On March 17 we first reported on a pair of bills that expand the authority of the Attorney General to pursue antitrust enforcement actions under the Texas Free Enterprise and Antitrust Act (Chapter 15, Business & Commerce Code). HB 5214 and HB 5232 passed the House last week and were heard in Senate State Affairs Committee this morning.
Under current law, the attorney general may bring an action on behalf of the state to collect a civil fine against any person who the attorney general believes has violated antitrust laws. § 15.20, Business & Commerce Code. Additionally, any person or governmental entity, including the state, may bring a suit against a violator for actual damages, prejudgment interest, costs of suit, and reasonable attorney’s fees. If the fact finder finds that the violator’s conduct was willful or flagrant, however, the plaintiff may recover treble damages. § 15.21(a).
The proposed legislation amends each of these provisions to: (1) increase the amount of the civil fine the attorney general may recover under § 15.20 (HB 5232); and (2) authorize the attorney general to bring a civil suit on behalf of an individual or governmental entity to recover damages, including treble damages, under § 15.21 (HB 5214). Currently, the statute sets the amount of the civil fine at $1 million for a corporate violator and $100,000 for any other entity or individual. HB 5232 raises those amounts to $300,000 for an individual and: (1) $30 million for business entities with the lesser of assets or market capitalization of $500 million or more; (2) $20 million for entities with at least $100 million but less than $500 million; and (3) $3 million for entities with less than $100 million. It should be noted that the amount of the civil fine has not been increased since the statute was enacted in 1983, so simply adjusting for inflation would produce the proposed $300,000 figure for individuals and $3 million for entities at the low end of the scale.
Beyond that, however, HB 5232 proposes a very significant enhancement of civil fine authority that does not appear to be tethered to anything in particular (not that the amounts in current law are, either). And whereas the 1983 act distinguished between corporations and everyone else, HB 5232 imposes the heightened fines on all business entities, not just corporations. This change would appear to recognize the proliferation of liability-protected entities that can be created under post-1983 business organizations law, but that still does not explain upping the penalties by a factor of ten.
HB 5214 expands the law by rejecting the so-called “Illinois Brick Doctrine,” which held that federal antitrust law does not permit indirect purchasers to assert antitrust claims and recover damages. Ill. Brick Co. v. Ill., 431 U.S. 720 (U.S. 1977). In that decision, however, the Court held that state antitrust laws could do so without running afoul of federal pre-emption. The bill specifically authorizes the attorney general to sue for damages to an individual or governmental entity’s business or property directly or indirectly caused by an antitrust violation. It also instructs the court “to take all steps necessary to avoid duplicative recovery from” a defendant against whom both direct and indirect purchasers assert claims.
It goes without saying (though we’re saying it anyway) that this expansion substantially enlarges the universe of potential claims to include those asserted by indirect purchasers of goods and services, right down to the ultimate consumer. The bill could have allowed indirect purchasers to bring suit themselves in the form of a class action, but instead opts for the attorney general to fill that role. One way or the other, there is no question that the bill gives the attorney general a great deal more leverage than current law. Given the complexity of antitrust litigation, the intensive (and expensive) discovery involved, and the potentially enormous financial stakes, we can expect that outside counsel will become an important feature of litigation under the new law. We might also anticipate that third-party litigation funders could become involved as well, perhaps lured by the attractive prospect of treble damages (which, by the way, includes trebling of attorney’s fees). If any or all of that occurs, it is hard to imagine any business entity standing up to it for very long. Quite the whip hand, indeed.
A recent decision by the United States Supreme Court in Apple Inc. v. Pepper, 139 S. Ct. 1514 (2019), reaffirmed the Illinois Brick Doctrine. Thirty states and the District of Columbia, however, joined in an amicus curiae brief that urged the Court to overrule the doctrine and allow indirect purchasers to sue directly under the Clayton Act. The lead attorneys general on the brief were Generals Miller of Iowa and Paxton of Texas (you can read a copy of the brief below). This would seem to indicate a strong trend in the states to reject Illinois Brick.
At the same time, nevertheless, once indirect purchasers are allowed into the litigation stream, there is no end to it. Every single citizen of Texas, or any state, is inevitably affected by economic and market forces that occur at the macro level of the state, national, and international economy. While pharmaceutical manufacturers and technology companies have attracted more than their fair share of antitrust litigation in recent years, there is no reason to think that other industries won’t be the next targets of this kind of nationalized litigation. From a policy perspective, it would be wise to slow down and examine how bills like these fit into the larger objectives of improving the business climate and building on the incredible successes of the last 30 years.
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