Bar News - January 4, 2008
The Lazarus Bill: the NH Legislature Breathes Life into NH’s State Antitrust Law
By: Richard B. McNamara
In 2007, following much hard work by Senator and New Hampshire Bar member David Gottesman and Attorney General Kelly Ayotte, the Legislature enacted SB 54, effective Jan 1, 2008, which revitalizes the NH Antitrust Statute, RSA 356, which had become a dead letter. In fact, most New Hampshire lawyers are probably unaware that a state antitrust statute even exists. But the statute has an interesting pedigree, and its development is a reflection of the economic history of our country and state over the last 100 years.
I. Background of the Antitrust Law
In the latter part of the 19th Century, concerns about the oil cartel created by John D. Rockefeller led to the passage of state antitrust laws in several states and ultimately the Sherman Act itself in 1890. So strong was this concern in New Hampshire that in 1903, the New Hampshire Constitution was amended to provide that:
"Free and fair competition in the trades and industry is an inherent and essential right of the people and should be protected against all monopolies and conspiracies which tend to hinder or destroy it. The size and functions of all corporations should be so limited and regulated as to prohibit fictitious capitalization, and provision should be made for the supervision and government thereof. Therefore, all power possessed by the State is hereby granted to the General Court to enact laws to prevent the operations within the state of all persons and associations, and all trusts and corporations, foreign or domestic, and the officers thereof, who endeavor to raise the price of any article of commerce or to destroy free and fair competition in the trades and industries through combination, conspiracy, monopoly or any other unfair means; to control and regulate the acts of all such persons, associations, corporations, trusts and officials doing business within the State; to prevent fictitious capitalization; and to authorize civil and criminal proceedings in respect to all the wrongs herein declared against." N.H. Const. Part II, art. 83.
In keeping with this constitutional mandate, in 1917 the New Hampshire Legislature adopted RSA 356, which was designed to protect New Hampshire consumers from a use of monopoly power to control the market and overcharge for a product. RSA 356:3 provides that:
"the establishment, maintenance, or use of monopoly power…for the purpose of affecting competition or controlling, fixing, or maintaining prices is unlawful."
But while federal antitrust law developed as a result of litigation, between 1900 and 1970, New Hampshire’s statutes were not amended and rarely used. One likely reason is that unlike the federal laws, which had been amended in 1914 to provide for a private right of action, no private right of action was created under New Hampshire’s law. However, the 1973 oil embargo gave Americans first-hand knowledge of the effect of monopolies and cartels. In 1973, the antitrust statute was amended and a private right of action for damages was authorized by the Legislature by RSA 356:11. See New Hampshire Laws 1973, Ch. 434 §2, Effective August 29, 1973. The statute seemed to be ready to protect New Hampshire businesses and citizens.
II. The Indirect Purchaser Limitation on Federal Antitrust Laws
In the 1970’s, just as Americans were beginning to recognize the very real effects that monopolies and cartels could have on their economic rights, the ability to bring antitrust actions under the federal statutes was severely limited by the decision of the United States Supreme Court in Illinois Brick v. Illinois. 431 U.S. 720 (1977).
An antitrust violation may of course have direct and indirect or "ripple effects" on parties. It is obvious, for example, that a price increase caused by an antitrust violation will likely affect ultimate prices paid by consumers in the chain of distribution. This would be so, for example, if a group of companies combined and conspired to fix prices because of a cartel, causing consumers in New Hampshire to pay a monopoly price.
However, in 1977 in Illinois Brick, the Supreme Court of the United State held that as a matter of federal antitrust law, an indirect purchaser from an antitrust violator is not, by virtue of the overcharge, a person "injured in his business or property" within the meaning of §4 of the Clayton Act, and therefore lacks standing to sue. Illinois Brick v. Illinois, 431 U.S. 720, 729 (1977). A majority of a sharply divided Supreme Court concluded that:
"permitting the use of pass on theories under §4 essentially would transform treble-damages actions into massive efforts to apportion the recovery among all potential plaintiffs that could have absorbed part of the overcharge from direct purchasers to middlemen, to ultimate consumers. However appealing this attempt to allocate the overcharge might seem in theory, it would add whole new dimensions of complexity to treble-damages suits and seriously undermine their effectiveness." Illinois Brick v. Illinois, supra at 737.
Obviously, the inability of indirect purchasers to sue for the overcharge they paid certainly reduces the risk of liability to antitrust violators; if only persons who dealt with the antitrust violator have standing to sue, and those persons had passed on the overcharge, the penalty for violating the antitrust laws would be less of a deterrent, because persons who passed on an overcharge, obviously, would have little incentive to sue.
III. The State Law Response
In the wake of Illinois Brick, numerous states amended their state antitrust laws to specifically provide that indirect purchasers would be allowed to sue antitrust violators and to recover damages. In California v. ARC America Corporation, 490 U.S. 93 (1989), the United States Supreme Court considered whether so-called "Illinois Brick Repealer" statutes, which had been enacted in Alabama, California, and Minnesota were pre-empted by federal law. These statutes specifically provided that any person injured directly or indirectly could bring an antitrust action for damages under state antitrust laws. Then Attorney General Stephen Merrill signed an amicus brief for the State of New Hampshire in support of those states in that case. A unanimous Supreme Court held that the states had the power to enact such statutes. California v. ARC America Corporation, 490 U.S. 93 (1989).
IV. RSA 356:4; The New Hampshire Statute
The New Hampshire statute did not state in its text whether or not damages may be recovered by direct or indirect purchasers. No "Illinois Brick Repealer" had been enacted prior to 2007. In Minuteman, LLC v. Microsoft Corporation, 147 N.H. 634, 795 A2d 833 (2002), the New Hampshire Supreme Court held that since the Legislature had stated in RSA 356:14, that "in any action or prosecution under this chapter the courts may be guided by interpretation of the United States antitrust laws," it would follow Illinois Brick.
In the Microsoft case the federal government had proved that Microsoft had overcharged consumers for Windows 98 in a complex multiyear federal antitrust action. Consumers could not recover the overcharge, unless they purchased directly from Microsoft, and since Microsoft does not sell directly to consumers, it had virtually no liability to individual users for Windows 98 under the federal antitrust statute.
The decision of the New Hampshire Supreme Court meant that New Hampshire residents who had been overcharged for Windows 98 could not recover anything from Microsoft. However, those consumers who had purchased Windows 98 in jurisdictions that did allow indirect actions against antitrust violators were able to recover. Microsoft paid millions of dollars in damages in those states which adopted Illinois Brick repealer statutes. The awards varied based on the size of the state. For example, California consumers received $1.1 billion in benefits; Minnesota consumers, $140 million; and Montana consumers, $12 million. As should be obvious, the indirect purchaser ban under the state antitrust law has a very real practical effect.
Prior to the 2007 amendment, the state itself could not recover overcharges imposed, when, for example, a drug company fraudulently uses patents and violates the antitrust laws. In 2005, Judge Young of the Federal District Court in Massachusetts approved the Relafen Antitrust Litigation settlement. See Relafen Antitrust Litigation, 231 FRD 52 (D. Mass. 2005). This settlement came about because SmithKline had been engaging in patent fraud, which led to antitrust violations. The Court approved an agreement under which states which had Illinois Brick repealers would receive a much higher percentage of the recovery than those that did not.
V. Effect of the New Statute
While the Court has recently held that an indirect purchaser may bring an action alleging anti-competitive conduct under RSA 358-A, Lachance v. US Smokeless Tobacco, 931 A2d 571 (NH 2007), such actions probably do not have the reach of the antitrust statute. The Court stated in Lachance that RSA 358-A makes actionable "at least some types of conduct that are associated with the antitrust realm." Id. at 576 (emphasis added).
The new statute will, by its terms, plainly permit the Attorney General to bring actions for violations of the Chapter as parens patriae on behalf of natural persons residing in the state, whether the injured person dealt directly or indirectly with the defendant. (RSA 356:4-A, II.) This means that the state will be able to obtain counsel, and participate in recoveries like that in the Relafen Antitrust Litigation.
Lawyers who represent individuals who have been injured by an anti-competitive activity are specifically authorized to bring actions. The statute specifically provides in RSA 357:11, II that a person injured in his business or properties may recover the actual damages sustained as determined by the court, the cost of the suit and reasonable attorney’s fees "regardless of whether that person dealt directly or indirectly with the defendant."
Practically speaking, antitrust actions involve economic determinations of issues such as relevant market, market share and effect on price which are so complex that they can only be brought on a national level, based on national conduct. But conduct in other states can affect New Hampshire’s citizens. Now businesses and consumers who have been forced to pay overcharges as a result of conduct elsewhere may have a real remedy. Indeed, the existence of a state law antitrust remedy for consumers, based on a state law statute, might even mitigate the harshness of the Class Action Fairness Act of 2005 (28 U.S.C. 1711, et seq.) which forces most class actions into federal court. The Legislature’s actions in enacting SB 54 is a wise response to the fact that economic conduct in other parts of the world may have a profound effect on New Hampshire citizens.
Richard B. McNamara is the Immediate Past President of the New Hampshire Bar Association. He represented the plaintiff class in Minuteman LLC v. Microsoft, 147 N.H. 634 (2002). The opinions expressed in this article are the author’s, and do not represent the position of the New Hampshire Bar Association.