injunctive relief, the provisions of which have now expired, and $34 million which was distributed cy pres to women's health, educational, vocational and safety programs.

Nine West filed a petition with the FTC seeking to modify its settlement with the FTC by eliminating all remaining injunctive provisions in the settlement. Nine West argued that the Supreme Court’s decision in Leegin v. PSKS., Inc., ___ U.S. ___, 127 S. Ct. 1205 (2007), would allow Nine West to "take actions to maintain retail prices." According to the petition, Nine West does not want to be prevented from "fixing, controlling or maintaining the retail price of women's footwear, as well as coercing or pressuring any dealer to maintain, adopt or adhere to any resale price."

The states argued that the Supreme Court’s Leegin decision does not make resale price maintenance per se legal, but rather, subjects it to “rule of reason” analysis. In fact, the Court suggested that lower courts should develop “fair and efficient” tests to determine which restraints are anticompetitive. The states suggested that the appropriate “fair and efficient” test was articulated by the Commission, and affirmed by the D.C. Circuit, in In re PolyGram Holding, Inc., 2003 WL 21770765 (F .T .C .), aff'd, 416 F .3d 29 (D.C. Cir. 2005). Under the Polygram test, a court asks whether the harm to consumers is obvious, in which case the restraint is deemed "inherently suspect." If so, then the defendant has the burden of providing a plausible and cognizable justification.

In this case, the determination by the states, in connection with their 2000 settlement, that consumers were overcharged by approximately $45 million, makes the restraint “inherently suspect.” The states argued that Nine West should therefore be required to prove that its vertical price fixing caused retailers to provide actual enhanced value or services; that the enhanced value or services increased demand for its shoes; and that the increased demand from that value or those services was greater than the decreased demand caused by the higher price that consumers paid. Even if Nine West had made such a showing, the Commission should still consider whether a less restrictive alternative could accomplish the same ends.

The Commission will consider Nine West’s petition in the next several months.

Cipro Federal Circuit Appeal — Another multistate brief was filed by 38 states2 in support of appellants in In re Ciprofloxacin Hydrochloride Antitrust Litigation, an appeal to the Federal Circuit. The case involved allegations that defendants sought to exclude competition in the market for ciprofloxacin (an antibiotic) by extensive material misrepresentations to the Patent Office and use of the fraudulently obtained patent to bring baseless litigation. The district court dismissed Count V of the complaint, which alleged violations of state antitrust and consumer protection laws, on the grounds that federal patent law preempts state-law claims resting entirely on patent law and alleging conduct before the Patent Office. The lower court also suggested that the same claims should be dismissed for lack of standing, apparently applying federal law to determine standing. Each of these rulings would hurt state Attorneys General efforts to protect competition and recover damages for consumers and for the state.

The states’ brief argued that the claims were state antitrust law claims, based upon the Supreme Court’s decision in Walker Process Equip. Co. v. Food Mach. & Chem. Corp., 382 U.S. 172 (1965). Walker Process claims, like those in the complaint, are predicated on allegations of fraud on the patent office and sham litigation, but they do not challenge the patent itself. Instead, the plaintiff “seeks damages and equitable relief for the resulting harm to and overcharges in the ciprofloxacin market. The underlying fraud on the Patent Office and the sham litigation are merely vehicles by which that market was wrongfully monopolized.”

Turning to preemption, the states noted that there is no explicit preemption of state antitrust law by federal patent law, nor is there “field” preemption, since state antitrust law and federal patent law have preexisted from the inception of state antitrust laws. There is also no “conflict” preemption, which occurs when a party is unable to comply with both federal and state law requirements. In this case, federal patent law prohibits patent fraud, and state antitrust law prohibits anticompetitive monopolization of markets though patent fraud.

The states also argued that the district court had improperly limited remedies granted to state citizens under state law. “Preempting state antitrust laws that grant consumers a right to sue parties who perpetrate patent fraud and engage in sham litigation, deprives consumers injured as a result of these antitrust violations of remedies to recover overcharges expressly given them by their states.”

In dicta, the district court questioned “whether consumers may bring state-law monopolization claims against a monopolist that enforced a fraudulently-obtained patent to preserve its monopoly.” The states’ brief argued that the court was wrong on two counts: state law, not federal law, governs standing to sue on state antitrust law claims, and federal antitrust law, if correctly applied, would permit consumer standing in this case.

1New York, Alaska, Arkansas, Connecticut, Delaware, Hawaii, Illinois, Iowa, Kansas, Maine, Maryland, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Vermont, Washington and West Virginia.

2Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Iowa, Kansas, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Mexico, New York, North Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Utah, Vermont, Washington, West Virginia, Wisconsin and Wyoming

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