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they could not be held liable for damages incurred before such time. The District Court for the Southern District of New York rejected this defense, holding that if the tariffs were so low as to have been detrimental to United States commerce they were without the protection of the Shipping Act and hence no immunity attached to them even in the period before FMC action.

From this case it appears that, even where there is express statutory immunity from antitrust liability for joint action by competitors such immunity exists only so long as the anti-competitive conduct is within the statutory purpose. This result appears to be perfectly consistent with the results in the securities industry cases. e. Commodities

Under the Commodities Exchange Act, 56 commodities exchanges are subject to governmental regulation roughly comparable, for purposes of analyzing their antitrust

immunity, to that of securities exchanges. In a recent Supreme Court case, Ricci v. Chicago Mercantile Exchange, 57 concerned primarily with the application of the primary jurisdiction doctrine 58 to an action against the Exchange alleging violations of the Commodities Exchange Act, the rules of the Exchange and the antitrust laws, eight of the Justices indicated unmistakably that the regulatory scheme of the Act did not grant immunity to the Exchange even for conduct reviewed and approved by the governmental agency charged with regulating the Exchange.59

4. THE PRIMARY JURISDICTION QUESTION

Once it has been determined that the antitrust laws are applicable to actions taken by self-regulatory organizations in the securities industry, the question arises as to whether the task of reconciling the objectives of the antitrust and securities laws is to be undertaken by the courts or by the SEC. This is the so-called "primary jurisdiction question.”

Two different doctrines have been lumped together under the general heading of "primary jurisdiction.” 'One is the doctrine of “preclusive primary jurisdiction”—that a regulatory agency has the power to immunize anti-competitive conduct from antitrust attack. The other is the doctrine of “first consideration primary jurisdiction under which the courts will allow the regulatory agency to consider the antitrust question before the courts do so. Under this latter doctrine the agency cannot immunize action otherwise prohibited by the antitrust laws, and the courts remain the final arbiter of the antitrust question, taking the agency's views into account. 38 7 U.S.C. $ 5, et seq. 37 41 U.S. Law Week 4097 (Jan. 9, 1973). 39 Discussed below in text at footnotes 60-75. 39 The four Justices, who were joined by the Chief Justice to make a majority, noted:

Thus our judgment is not that Congress intended the Commodity Exchange Act to be the exclusive instrument for the government of the Exchange and its members. The purpose and structure of the Act and our past cases appear to foreclose any such conclusion (citations omitted). Nor do we find that Congress intended the Act to confer general antitrust immunity on the Exchange and its members with respect to that area of conduct within the adjudicative or rule-making authority of the Commodity Ex

change) Commission or the Secretary (of Agriculture). 41 U.S. Law Week 4101 fn. 13.

IIowever, a majority of the Court (the four Justices quoted above joined by the Chief Justice who expressly disassociated himself from any decision of the question of the agency's immunizing power) felt that the antitrust action should be stayed while the regulatory agency considered the non-antitrust questions. Four justices dissented from this decision to grant a stay. The dissenters agreed with the fou“ justices who joined in opinion of the Court, however, on the question of immunity and the agency's lack of the power to immunize conduct from antitrust challenge.

a. Preclusive Primary Jurisdiction

In the securities area, the question of preclusive primary jurisdiction is whether the SEC can insulate self-regulatory conduct from subsequent antitrust attack by finding that anti-competitive conduct of a self-regulatory body was necessary to make the 1934 Act work. In other words, is the SEC's decision that the self-regulatory action in question is necessary to make the Exchange Act work binding upon the courts? The SEC has taken the position that it has the power to create this immunity.60 The Antitrust Division of the Department of Justice has taken the opposite position. In the Thill case,62 the opinion of Judge Campbell for the Seventh Circuit indicated that the SEC did not have such immunizing power:

[Congress'] purpose in passing the (1934) Act and the primary
responsibility of the SEC thereunder is to protect investors. It
is in this area of public protection that the SEC claim their
expertise. On the other hand, it should be remembered that
the courts of the United States have over the years become
the repository of antitrust expertise. Congress and our
Supreme Court have directed the courts to employ this
expertise unless the court in a given case concludes that its
employment will frustrate the goals of the regulatory scheme.
As we have indicated herein, no such conclusion is justified in

this case, at least not at this stage of the proceedings. ...63 On remand in the Thill case, the district court denied a motion by The New York Stock Exchange to stay judicial consideration of the case pending SEC consideration of the issues presented and held that the court was the proper forum to decide the antitrust issues, thus disposing of both the preclusive and the first consideration primary jurisdiction questions. 64

This result in the Thill case is supported by Supreme Court decisions concerning other regulatory agencies. Recently, in a case involving a commodities exchange, eight Justices of the Supreme Court indicated their view that the governmentaly agenc regulating the commodities exchanges did not have the power to immunize exchange action from the antitrust laws and that the agency did not have jurisdiction to consider the question of immunity.65 In cases involving still other industries, the Supreme Court has repeatedly indicated that the power to grant antitrust immunity through the means of preclusive primary jurisdiction is vested in regulatory agencies only in the presence of a pervasive economic regulatory scheme involving the express power to immunize otherwise unlawful conduct. In the cases from other regulated industries discussed above, RCA 66 and Philadelphia National Bank,67 the Supreme Court held that the fact that a regulatory agency reviewed and approved the transactions in question did not immunize those transactions from subsequent judicial scrutiny. The Supreme Court also held that, in performing their review, the courts would consider the antitrust question de novo. While both the banking and the broadcasting industries are heavily regulated, the Court did not find that such regulation met the standard of pervasive economic regulation. The regulation of the securities industry is no more pervasive and thus the rationale of the cited decisions on preclusive primary jurisdiction should be, as indicated in the Thill case, similarly applicable to the securities industry. Indeed, Chairman Casey has recognized, for instance, that banks are much more heavily regulated than securities firms.88 b. First Consideration Primary Jurisdiction

60 Memorandum of the Securities and Exchange Commission, Intervenor, In Opposition To Defendant's Motion for a Reference To the Commission And For A Stay, Thill Securities Corp. v. New York Stock Exchange, 63-c-264 (U.S.D.C.E.D. Wis. 1972). In this Memorandum the Commission asserted that it had preclusive primary jurisdiction but that the case was "not ripe" for a reference to the Commission because the court should first try plaintiff's allegation that the NYSE "specifically discriminated against plaintiff” in applying its rules. See also Testimony of William Casey, 1 Study Hearings, supra note 4, at 99-100, 107, 120. 61 Memorandum of the United States Department of Justice in Opposition To Defendant's Motion For A Stay In This Action Pending Reference of Issues to the Securities and Exchange Commission, Thill Se

62 Thill Securities Corp. v. New York Stock Exchange, 433 F.2d 261 (7th Cir. 1970), cert. denied 401 U.S. 994 (1971). 63 Id. at 273.

64 Thill Securities Corp. v. New York Stock Exchange, supra note 60, transcript of proceeding on February 10, 1972 at 125 (U.S.D.C.E.D). Wisc.).

65 Ricci v. Chicago Merchantile Exchange, 41 U.S. Law Week 4097 (Jan. 9, 1973) discussed su pra in text at notes 56-59. 6 United States v. RCA, 358 U.S. 334 (1959), discussed supra in text at footnotes 47-50.

The question of first consideration primary jurisdiction was also decided by the district court in the Thill case, when that court decided that it would hear and determine all the issues in the case rather than refer any of them to the SEC.69 The Supreme Court's decision in California v. FPCto provides analogical support for this decision. In that case, the Supreme Court held that, in the absence of exemptive powers, agency consideration of a transaction which was simultaneously pending before the agency and under antitrust attack in the courts, should be deferred pending the outcome of the case in the courts. The Supreme Court reasoned that it would make no sense for the agency to proceed to examine the question already before the court because the courts would in any event consider the antitrust question de novo. One commentator has characterized this decision as establishing a “reverse-primary-jurisdiction doctrine,"71 that is, that in litigation involving the antitrust laws, absent statutory provisions to the contrary, the courts should be the only forum in which the antitrust issues are determined because only the courts have the ulti mate jurisdiction to decide the question.72 This policy is grounded on the premise that in general Congress has entrusted antitrust matters to the courts.

A recent Supreme Court decision reinforces the conclusion that antitrust questions are to be determined by the courts. In Ricci v. Chicago Mercantile Exchange,73 plaintiff sued the Exchange alleging that it had transferred his membership to another in violation of the Commodity Exchange Act, the rules of the Exchange and the antitrust laws. In this case, the question before the Supreme Court was whether the action should be stayed pending consideration of the matter by the Commodity Exchange Authority. In a 5 to 4 decision, the Supreme Court held that the action should be stayed pending a decision by the Commission of those facets of the dispute-whether the action of the Exchange was consistent with the Act and with the 07 United States v. Philadelphia National Bank, 374 U.S. 3:21 (1963), discussed supra in text at footnotes;

68 1 IIouse Hearings, supra note 1, at 109. See also letter from William Casey to the Preside:nt of the Senate, Dec. 18, 1971 in CCH Fed. Sec. Law Rep. ! 74807. 69 Thill Securities Corp. v. New York Stock Exchange, supra note 55 transcript of proceedings on Feb. 10, 1972 at 125 (U.S.D.C.E.D. Wisc.).

70 369 ('.S. 482 (1962). 71 Baxter, JYSE Fixed Commission Rates: A Private Cartel Goes Public, 22 STANFORD LAW REY. 675, 686 (1970). 72 (California v. FPC, 369 17.5. at 490. 73 41 l'.s. Law Week 4097 (Jan. 9, 1973).

44-46.

1

rules of the Exchange—which were within the statutory jurisdiction
of the Commission. Eight of the Justices, however, agreed that the
Commission would not have the antitrust question before it.74

In the fact situation presented by the Ricci case, the Court found
that there was an avenue available by which plaintiff could have
instituted proceedings before the Commodity Exchange Commission
and that because there was "sufficient statutory support for admin-
istrative authority in this area”,75 plaintiff should request that the
Commission institute proceedings to determine only whether the
action of the Exchange violated the Commodity Exchange Act or the
rules of the Exchange. The Court clearly indicated, however, that
the Commission did not have authority to consider the antitrust
question.

The Ricci case thus reaffirms the principle that antitrust issues are
not to be referred to a regulatory agency in the absence of an express
statutory grant of antitrust jurisdiction to that agency) but are to be
decided by the courts alone.

5. THE PROPOSALS FOR LEGISLATIVE IMMUNITY—THE SUBCOMMITTEE'S

ANALYSIS
Because some persons are of the opinion that the antitrust laws and
the securities laws are ineluctably in conflict, they have proposed
legislative alteration of the relationship between these two bodies of
law. Before analyzing these proposals, it is useful to review the purposes
of the antitrust laws and the benefits they have produced as applied to
the securities industry.
a. Purposes and Benefits of the Application of the Antitrust Laws
As the Supreme Court said in the Silver case:

[T]he antitrust laws serve, among other things to protect com-
petitive freedom, i.e. the freedom of individual business units
to compete unhindered by the group action of others
[T]he antitrust laws are peculiarly appropriate as a check
upon anticompetitive acts of exchanges. ... Applicability of
the antitrust laws, therefore, rests on the need for vindication

of their positive aim of insuring competitive freedom.78
The self-regulatory organizations are composed of firms which com-
pete against each other and with firms outside the organizations. As
Adam Smith observed more than two hundred years ago:

People of the same trade seldom meet together, even for
merriment and diversion, but the conversation ends in a
conspiracy against the public or in some contrivance to raise

prices.77
The antitrust laws represent the most effective means of checking
the inherent tendency of the members of self-regulatory organizations
to utilize these organizations to obtain anti-competitive economic
advantages for themselves.78 The threat of antitrust liability for
unjustifiable anti-competitive conduct compels a self-regulatory
74 See footnote 59 supra.
76 Silver v. New York Stock Exchange, 373 [7.S. 311, 359-60 (1963).
77 ADAM SMITH, AN INQUIRY INTO THE NATURE AND CAUSES OF THE WEALTH OF NATIONS 128-9 (3d
78 Silver v. New York Stock Exchange, su pra note 68, 373 l".S. at 359.

75 41 U.S. Law Week at 1102.

ed. 1826).

organization in the first instance to exercise self-restraint in taking action with anti-competitive consequences. Before acting, the selfregulatory organization must weigh whether the injury to competition in any area can "be justified as furthering legitimate self-regulative ends. 79 To meet this burden, it must develop and articulate a coherent rationale sufficient to justify the regulatory necessity of the action. The extent to which the self-regulatory organizations have failed to do so to date is illustrated by the SEC Staff Study of NYSE Rule 394,80 and by the answers given by the NYSE to questions raised by the SEC in 1969 concerning the anti-competitive impact of the NYSE's proposed public ownership rules.81

Regardless of what self-regulatory organizations should do in the future, it is clear that actual and potential applications of antitrust laws and principles have already made notable contributions to competition within the securities industry:

(1) The Multiple Trading Case.82A New York Stock Exchange Rule prohibited member firms from acting as specialists or odd-lot dealers on regional exchanges in dually listed securities. In a Section 19(b) proceeding, the SEC ordered this rule abrogated on the grounds, inter alia, that it would have an undue anti-competitive impact on the ability of the regionals to compete with the NYSE.

(2) The Silver Case. 83— As a result of this case, self-regulatory bodies have adopted procedures intended to meet at least the minimum requirements of procedural due process in disciplinary proceedings dealing with their members.

(3) Institutional Access.-The Pacific Coast Stock Exchange has a number of members who are affiliates of mutual funds and other institutional investors. The threat of antitrust litigation has played an important role in the PCSE's decisions to allow such access.*

(4) Commission Rates.-In 1968 the SEC began its Commission Rate Structure Hearings.85 The Antitrust Division of the Department of Justice participated in these hearings, attacking the fixed commission schedule and calling for competitive rates. 88 The result of these hearings was the phased-in introduction of competitive rates, discussed previously in this report.87 It seems clear that the intervention of the Justice Department contributed to this result and that the threat of antitrust liability contributed to the relatively prompt implementation of this change despite powerful opposition from some in the industry.88

70 Ibid.

60 Reprinted in 6 House Hearings, supra note 1, at 3293. Subject to limited exceptions, Rule 394 prohibits NYSE

members from purchasing or selling NYSE securities for customers on the third market, even if a better price is available there. The Staff Study concluded that the rule as it existed was anticompetitive, was applied inconsistently and in many cases thwarted rather than furthered the purposes of the Exchange Act.

81 See Securities Industry Study, Report of the Subcomm. on Securities of the Senate Comm. on Banking, Housing & Urban Affairs for the Period Ended February 4, 1972, 92d Cong., 2d Sess (1972) at 62-63 for a summary of this matter. For example, when the SEC asked the NYSE to justify its parent test, the NYSE asserted: (i) it was important for persons controlling member firms to be subject to SEC regulation; but (ii)t o eliminate the possibility that a parent might register with the SEC merely to meet the NSYE's requirement, the NYSE would require the parent to be primarily engaged in the securities business. Toid. See also discussion infra in text at footnotes 83-85.

82 Matter of The Rules of the New York Stock Exchange, 10 S.E.C. 270 (1941), discussed supra in text at
footnotes 15-16.
83 Silver v. New York Stock Exchange, 373 U.S. 341 (1963) discussed supra in text at footnotes 18-24.
64 4 Institutional Investor Study Report of the SEC. House Doc. 92-61, 92d Cong., 1st Sess. (1971) at 2309.
8 SEC Sec. Ex. Act Rel. No. 8324 May 28, 1968).
86 Memorandum of the United States Department of Justice on the Fixed Minimum Comraission Rate
Structure, SEC File No. 4-144 (Jan. 17, 1969).

67 See Chapter I.B. supra.i
88 See, e.g., Loeb Challenges Rate Procedure, N.Y. Times, Mar. 31, 1971, p. 61, col. 4.

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