A PYMNTS Company

DOJ’s Probe into Four Automakers: Impartial Investigation or Politicization of Antitrust?

 |  October 29, 2019
NORTH AMERICA COLUMN BANNER

By Grant Petrosyan (Constantine Cannon)1

On
August 28, 2019, the United States Department of Justice (“DOJ”) sent letters
to four major automakers informing them that the federal government is
concerned about a possible agreement among the four car companies that may
violate federal antitrust laws.2
The letters asked the automakers to meet with the DOJ Antitrust Division and
provide “more information regarding the formation” of their commitment to the
State of California as well as the car companies’ communications with each
other.3

The
four automakers – Ford Motor Company (“Ford”), American Honda Motor Co., Inc.
(“Honda”), Volkswagen Group of America, Inc. (“Volkswagen”), and BMW of North
America, LLC (“BMW”) – each voluntarily agreed in July to meet more stringent
environmental and emissions standards set by the California Air Resources Board
(“CARB”).4
The voluntary framework agreement provides guidelines for achieving continuous
annual reductions in greenhouse gas emissions. The framework, which supports a
national solution for emissions standards, aims to revise greenhouse gas
standards, promote zero emission technology, increase innovation, and simplify
compliance.5

The
framework agreement provides stricter fuel-economy standards than those
proposed by the Trump administration.6 The
deal was drafted in response to the Environmental Protection Agency’s (“EPA”)
proposal to roll back greenhouse gas emission standards. According to the
framework agreement, automakers commit to increasing the fuel economy of their
new vehicles to nearly 50 miles per gallon by model year 2026 by reducing their
greenhouse gas emissions by 3.7 percent each year.7
This is more stringent than the targets proposed by the Trump administration,
which is seeking to roll back the Obama-era rules intended to reduce the auto
industry’s contribution to climate change.8

Political Reaction

This
issue has quickly become political. On the one hand, the Trump administration
and the DOJ Antitrust Division claim that the agreement among the four
automakers and California may constitute collusion in violation of federal
antitrust law. On the other side of the political aisle, Congressional
Democrats argue that the antitrust investigation is politically motivated.
Speaker Nancy Pelosi issued a statement that “[t]he Department of Justice’s reported
investigation of the auto companies is frivolous and pretextual, and seeks to
weaponize law enforcement for partisan political purposes to advance the Trump
administration’s toxic special interest agenda.”9  In defending the grounds for the antitrust
probe, the U.S. Assistant Attorney General for the Antitrust Division, Makan
Delrahim, stated that the antitrust investigation is driven by an honest
concern that the automakers may have colluded in reaching a deal on tighter
emissions standards with state regulators.

The
Trump administration has been outspoken against the agreement among the
automakers from the outset. In addition to the antitrust probe, the U.S.
Department of Transportation (“DOT”) and the EPA sent a letter to the CARB
putting California “on notice” that the agreement may be in violation of
federal law.10
In the letter, the General Counsels of the two agencies stated that the Energy
Policy and Conservation Act (“EPCA”) “expressly preempts States from setting
fuel economy standards for motor vehicles or taking any other action ‘related
to’ the regulation of fuel economy.”11
However, the DOT and EPA letter did not make any mention of potential antitrust
violations or an antitrust investigation.

Since
the announcement of the DOJ antitrust probe, the Trump administration has
already revoked California’s authority to set its own auto emissions limits. On
September 19, the EPA and the DOT’s National Highway Traffic Safety
Administration (“NHTSA”) issued a final rule entitled the “One National Program
Rule,” to enable the federal government to provide nationwide uniform fuel
economy and greenhouse gas emission standards for cars and other vehicles.12
The One National Program Rule effectively rescinded California’s waiver to the
Clean Air Act and, thus, eliminated California’s right to set its own
greenhouse gas emission standards. “The One National Program that we are
announcing today will ensure that there is one, and only one, set of national
fuel economy standards as Congress mandated and intended,” stated Elaine Chao,
DOT Secretary. “No state has the authority to opt out of the nation’s rules and
no state has the right to impose its policies on everybody else in our whole
country.”13

California
has already begun to fight back against the Trump administration. The State is
leading a coalition of states and cities to challenge the federal government’s
auto emissions policy and the NHTSA’s and EPA’s One National Program Rule.14
The states that have joined the lawsuit include those that have adopted California’s
more stringent emissions standards, such as New Jersey, New York, and
Pennsylvania.

Additionally,
nine environmental groups sued the DOT over its efforts to block California’s
more stringent emissions requirements.15 The
environmental organizations, which include the Sierra Club, Environment
America, and Public Citizen, among others, argue that the DOT has no authority
to revoke California’s ability to set its own emissions standards. They assert
that California has a long-standing right to set its own emissions limits, and
that the federal government does not have the authority to suddenly declare the
state’s power is preempted by the EPCA.16

Accusations
of the DOJ’s political motivations in launching the antitrust investigation
have reached far and wide including both the House of Representatives and the
Senate as well as several 2020 Democratic presidential candidates. On September
13, U.S. Senator and presidential candidate Kamala Harris sent a letter to the
Inspector General expressing her concerns about the antitrust probe and urging
the Office of Inspector General to investigate the grounds for the DOJ’s probe
of the four automakers.17
On September 17, Assistant Attorney General Makan Delrahim appeared for an
oversight hearing by the Senate Judiciary Subcommittee on Antitrust. During the
hearing, U.S. Senator and presidential candidate Amy Klobuchar questioned the
reasons the DOJ launched the antitrust probe.18
In her opening statement, Senator Klobuchar stated, “The automakers’ reported
conduct seems to be little more than an effort by regulated companies to
petition a state regulator for more favorable rules … Quite frankly the
antitrust investigation into these automakers appears to have less to do with
protecting competition than with intimidating parties that don’t fall into line
with the Trump administration’s plan to relax admission standards.”19

In
response to the subcommittee’s questions as to why the DOJ decided to launch an
antitrust investigation into the four automakers’ agreement, Delrahim claimed
that he is not doing it for political reasons. He explained that there may be
nothing wrong with the companies each announcing emissions targets
independently or getting together to petition the government on regulations or
legislation. However, he added, it becomes an issue if the companies
effectively reached a joint agreement on emission standards in private.

On
September 12, Delrahim published an op-ed in USA Today defending the DOJ’s
antitrust investigation into the four automakers.20 In the
op-ed, Delrahim stated that the DOJ has not been politicized and that “no goal,
well-intentioned or otherwise, is an excuse for collusion or other
anticompetitive behavior that runs afoul of antitrust laws,” and that
“[a]nti-competitive agreements among competitors – regardless of the purported
beneficial goal – are outlawed because they reduce the incentives for companies
to compete vigorously, which in turn can raise prices, reduce innovation and
ultimately harm consumers.” Delrahim provided examples of cases where the
Supreme Court struck down anticompetitive conduct despite the “laudable”
objectives of the conduct at issue.21

Parker
Immunity
and Noerr-Pennington

Even
if the car companies’ agreement is found to be anticompetitive, the automakers
will have a strong defense against any allegations of federal antitrust law
violations. The United States Supreme Court has long held that state and
municipal authorities are immune from federal antitrust lawsuits for actions
taken pursuant to a clearly expressed state policy that, when legislated, had
foreseeable anticompetitive effects.22
Thus, under the Parker immunity, or
state-action doctrine, when states approve and regulate certain conduct, even
if it is anticompetitive under antitrust law, the federal government must
respect the decision of the state. Consequently, if a state approves the
anticompetitive conduct, it is exempt from the scope of the Sherman Act and is
immune from any investigation by federal antitrust enforcement agencies. Thus,
anticompetitive regulation will survive antitrust challenge as long as a court
is satisfied that the restraint at issue is truly state action.23

The
state-action doctrine can also apply to private entities under certain
circumstances. In California Retail Liquor Dealers Assn. v. Midcal Aluminum,
Inc.,
the U.S. Supreme Court adopted a two-part test to determine whether
antitrust immunity will apply to private entities. In order for the private
entities to receive immunity under this doctrine, the following two
requirements must be met: (1) there must be a clearly articulated policy to
displace competition and (2) there must be active supervision by the state of
the policy or conduct. 24
In Parker, the Supreme Court concluded that the Sherman Act “makes no
mention of the state as such, and gives no hint that it was intended to retrain
state action or official action directed by a state.” The Court added that
“there is no suggestion of a purpose to restrain state action in the Act’s
legislative history.”25

Thus,
private entities can avail themselves of state action immunity as long as the
state has put into place sufficient safeguards to assure that the private
entities are pursuing state goals rather than their own. The first requirement
in the two-part test is “directed at ensuring that particular anticompetitive
mechanisms operate because of a deliberate and intended state policy.” The
second requirement’s purpose is to ensure that “the actor is engaging in the
challenged conduct pursuant to state policy.”26

In
addition to the likelihood of the automakers’ agreement with California being
protected by the state-action doctrine, there is a strong possibility that it
will also be protected under the Noerr-Pennington doctrine. Under this
doctrine, private entities receive antitrust immunity for attempts to influence
the passage or enforcement of laws, even if the laws they advocate for would
have anticompetitive effects. Thus, if the car companies are coordinating with
each other to influence California’s emission standards, the Noerr-Pennington
doctrine may apply and shield the agreement from antitrust liability.

The
Noerr-Pennington doctrine was adopted in the context of two U.S. Supreme
Court cases decided in the 1960s, Eastern Railroad Presidents Conference v.
Noerr Motor Freight, Inc.,
365 U.S. 127 (1961) and United Mine Workers
of America v. Pennington
, 381 U.S. 657 (1965). These cases and their
progeny recognized that the generally broad reach of the Sherman Act had to be
restrained where antitrust liability would impair the exercise of
constitutional rights, even with the intent to illegally restrain trade.27
The Noerr-Pennington doctrine is
grounded in the First Amendment’s free speech rights and protects the right of
competitors to jointly petition the government for government regulation of the
market.

Under the Noerr-Pennington doctrine, where the anticompetitive conduct is the result of valid governmental action, as opposed to private action, those urging the governmental action enjoy “absolute immunity” from antitrust liability for the anticompetitive restraint.28 Additionally, where, independent of any government action, the anticompetitive restraint results directly from private action, the restrain cannot form the basis of antitrust liability if it is “incidental” to a valid effort to influence governmental action.29 Although agreements among competitors generally raise antitrust concerns, the involvement of the State of California in this particular situation changes the analysis. Whether Ford, Honda, BMW, and Volkswagen violated federal competition law by agreeing with each other to follow heightened emissions standards beyond those proposed by the Trump administration remains to be seen. The four automakers have said they are cooperating with the DOJ and were scheduled to have their first meeting with the Antitrust Division in October.

Click here for a PDF version of the article


1 Grant Petrosyan is an associate at the New York office
of Constantine Cannon LLP. The views expressed in this article are the author’s
own and not those of Constantine Cannon LLP or its clients.

2 Gendron, Marie, U.S. Launches Antitrust Probe into California Automaker Agreement, TheStreet,(September 8, 2019), available at https://www.thestreet.com/markets/u-s-launches-antitrust-probe-into-california-automaker-agreement-15080868.

3 Shepardson, David, U.S. Launches Antitrust Probe into California Automaker Agreement, Reuters, (September 6, 2019), available at https://www.reuters.com/article/us-autos-emissions/u-s-launches-antitrust-probe-into-california-automaker-agreement-idUSKCN1VR1WG.

4 California and Major Automakers Reach Groundbreaking Framework Agreement on Clean Emission Standards, Office of Governor Gavin Newsom, (July 25,2019), available at https://www.gov.ca.gov/2019/07/25/california-and-major-automakers-reach-groundbreaking-framework-agreement-on-clean-emission-standards/.

5 Id.

6 Puko, Timothy & Foldy, Ben, Justice Department Launches Antitrust Probe Into Four Auto Makers, The Wall Street Journal, (September 6, 2019), available at https://www.wsj.com/articles/justice-department-launches-antitrust-probe-into-four-auto-makers-11567778958.

7 Kendall, Brent, Auto Makers Set to Meet With Justice Department on Antitrust Probe, The Wall Street Journal, (September 27, 2019), available at https://www.wsj.com/articles/auto-makers-set-to-meet-with-justice-department-on-antitrust-probe-11569596306.

8 Id.

9 Nancy Pelosi, Speaker of the House, Pelosi Statement on DOJ Antitrust Investigation into Four Automakers, (September 6, 2019), available at https://www.speaker.gov/newsroom/9619-2.

10 Letter from the Department of Transportation and the Environmental Protection Agency, (September 6, 2019), available at https://www.epa.gov/sites/production/files/2019-09/documents/epa.dot_puts_california_on_notice.pdf.

11 Id.

12 EPA Office of the Administrator, Trump Administration Announces One National Program Rule on Federal Preemption of State Fuel Economy Standards, News Releases, (September 19, 2019), available at https://www.epa.gov/newsreleases/trump-administration-announces-one-national-program-rule-federal-preemption-state-fuel.

13 Rodriguez, Juan Carlos, Trump Admin. Strips Calif. Of Auto Emissions Authority, Law360, (September 19, 2019), available at https://www.law360.com/articles/1200644/trump-admin-strips-calif-of-auto-emissions-authority.

14 Golderg, Keith, States Launch Challenge To Trump Auto Emissions Policy, Law360, (September 20, 2019), available at https://www.law360.com/articles/1201294.

15 Phillis, Michael, Enviros Say Trump Can’t Limit Calif.’s Auto Emissions Power, Law360, (September 27, 2019), available at https://www.law360.com/articles/1203648/enviros-say-trump-can-t-limit-calif-s-auto-emissions-power.

16 Id.

17 Letter from Sen. Kamala Harris, (September 13, 2019), available at https://www.harris.senate.gov/imo/media/doc/Harris%20OIG%20DHS%20letter.pdf.

18 Beene, Ryan, Senate Democrats Grill DOJ Official Over Automaker Investigation, Bloomberg, (September 17, 2019), available at https://www.bloomberg.com/news/articles/2019-09-17/doj-probe-of-automakers-looks-like-intimidation-klobuchar-says.

19 Id.

20 Delrahim, Makan, DOJ Antitrust Division: Popular ends should not justify anti-competitive collusion, USA Today, (September 12, 2019), available at https://www.usatoday.com/story/opinion/2019/09/12/doj-antitrust-division-popular-ends-dont-justify-collusion-editorials-debates/2306078001/.

21 Id.

22 Parker v. Brown, 317 U.S. 34 (1943).

23 Id.

24 California Retail Liquor Dealers Assn. v. Midcal
Aluminum, Inc.,
445 U.S. 97 (1980).

25 Id.

26
Id.

27
Dell, Inc. v. 3K Computers, LLC, 89 U.S.P.Q.2d 1958, 1959, 2008 WL 6600766
(S.D. Fla. 2008).

28
Allied
Tube & Conduit Corp. v. Indian Head, Inc.
, 486 U.S. 492, 108 S. Ct.
1931, 100 L. Ed. 2d 497 (1988).

29
Id.