When Is A Petition Not A Petition? 'Sham' Liability For Pursuing Anticompetitive Government Action

Government action or inaction can have a significant impact on any industry, but in a highly regulated industry such as telecommunications, the direct impact of government activity is simply unavoidable. Even as the telecommunications industry moves from a monopoly model to a more competitive and deregulated environment, government involvement presents telecommunications companies with an opportunity to use, or abuse, the processes of government to injure their competitors. The abuse of government processes to injure competitors can constitute anticompetitive activity, which can lead to liability under the Sherman Act.1 Considering the harsh sanctions available to punish anticompetitive activity,2 telecommunications carriers should be aware of the point at which legitimate opposition directed against a competitor in Federal Communications Commission or state commission proceedings could be construed as a Sherman Act violation.

The line between use and abuse of the process-and thus the line between legitimate pursuit of one's interests and antitrust liability-is the subject of the Noerr-Pennington doctrine.3 An application of the First Amendment's guarantee of the right to petition the government, the Noerr-Pennington doctrine protects from antitrust liability persons who seek action from any branch of the state or federal government, so long as a favorable result legitimately is sought. Where the resort to government processes is a mere "sham" or cover for anticompetitive behavior, however, the protection does not apply. The difficulty arises in determining what is a "sham." This was the issue addressed by the Ninth Circuit recently in Kottle v. Northwest Kidney Centers.4

Kottle involved a business dispute between Northwest Kidney Centers ("Northwest"), then the sole provider of kidney dialysis services in the Seattle area, and King County Kidney Centers ("KCKC"), a prospective competitor. Under state law, the Department of Health regulates the opening of new health care facilities to ensure that facilities meet existing needs. KCKC applied for permission to open a new kidney dialysis center in the Seattle area. The Department held a public hearing, at which it invited comments by affected parties. Northwest and others appeared and opposed KCKC's application, suggesting that another facility was unnecessary in the market. The Department denied KCKC's application and KCKC did not seek review, although it was entitled to do so.

Three years later, Northwest itself applied for permission to open a second dialysis facility in the region. Kottle-who asserted that he was associated with KCKC-subsequently filed an antitrust action against Northwest. Kottle claimed that Northwest "made false statements of fact and misrepresentations about Kottle . . . and encouraged others to do so."5 Specifically, Kottle asserted that Northwest intentionally misrepresented to the Department that there was no need for kidney dialysis services when KCKC filed its application, and that this intentional misrepresentation was revealed by Northwest's own application three years later to open a new dialysis facility. Because Northwest's actions involved petitioning the government (its actions were directed at an administrative agency, in an attempt to influence that agency's decision), the court applied the Noerr-Pennington doctrine to analyze Kottle's claims.

The Origin And Extent Of The Noerr-Pennington Doctrine

[W]here a restraint upon trade or monopolization is the result of valid governmental action, as opposed to private action, no violation of the [Sherman] Act can be made out. [This is so because] under our form of government the question whether a law of that kind should pass, or if passed be enforced, is the responsibility of the appropriate legislative or executive branch of government so long as the law itself does not violate some provision of the Constitution.6

This premise forms the basis of the Noerr-Pennington doctrine,7 an exception to the Sherman Act's prohibition of acts in restraint of trade...

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