Exploring the Boundary of the Noerr-Pennington Doctrine in the Adjudicative Process

I. INTRODUCTION

In the context of federal antitrust law, the Noerr-Pennington doctrine protects petitions to the government,1 as well as any action taken by the government resulting from such petitions, from antitrust liability.2 The Noerr-Pennington doctrine itself is nothing more than a series of holdings reflecting the fundamental principle that while antitrust law operates to prohibit certain anticompetitive conduct by private parties, it has no dominion over the government. Immunity under the Noerr-Pennington doctrine extends to efforts to influence all three branches of the government at every level.3 The doctrine thus provides a very powerful defense against any antitrust claim as long as the alleged violation falls within the definition of governmental petitioning.

Application of the Noerr-Pennington doctrine is broadest in the adjudicative process. Whereas efforts to lobby the legislature and the executive branch are generally constrained to established avenues of political persuasion, petitioning the judiciary can be accomplished in a variety of non-traditional ways as long as it is incidental to litigation.4 For example, instituting a legitimate lawsuit, threatening litigation, and reaching a settlement agreement are all protected forms of petitioning.5

This note explores the boundary of the Noerr-Pennington doctrine as it applies to certain areas of litigation by first providing a brief history on the development of the Noerr-Pennington doctrine, examining the sham exception, and discussing the doctrine's applicability to incidents of litigation. Next, the note briefly analyzes the operation of the doctrine in cases involving refusals to grant licenses, and provides insight on a recent development of the commercial exception. Finally, the note discusses why the Noerr-Pennington exception may not always apply to petitions seeking approval from state regulatory bodies.

II. BASIS FOR THE MODERN-DAY EXCEPTION

In Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc.,6 the Supreme Court held that direct petitions to the government for legislation are immune from federal antitrust laws and that the claims made to the government by the petitioning party are also immune, even though intended to eliminate competition.7 In Noerr, the defendant railroad companies, threatened by the burgeoning trucking industry, employed unscrupulous and vicious tactics in their efforts to lobby the government to pass legislation and adopt law enforcement practices that would impede the progress of their competition.8 The plaintiffs described the defendant railroad companies' campaign to eliminate them as competitors as fraudulent, one which utilized the third-party technique of circulating publicity matter "made to appear as spontaneously expressed views of independent persons and civic groups when, in fact, it was largely prepared and produced by [a public relations firm] and paid for by the railroads."9 The plaintiffs brought suit for violations of sections 1 and 2 of the Sherman Anti-Trust Act10 alleging that the defendants had conspired to restrain trade and monopolize the long-distance freight hauling industry.11 Despite the reprehensible methods used by the defendants to influence the government, the Court held that they were absolutely immune from antitrust scrutiny because the restraint of trade or "monopolization was the result of valid governmental action."12

Writing for the majority, Justice Black rested his decision in Noerr for immunity largely on precedent which he determined dictated the following:

[T]he Sherman Act forbids only those trade restraints and monopolizations that are created, or attempted, by the acts of individuals or combinations of individuals or corporations. Accordingly, it has been held that where a restraint upon trade or monopolization is the result of valid governmental action, as opposed to private action, no violation of the Act can be made out.13

Justice Black stated that the policy behind the principle of immunity was that under our form of government, the legislature holds the responsibility of deciding whether a law should be passed or enforced as long as the law does not violate the Constitution.14 The Court reasoned that nothing in the Sherman Act forbids conspiracies to influence that government.15 Additionally, it would be a misconstruction of the Sherman Act to hold that the Act prohibits people from lobbying for matters of financial importance because it would thus "deprive the government of a valuable source of information and, at the same time, deprive the people of their right to petition in the very instances in which that right may be of the most importance to them."16

In an attempt to shore up the issues that would otherwise arise from an unfettered exception to antitrust liability, the Court created the sham exception.17 Almost as an afterthought, the Court stated that antitrust immunity would not be allowed for those who would launch a "publicity campaign, ostensibly directed toward influencing governmental action, [that] is a mere sham to cover what is actually nothing more than an attempt to interfere directly with the business relationships of a competitor and the application of the Sherman Act."18 This ambiguous language would haunt the lower courts for the next thirty-two years."

Shortly after the Noerr decision, the Supreme Court determined in United Mine Workers of America v. Pennington20 that petitions with the explicit intent to further a conspiracy to violate a statute are protected.21 In Pennington, the coal miners' union and large companies in the coal industry entered into a collective bargaining agreement where the parties effectively set an industry-wide wage scale that provided for a minimum wage that many of the smaller coal mine operators could not afford to pay.22 The union and the companies involved approached the secretary of Labor to have the minimum wage standard become a part of the Walsh-Healey Act for employees of contractors selling coal to the Tennessee Valley Authority (TVA).23 The joint agreement aimed to cure the problem of coal overproduction by eliminating the smaller companies and leaving the market dominated by the large firms.24 The court of appeals affirmed the trial court decision not to instruct the jury on the immunity expressed in Noerr which provided immunity for petitions to the government.25 The trial and appellate courts considered Noerr as only applying to petitions that did not involve an illegal intent to further a conspiracy to violate a statute.26 In resolution of the issue, the Supreme Court categorically held that, under the reasoning of Noerr, collusive efforts with the intent and purpose to eliminate competition do not violate the antitrust laws, nor are such acts to influence public officials, by themselves or as part of a broader scheme, a violation of the Sherman Act .27

In 1972, the Supreme Court connected governmental petitioning with litigation in California Motor Transport Co. v. Trucking Unlimited.28 California Motor Transport Co. involved allegations that the defendant trucking companies conspired to prevent the plaintiffs from acquiring or transferring their trucking licenses by lodging numerous lawsuits against the plaintiffs "with or without probable cause, and regardless of the merits of the cases."29 The Court first concluded that the right to petition, as guaranteed by the Bill of Rights, extends to all branches of government, including the courts.30 The Court, in dicta, discussed the right to petition in the antitrust context as being based in the First Amendment.31 The Court went on to hold that instituting baseless, repetitive claims with the purpose only to "bar their competitors from meaningful access to adjudicatory tribunals and so to usurp that decisionmaking [sic] process" constituted a sham under Noerr and thus the defendants were not immune.12 The Court reasoned that although misrepresentations and underhanded tactics may be tolerated in political forums, the First Amendment could not be used as a "pretext for achieving 'substantive evils' that the legislature has the power to control."33

III. SCOPE OF THE SHAM EXCEPTION

A. Defining the Sham Exception

Although the doctrine espoused by the Court in Noerr and Pennington grants immunity to a broad array of conduct, it is not without limit. Conduct that is nothing more than a sham to influence legislation with the sole purpose to directly obstruct the business relationship with a competitor or application of the Sherman Act is not immune.34 Although the sham exception was first addressed by the Noerr Court in 1961, it was not until the 1993 decision in Professional Real Estate Investors, Inc. v. Columbia Pictures Industries,35 that a test was adopted for determining what constitutes a sham.36 The test outlined by the Court contained two prongs and stated the following:

First, the lawsuit must be objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits. If an objective litigant could conclude that the suit is reasonably calculated to elicit a favorable outcome, the suit is immunized . . . and an antitrust claim premised on the sham exception must fail. Only if challenged litigation is objectively meritless may a court examine the litigant's subjective motivation. Under this second part of our definition of sham, the court should focus on whether the baseless lawsuit conceals "an attempt to interfere directly with the business relationships of a competitor."37

B. Possible Denial of Immunity for Fraudulent Misrepresentations

Although the Court in Professional Real Estate set forth a test for discerning sham litigation based on whether the litigation was baseless or interfered directly with business relationships with competitors, the Court declined to rule definitively on whether fraud would preclude antitrust immunity.38 Consequently, the lower courts were left to struggle with the contours of a fraud exception. The case law that developed from the lower courts after Professional Real Estate indicates that courts are reluctant to explicitly carve out an entirely new exception for fraud. However, the courts have, to some extent, indicated that the objective baseless language from Professional Real Estate could be used as a means to disallow Noerr-Pennington immunity in cases where fraud has been proved.39 Despite this rhetoric from the courts, it would be incredibly difficult to invoke the fraud exception against a party seeking Noerr-Pennington immunity since it is likely that only the most egregious conduct will be denied immunity.40

In 1993, the same year as the Professional Real Estate decision, the Ninth Circuit in Liberty Lake Investments, Inc. v. Magnuson41 indicated that it would sustain an exception to Noerr-Pennington immunity if the "litigant's deceptive conduct . . . goes to the core of a lawsuit's legitimacy, such that it is not 'genuine,' either in the sense of 'having the reputed or apparent qualities or character' or being 'sincerely and honestly felt.'"42 Similarly, the Third Circuit in Cheminor Drugs, Ltd. v. Ethyl Corp.,43 using the objectively baseless test from Professional Real Estate held that where the alleged fraud does not affect the "core" of a litigants case, the defendants are entitled to immunity because, despite the fraud, the outcome of the litigation would have been the same.44 In Baltimore Scrap Corp. v. The David J. Joseph Co.,45 the Fourth Circuit determined that where the fraud does not affect the legitimacy of a case by infecting its core, refuge under Noerr-Pennington will be afforded to the party petitioning the government.46

IV. INCIDENTS OF LITIGATION

In the years following Noerr, the Noerr-Pennington doctrine was applied to non-traditional forms of adjudicative petitioning, and today it is settled law that the Noerr-Pennington doctrine applies to actual litigation and actions incidental to litigation.47 Consequently, the Noerr-Pennington doctrine has been applied to protect such activities as publicity and threats of litigation, petitioning foreign governments, and immunizing non-parties to a lawsuit, and, finally, settlement agreements between defendants and government entities.48

A. Publicity and Threats of Litigation

The Fifth Circuit in Coastal States Marketing, Inc. v. Hunt49 illustrated the view taken by most jurisdictions that publicity and threats of litigation are activities protected by the NoerrPennington doctrine.50 In Coastal States Marketing, the defendant Hunt, along with BP Exploration Company (Libya), Ltd., (BP) led a campaign to assert ownership rights over crude oil that had been nationalized by the Libyan government.51 Specific efforts of claim ownership to the crude that had been exported by Libya included issuing notices to users of crude oil worldwide of its claim, as well as initiating twenty-one suits claiming title to the crude.52 The plaintiff had purchased contested oil from the Libyan government.53 As part of their campaign to publicize their ownership of the oil, the defendant and BP sought to undermine the plaintiff's efforts to sell the oil by communicating their claims to the oil to potential customers, instituting a lawsuit against the plaintiff for conversion, and rerouting one of the plaintiff's oil tankers to attach the oil on board.54

In response, the plaintiff brought an antitrust lawsuit against the defendant on the grounds that the publicity, lawsuits, and threats of lawsuits instituted by the defendant constituted a secondary boycott that had the effect of preventing sale of the crude oil by the plaintiff.55 The defendant countered by asserting that its actions were immunized as a form of petitioning.56 In response, the plaintiff maintained that the publicized threats of litigation were not directed to a government and therefore should not be accorded petitioning immunity under the Noerr-Pennington doctrine.57 The court ruled in favor of immunity, reasoning that the Noerr-Pennington doctrine protected joint litigation; therefore, it would be illogical not to grant protection to "acts reasonably and normally attendant upon effective litigation."58 The court further determined that if there is a good faith basis for the litigation, a "token of that sincerity is a warning that it will be commenced and a possible effort to compromise the dispute."59

Similarly, in McGuire Oil Co. v. Mapco, Inc.60 the defendant, Mapco, counterclaimed against the plaintiff McGuire Oil seeking redress for threats of litigation in an antitrust suit.61 The counterclaim was brought on the theory that McGuire Oil attempted to establish a minimum retail price maintenance scheme in violation of section 2 of the Sherman Act.62 McGuire Oil had in fact threatened litigation if Mapco did not cease charging below cost prices for the sale of gasoline in violation of state law.63 The court held that because there was no evidence that McGuire Oil sought to use the judicial system for anything short of obtaining a favorable outcome, the Noerr-Pennington doctrine would protect McGuire Oil.64

B. Petitioning Foreign Governments

Coastal States among many things, stands for the proposition that the Noerr-Pennington doctrine is not constrained to petitions to the United States government.65 The significance of Coastal States is amplified because it is one of only two sources of authority that has explicitly addressed this issue.66 The other case on point is Occidental Petroleum Corp. v. Buttes Gas & Oil Co.,67 in which a district court refused to extend the Noerr-Pennington doctrine to petitions to foreign governments.68 In Occidental Petroleum Corp., the court took a very narrow view of the right to petition, stating that persuading foreign governments was beyond the scope of the First Amendment right to petition the government, especially non-democratic ones.69 The Coastal States court, however, took a more liberal approach and concluded that the language of the Sherman Act neither addresses nor applies to petitions to government agencies, whether foreign or domestic.70 Furthermore, the court concluded that it would be inconsistent for a court trying the case in the United States to hold that acts otherwise protected in the United States would be illegal just because they were performed abroad.71

With only these two relevant cases to consider, the state of the law on this point is far from certain; however, it is likely that Coastal States will govern in future cases because Occidental Petroleum Corp. has come under fire for its specious logic and distinction of non-domestic governments.72 Nowhere in the Sherman Act or the precedent surrounding the Noerr-Pennington doctrine is there an indication that the word government is to be construed as the United States government only. Although the idea of petitioning immunity derives from the First Amendment, the Noerr-Pennington doctrine was forged from the observation that the Sherman Act extends only to private action.73 The Coastal States holding is consistent with the policy of the Noerr-Pennington doctrine because it would be unsound to conclude that immunity evaporates as soon as the United States border is crossed so that non-private action then becomes condemned by a law that only addresses private conduct. Just as the jurisdiction of the United States extends beyond its borders, so too will antitrust immunity under Coastal States.

C. Application to Non-parties

In 2001, the Fourth Circuit, in Baltimore Scrap Corp. v. David J. Joseph Co.,74 extended the Noerr-Pennington doctrine to immunize non-parties to a lawsuit even where their only role in the litigation was to fund it secretly.75 In Baltimore Scrap Corp., the plaintiff sought to lease land in Baltimore to install a metal shredder.76 The defendants controlled the only other metal shredder in the Baltimore area, and they attempted to maintain their monopoly by funding a suit brought by a local citizens group that contested the installation of plaintiff's shredder on the grounds that it was detrimental to the environment.77 Initially, without the aid of the defendant, the citizens group fended off the plaintiff by testifying to the zoning board in opposition of the granting of a zoning permit.78 The plaintiff later obtained the permit by proposing special features that would guard against any contamination.79 It was the appeal of the board's decision approving the plaintiff's permit that the defendant surreptitiously funded.80

Later when the plaintiff brought the action based on allegations of antitrust violations, the defendants argued that they were immune under the Noerr-Pennington doctrine.81 The plaintiffs countered by arguing that at no point did the defendants actively engage in petitioning the government since it was not a party to the zoning litigation.82 The court, ruling in favor of the defendants, held that funding or aiding in litigation was tantamount to petitioning.83 The court reasoned that to hold differently would unreasonably restrict the rights of all citizens to form associations to petition the government, even where one party remains anonymous and not a part of the litigation.84

Although Baltimore Scrap Corp. is premised on the seemingly rational view that by causing or aiding the litigation, the non-party is essentially asserting its claims to the government, one still has to question whether the factual situation presented in the case lends itself to a logical extension of the Noerr-Pennington doctrine. Even ignoring the fact that the defendants were without standing to sue, the defendants did not lobby the court for redress against an encroaching company. Instead, the lobbying brought by the citizens group was for protection of the environment. Although the ends sought were the same, the substance of the request to the government was completely different.

D. Settlements

1. The Basic Mechanics of Settlements

There are two general types of settlements-purely private agreements and consent decrees.85 Private settlement agreements are contracts entered into by the litigants in resolution of the dispute without an order of the court.86 Pursuant to Rule 41(a)(1) of the Federal Rules of Civil Procedure, private settlements are accompanied by a stipulated voluntary dismissal filed by either the plaintiff or by all the parties to the litigation.87 In contrast to purely private agreements, consent decrees involve participation by the court and are generally regarded as a contract/judicial-order hybrid.88 While the means of negotiating the terms of a settlement are the same for consent decrees as for private settlements, the court will enforce a consent decree as a judgment.89 Consent decrees are published, and the court entering the decree retains jurisdiction over it.90

2. Standard of Review

For class actions, judicial approval must be obtained before the case can be dismissed or compromised.91 Additionally, according to section 16(e) of the Antitrust Procedure and Penalty Act (Tunney Act), a court must determine that the judgment is in the public interest before entering a consent decree proposed by the United States in an antitrust suit.92

In order for a court to determine the best interest of the public in compliance with the Tunney Act, the court may consider the competitive impact of the judgment and the impact of the judgment on the public at large.93 In contemplating the competitive and social impact of its decision, the court may take the following steps:

(1) take testimony of Government officials or experts or such other expert witnesses, upon motion of any party or participant or upon its own motion, as the court may deem appropriate; (2) appoint a special master and such outside consultants or expert witnesses as the court may deem appropriate; and request and obtain the views, evaluations, or advice of any individual, group or agency of government with respect to any aspects of the proposed judgment or the effect of such judgment, in such manner as the court deems appropriate; (3) authorize full or limited participation in proceedings before the court by interested persons or agencies, including appearance amicus curiae, intervention as a party pursuant to the Federal Rules of Civil Procedure, examination of witnesses or documentary materials, or participation in any other manner and extent which serves the public interest as the court may deem appropriate; (4) review any comments including any objections filed with the United States under subsection (d) of this section concerning the proposed judgment and the responses of the United States to such comments and objections; and (5) take such other action in the public interest as the court may deem appropriate.94

For antitrust class actions, approval under Rule 23(e) of the Federal Rules of Civil Procedure requires a determination that the settlement is "fair, adequate and reasonable to the class as a whole."95 Unlike the standard of review applicable under the Tunney Act, the standard of review in class actions is limited to the fairness of the agreement to the parties rather than to the industry or the public.96 As one court observed "[t]he primary concern addressed by Rule 23(e) is the protection of class members whose rights may not have been given adequate consideration during the settlement negotiations."97

In In re New Mexico Natural Gas Antitrust Litigation, the litigants sought judicial approval of a proposed settlement to a class action suit involving an alleged price fixing scheme in violation of section 1 of the Sherman Act.98 In evaluating the fairness of the proposed settlement to the parties, the court considered the following factors:

[P]redictability as to outcome of the litigation; the strength of the plaintiffs' case; pivotal questions on liability and damages; expense, complexity and duration of further litigation; risk of maintaining class action status throughout the proceedings; amount of the proposed settlement; status of the case at the time of the settlement; the range of possible recovery; whether the law involved is settled or in a meandering unresolved posture; and the character and scope of the negotiations that resulted in the settlement.99

Adjudicating the propriety of a settlement, however, does not mean that there is a judgment made regarding the likelihood of success on the merits or of what may otherwise have been achieved by the negotiations; rather, it is a judgment as to the reasonableness of the deal and whether there has been any overreaching or collusion between the parties.100

In United States v. Microsoft,101 the court addressed the general principles underlying the Tunney Act when it granted the government's request for judicial approval of a proposed consent decree.102 The court stated that a decision regarding the propriety of a consent decree in antitrust cases requires a court to "seek to unfetter a market from anti-competitive conduct"103 and "ensure that there remain no practices likely to result in monopolization in the future."104

The power of the court to make a decision in accordance with these principles is tempered somewhat by the notion that a decree must be approved even if it is not the remedy the court would have fashioned on its own as long as it "falls within the range of acceptability or is within the reaches of public interest."105 Furthermore, deference is to be accorded to the government in its petition for a consent decree under the Tunney Act.106

3. Private Settlements

It is intuitive that private settlements would be beyond the reach of the Noerr-Pennington doctrine because, as one commentator noted, reaching a private settlement means that the parties have decided to reach an agreement without the oversight of the court; therefore, no petitioning to the judiciary has occurred.107 Recent cases indicate, however, that even private settlements may be protected so long as the government is one of the litigants.108

The court in In re New Mexico Natural Gas Antitrust Litigation109 considered whether the Noerr-Pennington doctrine applied to a private settlement agreement entered into between the defendants and the State Public Service Commission.110 The court refused to extend protection of the doctrine because the settlements themselves did not provide that they were subject to approval by any regulatory agency.111 Further, the Public Service Commission did not have the authority to approve or disapprove the agreement as to prices to be charged in the future.112 The significance of the court's opinion rest on the fact that it was based on grounds other than the private nature of the settlement.113

The Ninth Circuit further extended the Noerr-Pennington doctrine to private settlements in Columbia Pictures Industries v. Prof. Real Estate Investors, Inc.,114 holding that immunity applied to decisions to accept or reject an offer of settlement.115 In Columbia Pictures, the plaintiff/counter-defendant movie studio (Columbia) initially brought an action against Professional Real Estate Investors (PRE) for copyright infringement.116 Allegedly, PRE had installed videodisc players in its guest rooms and rented out videodiscs of certain movies to those guests in violation of Columbia's copyright.117

In an attempt to resolve the issue, PRE offered to obtain licenses from Columbia for installation and use of the in-room videodisc players.118 If the licenses had been granted, the copyright infringement action would have been moot.119 Due to this fact, the court likened the offer to obtain licenses to a settlement offer, which Columbia declined.120 As a result, PRE asserted that Columbia's refusal to grant licenses amounted to a concerted refusal to deal in violation of Sherman Act.121 The court held that the Noerr-Pennington doctrine precluded PRE from establishing any antitrust violation.122 The court reasoned that "a decision to accept or reject an offer of settlement is conduct incidental to the prosecution of the suit and not a separate and distinct activity which might form the basis for antitrust liability."123

Perhaps the most significant holding regarding settlements in the Noerr-Pennington context is the A.D. Bedell Wholesale Co. v. Philip Morris, Inc. decision from 2001.124 In the mid-1990s, individual states brought numerous lawsuits against the major cigarette manufacturers, Philip Morris, R.J. Reynolds Tobacco Co., Brown & Williamson Tobacco Corp., and Lorillard Tobacco Co., to recoup health care costs and reduce smoking by minors.125 The defendants, collectively known as the Majors, controlled ninety-eight percent of the domestic cigarette sales market in the United States.126 The Majors sought congressional relief in the form of a nationwide settlement in order to avoid defending multiple lawsuits brought by several states at one time.127

Though the congressional settlement was ultimately rejected in the spring of 1998, the Majors did manage to broker a deal with the State Attorneys General in November of 1998, known as the Multistate Settlement Agreement (MSA).128 Forty-six states eventually joined in the MSA and passed legislation in accordance with the Qualifying Statute set forth in the MSA.129 Pursuant to the agreement, the Majors agreed to pay the settling states $206 billion over the first twenty-five years and $9 billion in each subsequent year, as well as adhere to certain marketing restrictions.130 Fearing that cigarette manufacturers not bound by the MSA would cut costs and undermine the Majors ability to increase prices to pay for the settlement, the Majors negotiated the "Renegade Clause" that operated to prevent current manufacturers from decreasing their prices and to thwart new entrants from entering into the market.131 The Renegade Clause provided strong incentives for other manufacturers to maintain their current prices and join the agreement.132

Specifically, if another cigarette producer joined the MSA, it would only have to pay into the fund if it did not maintain its 1998 prices.133 Non-participating manufacturers would bear an even higher cost for their decision not to join.134 The MSA section VIII(c) Qualifying Statute imposed a tax on new tobacco entrants of approximately $.27 per pack in the year 2001, rising to $.37 per pack by the year 2007.135 Because the Non-Participating Manufacturers (NPMs) are not part of the MSA, they are not immune from lawsuits similar to those brought initially against the Majors for such violations as fraudulent concealment, conspiracy, and misrepresentation.136 To assist the states in pursuing suits against NPMs, the Majors created a $50 million enforcement fund.137 Additionally, the MSA provided that if the Majors lost market share to new entrants, then their payments into the fund were to be reduced.138

The plaintiffs in A.D. Bedell Wholesale Co. were cigarette wholesalers who challenged the MSA on grounds that it was a per se violation of sections 1 and 2 of the Sherman Act.139 The plaintiffs argued that the MSA and resulting statutes created an output cartel that allowed the Majors to maintain supracompetitive prices.140 Despite the court's finding of a per se violation, the proponents of the MSA were determined to seek protection under the Noerr-Pennington doctrine.141 Not only were the concerted efforts to induce settlement with the State Attorneys General protected, so was the resulting agreement.142 The court reasoned that settlement agreements between private parties and sovereign states are incidents of litigation and are thus the type of petitioning protected by the Noerr-Pennington doctrine.141

The A.D. Bedell Wholesale Co. decision is somewhat surprising because not only was an output cartel formed through the settlement agreement itself, but also there was no standard governing judicial review of the settlement terms.144 This outcome may have uncovered a gaping loophole in the Noerr-Pennington doctrine. Because the settlement was private, it was not submitted to the court for judicial approval, and even if it had been, Federal Rule of Civil Procedure 23(e) only requires a determination of fairness to the parties themselves.145 The Tunney Act does not apply because the government was not a named party and therefore no judicial review of the potential harm to the public could be made.146 On the other hand, the government negotiated and approved the settlement, indicating that valid petitioning actually occurred.147 As it stands, private settlements involving the government in some capacity will yield protected governmental petitioning.

The A.D. Bedell Wholesale Co. case was distinguished from other forms of petitioning because there was no judicial involvement.148 When one petitions the legislature or the president, the petitioned party must actively acquiesce to or reject such solicitations. However, in A.D. Bedell Wholesale Co., there was no involvement or action taken by the petitioned judiciary; therefore, no valid petitioning occurred.149

The decisive fact in A.D. Bedell Wholesale Co. was that the government was a party to the agreement.150 However, this is not the type of petitioning contemplated by the Noerr-Pennington doctrine since there was no avenue for judicial oversight.151 Although the origins of the doctrine do not pertain to petitions in the judicial arena, there is some indication in later cases of a preference for judicial oversight.152 For example, the court in In re New Mexico Natural Gas Antitrust Litigation held that "a private settlement accomplished without court participation should not be afforded Noerr Pennington protection."153 Similarly, the decision in In re Ykk, Inc.154 indicates that settlement offers may violate antitrust law.155 Although publicity campaigns and the initial filing of a lawsuit may not involve any direct participation by a judicial authority, such conduct may later be adjudicated a sham, and thus fall outside of the protection of the Noerr-Pennington doctrine, if such conduct amounts to subterfuge to undermine a competitor.156 Although the Supreme Court in Professional Real Estate stated that petitioning immunity applies to both offers to settle as well as rejections of such offers,157 the Court was extremely cryptic on this point and did not follow this statement with any kind of explanation.158 Based on the foregoing, it is evident, despite the anomalous dicta in Professional Real Estate, that the inroads for judicial involvement, at the very least, should remain open for petitions to the judiciary to be valid.

V. EXTENSION OF NOERR-PENNINGTON DOCTRINE TO REFUSALS TO LICENSE

In general, a patent owner has no obligation to license the use of that patent to third parties even where the patent owner has significant market power.159 Addressing this issue, the Ninth Circuit adopted a rebuttable presumption that "exclusionary conduct can include a monopolist's unilateral refusal to license a patent or sell its patented . . . work, [and that] a monopolist's desire to exclude others from its protected work is a presumptively valid business justification for any immediate harm to consumers."160 Thus the exercise of a statutorily granted right is a valid business justification.161 The court, however, did leave open a new means of attack-if an inquiry into the subjective intent of the patentee revealed that the refusal to deal was merely pretextual, then liability may be imposed.162

Similarly, in In re Independent Service Organizations Antitrust Litigation,^ the manufacturer, Xerox, refused to sell certain parts to independent service organizations (ISOs) such as CSU, unless they were also end users of the copiers that Xerox manufactured.164 Eventually, Xerox cut off CSU's direct purchase of restricted products.165 CSU, along with other ISOs, brought an action alleging that Xerox violated the Sherman Act by unlawfully charging higher prices on its patented products sold to ISOs, in order to force the ISOs to raise their prices.166 CSU argued that Xerox's subjective motivation for excluding the ISOs should be considered to determine whether their decision was pretextual.167 The court refused to adopt the Ninth Circuit's standard and declined to evaluate the subjective motivation of Xerox.168 Instead, the court decided under the Noerr-Pennington doctrine that it would "not inquire into [Xerox's] subjective motivation for exerting [its] statutory rights, even though [its] refusal to sell or license its patented invention may have an anti-competitive effect."169

VI. EROSION OF THE COMMERCIAL EXCEPTION

When the government is acting as a purchaser of services in a market rather than in its representative capacity, some courts have found that a commercial exception exists to deny NoerrPennington immunity.'70 To the extent that this exception to immunity exists, there is now some indication that it may not be effective when the government is acting both as a policy maker and commercial participant.'71 In Bristol-Myers Squibb Co., v. Ivax Corp.,"2 the government and Bristol-Myers entered into a joint Cooperative Research and Development Agreement (CRADA) to market a cancer fighting drug containing paclitaxel, a cancer fighting agent.173 In 1995, the government obtained a patent for paclitaxel.'74 Bristol-Myers brought suit against Baker Norton, a subsidiary of IVAX, alleging that it violated Bristol's patent by applying for a new drug application with the FDA to market a paclitaxel-based drug that would fight a specific form of cancer associated with AIDS.175 Baker Norton counterclaimed, alleging that it relied on public assurances that Bristol-Myers would not block competition in paclitaxel-related drugs when it sought a nonexclusive license.176 Bristol-Myers, however, exercised its option under CRADA for an exclusive license to the patent.177 This in turn resulted in the rejection of Baker Norton's application.178

As part of Baker Norton's counterclaim, Baker Norton alleged that Bristol Myers violated antitrust laws under the Sherman Act when it obtained its exclusive license to the government owned patent and "orphan drug exclusivity privileges."179 In response to Bristol-Myers' assertion of Noerr-Pennington immunity, Baker Norton argued that the commercial exception should apply because the government was acting as a market participant rather than as a political entity.180 The court concluded that the circumstances were such that the government was acting both as policy maker and market participant, and therefore the commercial exception did not apply.181 It was further concluded that it would defeat First Amendment rights to disallow immunity only because the government was engaged in a commercial undertaking with a private party.182

VII. TIGHTENINGTHEREINS: seeKINGAPPROVALFROMSTATE REGULATORY BODIES DOES NOT GUARANTEE PROTECTION UNDER THE NOERR-PENNINGTON DOCTRINE

In Ticor Title Insurance Co. v. FTC,m five of the nation's largest title insurance companies entered into an agreement to set uniform rates at which they could charge customers for title search and examination services.184 The rates established were subject to approval by state-licensed rating bureaus.185 The FTC condemned this conduct as horizontal price fixing in violation of section 5 of the Federal Trade Commission Act.186 Ticor Title Insurance Co. (Ticor) contended that by setting only prices condoned by each state's insurance department, it was engaged in "joint [petitioning of the] state regulators in matters of state policy."187 The court summarily rejected Ticor's assertion of Noerr-Pennington protection by holding that its actions were private commercial activity with only a political impact rather than "political activity with a commercial impact."188

In Litton Systems, Inc. v. AT&T,m AT&T allegedly used its telephone monopoly to illegally impose tariffs on Litton, a seller of telephone terminal equipment.190 AT&T used its monopoly in the telephone industry to control the telephone terminal equipment market thus making Litton a customer, as opposed to a competitor.191 As a customer of AT&T, Litton was subject to tariffs imposed by AT&T that required AT&T customers to connect equipment purchased from AT&T competitors to their telephone system only through the use of an interface device designed by AT&T.192 The FCC eventually rejected the tariffs and favored the use of certification.1'"

Litton contended that "AT&T's bad faith opposition to certification standards drove Litton out of the telephone terminal equipment market in the interim period between the filing and the ultimate rejection of the tariff."194 In response, AT&T's main argument in favor of Noerr-Pennington protection was that because AT&T, as a regulated monopoly, had to file the interface tariff rates with the FCC, they were protected as petitioning the government.195 The second Circuit rejected this argument, stating that filing does not transform an independent business decision into a request for governmental action or an expression of political opinion.196 The court further noted that the delay taken by the FCC in striking down the tariff did not make the conduct lawful.197 VIII. CONCLUSION

As a creation of the First Amendment and a strict construction of the Sherman Act, the Noerr-Pennington doctrine carries with it immense power in certain limited circumstances.198 The reach of the Noerr-Pennington cloak and its possible abuse springs from the amorphous concept of governmental petitioning through the judiciary.199 As benevolent as the protection for governmental petitioning may be, case law demonstrates that the NoerrPennington doctrine, carried to illogical extremes, promotes anticompetitive behavior in direct contravention of the Sherman Act as seen in the A.D. Bedell Wholesale Co. decision where a private settlement completely devoid of judicial involvement was granted petitioning immunity.200

The vastness of the Noerr-Pennington doctrine is evident in its application to petitions to foreign governments.201 Based on the holding in Coastal States, one can now reasonably conclude that petitioning immunity extends to petitions to foreign governments.202

By including publicity and threats of litigation within the realm of governmental petitioning, Coastal States demonstrated how a competitor may actually institute a secondary boycott by foreclosing a company's ability to sell a product by lodging or threatening to lodge a lawsuit against a competitor.203 As McGuire oil Co. demonstrated, as long as enough evidence exists to show that a competitor has anything but a patently frivolous basis for bringing suit, litigation or the threat of litigation can effectively circumvent antitrust restraints.204 Furthermore, according to case law, one no longer needs to be a party to the litigation to fall within the purview of the Noerr-Pennington doctrine.205

Perhaps the most disconcerting use of the Noerr-Pennington doctrine occurs in the area of settlements.206 Logically, the doctrine should not apply to purely private settlements because no branch of the government is directly implicated.207 The bizarre holding in Professional Real Estate Investors, Inc. means that there is now case law providing for antitrust protection even when one has rejected a settlement offer.208 The result is that Noerr-Pennington may no longer apply only to instances of governmental petitioning. The decision rendered by the Third Circuit in A.D. Bedell Wholesale Co. indicates that petitioning immunity is being phased into purely private settlements, where there is no involvement by the judiciary.209 By allowing immunity to private settlements, the courts are essentially weakening the role of the court in petitions to the judiciary.

By holding that the exercise of a statutorily granted right is a valid business justification, the Ninth Circuit effectively adopted a rebuttable presumption that a refusal to license is valid even with obvious adverse short term effects to consumers. Further stripping away Noerr-Pennington constraints, the Federal Circuit refused to inquire into a patent holder's subjective intent, thus doing away with the only means of attacking the Ninth Circuit's ruling in Image Tech. Serv., Inc. v. Eastman Kodak Co.210

While it is indisputable that the Noerr-Pennington doctrine plays a necessary part in antitrust law, ensuring the sanctity of valid petitions to the government, it has been overextended in circumstances involving settlements and licensing. Although the dissipation of the commercial exception and the holding that the Noerr-Pennington doctrine does not apply to petitions to state regulatory agencies have constrained Noerr-Pennington immunity in other areas, there is little hope that the problems created by the liberal construction of governmental petitioning for purposes of settlements and licensing will be solved in the near future.2" Through judicial fiat, certain petitions to the judiciary may now be utilized as a means of undermining antitrust law. It is now time for Congress or the courts to erect a more specific and solid boundary for the doctrine and recognize that when application of the doctrine leads to anti-competitive conduct, the definition of governmental petitioning should be narrowed or exceptions created that would restrain the doctrine from being used as a means to circumvent antitrust liability.

JEFF MCGOFF*

* LL.M. Candidate, 2004, University of Florida, Levin School of Law; J.D., 2003, University of Memphis, Cecil C. Humphreys School of Law; M.S., 2000, University of Memphis; B.B.A., 1998, University of Memphis.

Copyright University of Memphis Winter 2004
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