OPINION OF THE COURT
CREDIT SUISSE SECURITIES (USA) LLC V. BILLING
551 U. S. ____ (2007)
SUPREME COURT OF THE UNITED STATES
NO. 05-1157
CREDIT SUISSE SECURITIES (USA) LLC, fka CREDIT
SUISSE FIRST BOSTON LLC, et al., PETITIONERS
v. GLEN
BILLING et al.
on writ of certiorari to the united states court of
appeals for the second circuit
[June 18, 2007]
Justice Breyer delivered the
opinion of the Court.
A group of buyers of newly issued
securities have filed an antitrust lawsuit against underwriting
firms that market and distribute those issues. The buyers claim
that the underwriters unlawfully agreed with one another that they
would not sell shares of a popular new issue to a buyer unless that
buyer committed (1) to buy additional shares of that security later
at escalating prices (a practice called “laddering”), (2) to pay
unusually high commissions on subsequent security purchases from
the underwriters, or (3) to purchase from the underwriters other
less desirable securities (a practice called “tying”). The question
before us is whether there is a “ ‘plain repugnancy’ ”
between these antitrust claims and the federal securities law. See
Gordon v.
New York Stock Exchange, Inc., 422. U.
S. 659, 682 (1975) (quoting
United States v.
Philadelphia Nat. Bank,
374 U. S. 321, 350–351
(1963)). We conclude that there is. Consequently we must interpret
the securities laws as implicitly precluding the application of the
antitrust laws to the conduct alleged in this case. See 422 U. S.,
at 682, 689, 691; see also
United States v.
National
Assn. of Securities Dealers, Inc.,
422 U. S. 694 (1975)
(NASD); Silver v.
New York Stock
Exchange,
373
U. S. 341 (1963).
I
A
The underwriting practices at
issue take place during the course of an initial public offering
(IPO) of shares in a company. An IPO presents an opportunity to
raise capital for a new enterprise by selling shares to the
investing public. A group of underwriters will typically form a
syndicate to help market the shares. The syndicate will investigate
and estimate likely market demand for the shares at various prices.
It will then recommend to the firm a price and the number of shares
it believes the firm should offer. Ultimately, the syndicate will
promise to buy from the firm all the newly issued shares on a
specified date at a fixed, agreed-upon price, which price the
syndicate will then charge investors when it resells the shares.
When the syndicate buys the shares from the issuing firm, however,
the firm gives the syndicate a price discount, which amounts to the
syndicate’s commission. See generally L. Loss & J. Seligman,
Fundamentals of Securities Regulation 66–72 (4th ed. 2001).
At the heart of the syndicate’s
IPO marketing activity lie its efforts to determine suitable
initial share prices and quantities. At first, the syndicate makes
a preliminary estimate that it submits in a registration statement
to the Securities and Exchange Commission (SEC). It then conducts a
“road show” during which syndicate underwriters and representatives
of the offering firm meet potential investors and engage in a
process that the industry calls “book building.” During this time,
the underwriters and firm representatives present information to
investors about the company and the stock. And they attempt to
gauge the strength of the investors’ interest in purchasing the
stock. For this purpose, underwriters might well ask the investors
how their interest would vary depending upon price and the number
of shares that are offered. They will learn, among other things,
which investors might buy shares, in what quantities, at what
prices, and for how long each is likely to hold purchased shares
before selling them to others.
On the basis of this kind of information, the
members of the underwriting syndicate work out final arrangements
with the issuing firm, fixing the price per share and specifying
the number of shares for which the underwriters will be jointly
responsible. As we have said, after buying the shares at a
discounted price, the syndicate resells the shares to investors at
the fixed price, in effect earning its commission in the
process.
B
In January 2002, respondents, a
group of 60 investors, filed two antitrust class-action lawsuits
against the petitioners, 10 leading investment banks. They sought
relief under §1 of the Sherman Act, ch. 647, 26 Stat. 209, as
amended, 15 U. S. C. §1; §2(c) of the Clayton Act, 38 Stat. 730, as
amended by the Robinson-Patman Act, 49 Stat. 1527, 15 U. S. C.
§13(c); and state antitrust laws. App. 1, 14. The investors stated
that between March 1997 and December 2000 the banks had acted as
underwriters, forming syndicates that helped execute the IPOs of
several hundred technology-related companies.
Id., at 22.
Respondents’ antitrust complaints allege that the underwriters
“abused the . . . practice of combining into underwriting
syndicates” by agreeing among themselves to impose harmful
conditions upon potential investors—conditions that the investors
apparently were willing to accept in order to obtain an allocation
of new shares that were in high demand.
Id., at 12.
These conditions, according to
respondents, consist of a requirement that the investors pay
“additional anticompetitive charges” over and above the agreed-upon
IPO share price plus underwriting commission. In particular, these
additional charges took the form of (1) investor promises “to place
bids . . . in the aftermarket at prices above the IPO price”
(
i.e., “laddering” agreements); (2) investor “commitments
to purchase other, less attractive securities” (
i.e.,
“tying” arrangements); and (3) investor payment of
“non-competitively determined” (
i.e., excessive)
“commissions,” including the “purchas[e] of an issuer’s shares in
follow-up or ‘secondary’ public offerings (for which the
underwriters would earn underwriting discounts).”
Id., at
12–13. The complaint added that the underwriters’ agreement to
engage in some or all of these practices artificially inflated the
share prices of the securities in question.
Id., at
32.
The underwriters moved to dismiss the
investors’ complaints on the ground that federal securities law
impliedly precludes application of antitrust laws to the conduct in
question. (The antitrust laws at issue include the commercial
bribery provisions of the Robinson-Patman Act.) The District Court
agreed with petitioners and dismissed the complaints against them.
See
In re Initial Public Offering Antitrust Litigation,
287 F. Supp. 2d 497, 524–525 (SDNY 2003)
(IPO
Antitrust). The Court of Appeals for the Second Circuit
reversed, however, and reinstated the complaints. 426 F. 3d 130,
170, 172 (2005). We granted the underwriters’ petition for
certiorari. And we now reverse the Court of Appeals.
II
A
Sometimes regulatory statutes
explicitly state whether they preclude application of the antitrust
laws. Compare,
e.g., Webb-Pomerene Act, 15 U. S. C. §62
(expressly providing antitrust immunity) with §601(b)(1) of the
Telecommunications Act of 1996, 47 U. S. C. §152 (stating that
antitrust laws remain applicable). See also
Verizon
Communications Inc. v.
Law Offices of Curtis V. Trinko,
LLP,
540 U. S.
398, 406–407 (2004) (analyzing the antitrust saving clause of
the Telecommunications Act). Where regulatory statutes are silent
in respect to antitrust, however, courts must determine whether,
and in what respects, they implicitly preclude application of the
antitrust laws. Those determinations may vary from statute to
statute, depending upon the relation between the antitrust laws and
the regulatory program set forth in the particular statute, and the
relation of the specific conduct at issue to both sets of laws.
Compare
Gordon, 422 U. S., at 689 (finding implied
preclusion of antitrust laws); and
NASD, 422 U. S., at
729–730 (same), with
Otter Tail Power Co. v.
United
States,
410 U.
S. 366, 374–375 (1973) (finding no implied immunity);
Philadelphia Nat. Bank, 374 U. S., at 352 (same); and
Silver, 373 U. S., at 360 (same). See also
Phonotele,
Inc. v.
American Tel. & Tel. Co., 664 F. 2d
716, 727 (CA9 1981).
Three decisions from this Court
specifically address the relation of securities law to antitrust
law. In
Silver the Court considered a dealer’s claim that,
by expelling him from the New York Stock Exchange, the Exchange had
violated the antitrust prohibition against group “boycott[s].” 373
U. S., at 347. The Court wrote that, where possible, courts should
“reconcil[e] the operation of both [
i.e., antitrust and
securities] statutory schemes . . . rather than holding one
completely ousted.”
Id., at 357. It also set forth a
standard, namely that “[r]epeal of the antitrust laws is to be
regarded as implied only if necessary to make the Securities
Exchange Act work, and even then only to the minimum extent
necessary.”
Ibid. And it held that the securities law did
not preclude application of the antitrust laws to the
claimed boycott
insofar as the Exchange denied the expelled
dealer a right to fair procedures.
Id., at
359–360.
In reaching this conclusion, the Court noted
that the SEC lacked jurisdiction under the securities law “to
review particular instances of enforcement of exchange rules”; that
“nothing [was] built into the regulatory scheme which performs the
antitrust function of insuring” that rules that injure competition
are nonetheless “justified as furthering” legitimate regulatory
“ends”; that the expulsion “would clearly” violate “the Sherman Act
unless justified by reference to the purposes of the Securities
Exchange Act”; and that it could find
no such justifying
purpose where the Exchange took “anticompetitive collective
action . . .
without according fair procedures.”
Id., at 357–358, 364 (emphasis added).
In
Gordon the Court considered an
antitrust complaint that essentially alleged “price fixing” among
stockbrokers. It charged that members of the New York Stock
Exchange had agreed to fix their commissions on sales under
$500,000. And it sought damages and an injunction forbidding future
agreements. 422 U. S., at 661, and n. 3. The lawsuit was filed at a
time when regulatory attitudes toward fixed stockbroker commissions
were changing. The fixed commissions challenged in the complaint
were applied during a period when the SEC approved of the practice
of fixing broker-commission rates. But Congress and the SEC had
both subsequently disapproved for the future the fixing of some of
those rates. See
id., at 690–691.
In deciding whether antitrust liability could
lie, the Court repeated
Silver’s general standard in
somewhat different terms: It said that an “implied repeal” of the
antitrust laws would be found only “where there is a ‘plain
repugnancy between the antitrust and regulatory provisions.’ ”
422 U. S., at 682 (quoting
Philadelphia Nat. Bank,
supra, at 350–351). It then held that the securities laws
impliedly precluded application of the antitrust laws in the case
at hand. The Court rested this conclusion on three sets of
considerations. For one thing, the securities law “gave the SEC
direct regulatory power over exchange rules and practices with
respect to the fixing of reasonable rates of commission.” 422 U.
S., at 685 (internal quotation marks omitted). For another, the SEC
had “taken an active role in review of proposed rate changes during
the last 15 years,” and had engaged in “continuing activity” in
respect to the regulation of commission rates.
Ibid.
Finally, without antitrust immunity, “the exchanges and their
members” would be subject to “conflicting standards.”
Id.,
at 689.
This last consideration—the conflict—was
complicated due to Congress’, and the agency’s, changing views
about the validity of fixed commissions. As far as the
past fixing of rates was concerned, the conflict was
clear: The antitrust law had forbidden the very thing that the
securities law had then permitted, namely an anticompetitive rate
setting process. In respect to the future, however, the conflict
was less apparent. That was because the SEC’s new (congressionally
authorized) prohibition of (certain) fixed rates would take effect
in the near-term future. And after that time the SEC and the
antitrust law would
both likely prohibit some of the
ratefixing to which the plaintiff’s injunction would likely apply.
See
id., at 690–691.
Despite the likely compatibility of the laws
in the future, the Court nonetheless expressly found
conflict. The conflict arose from the fact that the law
permitted the SEC to supervise the competitive setting of rates and
to “
reintroduc[e] . . . fixed rates,”
id., at 691
(emphasis added), under certain conditions. The Court consequently
wrote that “failure to imply repeal would render nugatory the
legislative provision for regulatory agency supervision of exchange
commission rates.”
Ibid. The upshot is that, in light of
potential future conflict, the Court found that the securities law
precluded antitrust liability even in respect to a practice that
both antitrust law and securities law might forbid.
In
NASD the Court considered a
Department of Justice antitrust complaint claiming that mutual fund
companies had agreed with securities broker-dealers (1) to fix
“resale” prices,
i.e., the prices at which a broker-dealer
would sell a mutual fund’s shares to an investor or buy mutual fund
shares from a fund investor (who wished to redeem the shares); (2)
to fix other terms of sale including those related to when, how, to
whom, and from whom the broker-dealers might sell and buy mutual
fund shares; and (3) to forbid broker-dealers from freely selling
to, and buying shares from, one another. See 422 U. S., at
700–703.
The Court again found “clear repugnancy,” and
it held that the securities law, by implication, precluded all
parts of the antitrust claim.
Id., at 719. In reaching
this conclusion, the Court found that antitrust law (
e.g.,
forbidding resale price maintenance) and securities law
(
e.g., permitting resale price maintenance) were in
conflict. In deciding that the latter trumped the former, the Court
relied upon the same kinds of considerations it found determinative
in
Gordon. In respect to the last set of allegations
(restricting a free market in mutual fund shares among brokers),
the Court said that (1) the relevant securities law “enables [the
SEC] to monitor the activities questioned”; (2) “the history of
Commission regulations suggests no laxity in the exercise of this
authority”; and hence (3) allowing an antitrust suit to proceed
that is “so directly related to the SEC’s responsibilities” would
present “a substantial danger that [broker-dealers and other
defendants] would be subjected to duplicative and inconsistent
standards.” See
NASD, 422 U. S., at 734–735.
As to the other practices alleged in the
complaint (concerning,
e.g., resale price maintenance),
the Court emphasized that (1) the securities law “vested in the SEC
final authority to determine whether and to what extent” the
relevant practices “should be tolerated,”
id., at 729; (2)
although the SEC has not actively supervised the relevant
practices, that is only because the statute “reflects a clear
congressional determination that, subject to Commission oversight,
mutual funds should be allowed to retain the initiative in dealing
with the potentially adverse effects of disruptive trading
practices,”
id., at 727; and (3) the SEC has supervised
the funds insofar as its “acceptance of fund-initiated restrictions
for more than three decades . . . manifests an informed
administrative judgment that the contractual restrictions . . .
were appropriate means for combating the problems of the industry,”
id., at 728. The Court added that, in these respects, the
SEC had engaged in “precisely the kind of administrative oversight
of private practices that Congress contemplated.”
Ibid.
As an initial matter these cases make clear
that Justice Thomas is wrong to regard §§77p(a) and 78bb(a) as
saving clauses so broad as to preserve all antitrust actions. See
post, p. ___ (dissenting opinion). The United States
advanced the same argument in
Gordon. See Brief for United
States as
Amicus Curiae in
Gordon v.
New York
Stock Exchange, Inc., O. T. 1974, No. 74–304, pp. 8, 42.
And the Court, in finding immunity, necessarily rejected it. See
also
NASD, supra, at 694 (same holding);
Herman &
MacLean v.
Huddleston,
459 U. S. 375, 383
(1983) (finding saving clause applicable to overlap between
securities laws where that “overlap [was] neither unusual
nor unfortunate” (internal quotation marks omitted)). Although one
party has made the argument in this Court, it was not presented in
the courts below. And we shall not reexamine it.
This Court’s prior decisions also make clear
that, when a court decides whether securities law precludes
antitrust law, it is deciding whether, given context and likely
consequences, there is a “clear repugnancy” between the securities
law and the antitrust complaint—or as we shall subsequently
describe the matter, whether the two are “clearly incompatible.”
Moreover,
Gordon and
NASD, in finding sufficient
incompatibility to warrant an implication of preclusion, have
treated the following factors as critical: (1) the existence of
regulatory authority under the securities law to supervise the
activities in question; (2) evidence that the responsible
regulatory entities exercise that authority; and (3) a resulting
risk that the securities and antitrust laws, if both applicable,
would produce conflicting guidance, requirements, duties,
privileges, or standards of conduct. We also note (4) that in
Gordon and
NASD the possible conflict affected
practices that lie squarely within an area of financial market
activity that the securities law seeks to regulate.
B
These principles, applied to the
complaints before us, considerably narrow our legal task. For the
parties cannot reasonably dispute the existence here of several of
the conditions that this Court previously regarded as crucial to
finding that the securities law impliedly precludes the application
of the antitrust laws.
First, the activities in question
here—the underwriters’ efforts jointly to promote and to sell newly
issued securities—is central to the proper functioning of
well-regulated capital markets. The IPO process supports new firms
that seek to raise capital; it helps to spread ownership of those
firms broadly among investors; it directs capital flows in ways
that better correspond to the public’s demand for goods and
services. Moreover, financial experts, including the securities
regulators, consider the general kind of joint underwriting
activity at issue in this case, including road shows and
book-building efforts essential to the successful marketing of an
IPO. See Memorandum
Amicus Curiae of SEC in
IPO
Antitrust, Case No. 01 CIV 2014 (WHP) (SDNY), pp. 15,
39–40, App. D to Pet. for Cert. 124a, 138a, 155a–157a (hereinafter
Brief for SEC). Thus, the antitrust complaints before us concern
practices that lie at the very heart of the securities marketing
enterprise.
Second, the law grants the SEC authority to
supervise all of the activities here in question. Indeed, the SEC
possesses considerable power to forbid, permit, encourage,
discourage, tolerate, limit, and otherwise regulate virtually every
aspect of the practices in which underwriters engage. See,
e.g., 15 U. S. C. §§77b(a)(3), 77j, 77z–2 (granting
SEC power to regulate the process of book-building, solicitations
of “indications of interest,” and communications between
underwriting participants and their customers, including those that
occur during road shows); §78o(c)(2)(D) (granting SEC power to
define and prevent through rules and regulations acts and practices
that are fraudulent, deceptive, or manipulative); §78i(a)(6)
(similar); §78j(b) (similar). Private individuals who suffer harm
as a result of a violation of pertinent statutes and regulations
may also recover damages. See §§78bb, 78u–4, 77k.
Third, the SEC has continuously exercised its
legal authority to regulate conduct of the general kind now at
issue. It has defined in detail, for example, what underwriters may
and may not do and say during their road shows. Compare,
e.g., Guidance Regarding Prohibited Conduct In Connection
with IPO Allocations, 70 Fed. Reg. 19672 (2005), with Regulation M,
17 CFR §§242.100–242.105 (2006). It has brought actions against
underwriters who have violated these SEC regulations. See Brief for
SEC 13–14, App. D to Pet. for Cert. 136a–138a. And private
litigants, too, have brought securities actions complaining of
conduct virtually identical to the conduct at issue here; and they
have obtained damages. See,
e.g.,
In re Initial
Pub. Offering Securities Litigation, 241 F. Supp. 2d 281
(SDNY 2003).
The preceding considerations show that the
first condition (legal regulatory authority), the second condition
(exercise of that authority), and the fourth condition (heartland
securities activity) that were present in
Gordon and
NASD are satisfied in this case as well. Unlike
Silver, there is here no question of the existence of
appropriate regulatory authority, nor is there doubt as to whether
the regulators have exercised that authority. Rather, the question
before us concerns the third condition: Is there a conflict that
rises to the level of incompatibility? Is an antitrust suit such as
this likely to prove practically incompatible with the SEC’s
administration of the Nation’s securities laws?
III
A
Given the SEC’s comprehensive
authority to regulate IPO underwriting syndicates, its active and
ongoing exercise of that authority, and the undisputed need for
joint IPO underwriter activity, we do not read the complaints as
attacking the bare existence of IPO underwriting syndicates or any
of the joint activity that the SEC considers a necessary component
of IPO-related syndicate activity. See Brief for SEC 15, 39–40,
App. D to Pet. for Cert. 138a, 155a–157a. See also
IPO
Antitrust, 287 F. Supp. 2d, at 507 (discussing the history of
syndicate marketing of IPOs); App. 12 (complaint attacks
underwriters “
abuse” of “the preexisting practice of
combining into underwriting syndicates” (emphasis added)); H. R.
Rep. No. 1383, 73d Cong., 2d Sess., 6–7 (1934); S. Rep. No.
792, 73d Cong., 2d Sess., 5 (1934) (law must give to securities
agencies freedom to regulate agreements among syndicate members).
Nor do we understand the complaints as questioning underwriter
agreements to fix the levels of their commissions, whether or not
the resulting price is “excessive.” See
Gordon, 422 U. S.,
at 688–689 (securities law conflicts with, and therefore precludes,
antitrust attack on the fixing of commissions where SEC has not
approved, but later
might approve, the practice).
We nonetheless can read the
complaints as attacking the
manner in which the
underwriters jointly seek to collect “excessive” commissions. The
complaints attack underwriter efforts to collect commissions
through certain practices (
i.e., laddering, tying,
collecting excessive commissions in the form of later sales of the
issued shares), which according to respondents the SEC itself has
already disapproved and, in all likelihood, will not approve in the
foreseeable future. In respect to this set of claims, they contend
that there is no possible “conflict” since both securities law and
antitrust law aim to prohibit the same undesirable activity.
Without a conflict, they add, there is no “repugnance” or
“incompatibility,” and this Court may not imply that securities law
precludes an antitrust suit.
B
We accept the premises of
respondents’ argument—that the SEC has full regulatory authority
over these practices, that it has actively exercised that
authority, but that the SEC has
disapproved (and, for
argument’s sake, we assume that it will continue to disapprove) the
conduct that the antitrust complaints attack. Nonetheless, we
cannot accept respondents’ conclusion. Rather, several
considerations taken together lead us to find that, even on these
prorespondent assumptions, securities law and antitrust law are
clearly incompatible.
First, to permit antitrust
actions such as the present one
still threatens serious
securities-related harm. For one thing, an unusually serious legal
line-drawing problem remains unabated. In the present context only
a fine, complex, detailed line separates activity that the SEC
permits or encourages (for which respondents must concede antitrust
immunity) from activity that the SEC must (and inevitably will)
forbid (and which, on respondents’ theory, should be open to
antitrust attack).
For example, in respect to “laddering” the SEC
forbids an underwriter to “solicit customers prior to the
completion of the distribution regarding whether and at what price
and in what quantity they intend to place immediate aftermarket
orders for IPO stock,” 70 Fed. Reg. 19675–19676 (emphasis deleted);
17 CFR §§242.100–242.105. But at the same time the SEC permits,
indeed encourages, underwriters (as part of the “book building”
process) to “inquir[e] as to a customer’s desired future position
in the longer term (for example, three to six months), and the
price or prices at which the customer might accumulate that
position without reference to immediate aftermarket activity.” 70
Fed. Reg. 19676.
It will often be difficult for someone who is
not familiar with accepted syndicate practices to determine with
confidence whether an underwriter has insisted that an investor buy
more shares in the immediate aftermarket (forbidden), or has simply
allocated more shares to an investor willing to purchase additional
shares of that issue in the long run (permitted). And who but a
securities expert could say whether the present SEC rules set forth
a virtually permanent line, unlikely to change in ways that would
permit the sorts of “laddering-like” conduct that it now seems to
forbid? Cf.
Gordon, supra, at 690–691.
Similarly, in respect to “tying” and other
efforts to obtain an increased commission from future sales, the
SEC has sought to prohibit an underwriter “from demanding . . . an
offer from their customers of any payment or other consideration
[such as the purchase of a different security] in addition to the
security’s stated consideration.” 69 Fed. Reg. 75785 (2004). But
the SEC would permit a firm to “allocat[e] IPO shares to a customer
because the customer has separately retained the firm for other
services, when the customer has not paid excessive compensation in
relation to those services.”
Ibid., n. 108. The National
Association of Securities Dealers (NASD), over which the SEC
exercises supervisory authority, has also proposed a rule that
would prohibit a member underwriter from “offering or threatening
to withhold” IPO shares “as consideration or inducement for the
receipt of compensation that is excessive in relation to the
services provided.”
Id., at 77810. The NASD would allow,
however, a customer legitimately to compete for IPO shares by
increasing the level and quantity of compensation it pays to the
underwriter. See
Ibid. (describing NASD Proposed Rule
2712(a)).
Under these standards, to distinguish what is
forbidden from what is allowed requires an understanding of just
when, in relation to services provided, a commission is
“excessive,” indeed, so “excessive” that it will remain
permanently forbidden, see
Gordon, 422 U. S., at
690–691. And who but the SEC itself could do so with
confidence?
For another thing, evidence tending to show
unlawful antitrust activity and evidence tending to show lawful
securities marketing activity may overlap, or prove identical.
Consider, for instance, a conversation between an underwriter and
an investor about how long an investor intends to hold the new
shares (and at what price), say a conversation that elicits
comments concerning both the investor’s short and longer term
plans. That exchange might, as a plaintiff sees it, provide
evidence of an underwriter’s insistence upon “laddering” or, as a
defendant sees it, provide evidence of a lawful effort to allocate
shares to those who will hold them for a longer time. See Brief for
United States as
Amicus Curiae 27.
Similarly, the same somewhat ambiguous
conversation might help to establish an effort to collect an
unlawfully high commission through atypically high commissions on
later sales or through the sales of less popular stocks. Or it
might prove only that the underwriter allocates more popular shares
to investors who will help stabilize the aftermarket share price.
See,
e.g., Department of Enforcement,
Disciplinary Proceeding No. CAF030014, pp. 12–13 (NASD Office of
Hearing Officers, Mar. 3, 2006).
Further, antitrust plaintiffs may bring
lawsuits throughout the Nation in dozens of different courts with
different nonexpert judges and different nonexpert juries. In light
of the nuanced nature of the evidentiary evaluations necessary to
separate the permissible from the impermissible, it will prove
difficult for those many different courts to reach consistent
results. And, given the fact-related nature of many such
evaluations, it will also prove difficult to assure that the
different courts evaluate similar fact patterns consistently. The
result is an unusually high risk that different courts will
evaluate similar factual circumstances differently. See Hovenkamp,
Antitrust Violations in Securities Markets, 28 J. Corp. L. 607, 629
(2003) (“Once regulation of an industry is entrusted to jury
trials, the outcomes of antitrust proceedings will be inconsistent
with one another . . . ”).
Now consider these factors together—the fine
securities-related lines separating the permissible from the
impermissible; the need for securities-related expertise
(particularly to determine whether an SEC rule is likely
permanent); the overlapping evidence from which reasonable but
contradictory inferences may be drawn; and the risk of inconsistent
court results. Together these factors mean there is no practical
way to confine antitrust suits so that they challenge only activity
of the kind the investors seek to target, activity that is
presently unlawful and will likely remain unlawful under the
securities law. Rather, these factors suggest that antitrust courts
are likely to make unusually serious mistakes in this respect. And
the threat of antitrust mistakes,
i.e., results that stray
outside the narrow bounds that plaintiffs seek to set, means that
underwriters must act in ways that will avoid not simply conduct
that the securities law forbids (and will likely continue to
forbid), but also a wide range of joint conduct that the securities
law permits or encourages (but which they fear could lead to an
antitrust lawsuit and the risk of treble damages). And therein lies
the problem.
This kind of problem exists to some degree in
respect to other antitrust lawsuits. But here the factors we have
mentioned make mistakes unusually likely (a matter relevant to
Congress’ determination of which institution should regulate a
particular set of market activities). And the role that joint
conduct plays in respect to the marketing of IPOs, along with the
important role IPOs themselves play in relation to the effective
functioning of capital markets, means that the securities-related
costs of mistakes is unusually high. It is no wonder, then, that
the SEC told the District Court (consistent with what the
Government tells us here) that a “failure to hold that the alleged
conduct was immunized would threaten to disrupt the full range of
the Commission’s ability to exercise its regulatory authority,”
adding that it would have a “chilling effect” on “lawful joint
activities . . . of tremendous importance to the economy of the
country.” Brief for SEC 40, App. D to Pet. for Cert. 157a.
We believe it fair to conclude that, where
conduct at the core of the marketing of new securities is at issue;
where securities regulators proceed with great care to distinguish
the encouraged and permissible from the forbidden; where the threat
of antitrust lawsuits, through error and disincentive, could
seriously alter underwriter conduct in undesirable ways, to allow
an antitrust lawsuit would threaten serious harm to the efficient
functioning of the securities markets.
Second, any enforcement-related need for an
antitrust lawsuit is unusually small. For one thing, the SEC
actively enforces the rules and regulations that forbid the conduct
in question. For another, as we have said, investors harmed by
underwriters’ unlawful practices may bring lawsuits and obtain
damages under the securities law. See
supra, at 10–11.
Finally, the SEC is itself required to take account of competitive
considerations when it creates securities-related policy and
embodies it in rules and regulations. And that fact makes it
somewhat less necessary to rely upon antitrust actions to address
anticompetitive behavior. See 15 U. S. C. §77b(b) (instructing
the SEC to consider, “in addition to the protection of investors,
whether the action will promote efficiency, competition, and
capital formation”); §78w(a)(2) (the SEC “shall consider among
other matters the impact any such rule or regulation would have on
competition”);
Trinko, 540 U. S., at 412 (“[T]he
additional benefit to competition provided by antitrust enforcement
will tend to be small” where other laws and regulatory structures
are “designed to deter and remedy anticompetitive harm”).
We also note that Congress, in an effort to
weed out unmeritorious securities lawsuits, has recently tightened
the procedural requirements that plaintiffs must satisfy when they
file those suits. To permit an antitrust lawsuit risks
circumventing these requirements by permitting plaintiffs to dress
what is essentially a securities complaint in antitrust clothing.
See generally Private Securities Litigation Reform Act of 1995, 109
Stat. 737; Securities Litigation Uniform Standards Act of 1998, 112
Stat. 3227.
In sum, an antitrust action in this context is
accompanied by a substantial risk of injury to the securities
markets and by a diminished need for antitrust enforcement to
address anticompetitive conduct. Together these considerations
indicate a serious conflict between, on the one hand, application
of the antitrust laws and, on the other, proper enforcement of the
securities law.
We are aware that the Solicitor General, while
recognizing the conflict, suggests a procedural device that he
believes will avoid it (in effect, a compromise between the
differing positions that the SEC and Antitrust Division of the
Department of Justice took in the courts below). Compare Brief for
Dept. of Justice, Antitrust Division, as
Amicus Curiae in
Case No. 01 CIV 2014, p. 23 (seeking no preclusion of the antitrust
laws), with Brief for SEC 39–40, App. D to Pet. for Cert. 155a–157a
(seeking total preclusion of the antitrust laws). He asks us to
remand this case to the District Court so that it can determine
“whether respondents’ allegations of prohibited conduct can, as a
practical matter, be separated from conduct that is permitted by
the regulatory scheme,” and in doing so, the lower court should
decide whether SEC-permitted and SEC-prohibited conduct are
“inextricably intertwined.” See Brief for United States as
Amicus Curiae 9. The Solicitor General fears that
otherwise, we might read the law as totally precluding application
of the antitrust law to underwriting syndicate behavior, even were
underwriters, say, overtly to divide markets.
The Solicitor General’s proposed disposition,
however, does not convincingly address the concerns we have set
forth here—the difficulty of drawing a complex, sinuous line
separating securities-permitted from securities-forbidden conduct,
the need for securities-related expertise to draw that line, the
likelihood that litigating parties will depend upon the same
evidence yet expect courts to draw different inferences from it,
and the serious risk that antitrust courts will produce
inconsistent results that, in turn, will overly deter syndicate
practices important in the marketing of new issues. (We also note
that market divisions appear to fall well outside the heartland of
activities related to the underwriting process than the conduct
before us here, and we express no view in respect to that kind of
activity.)
The upshot is that all four elements present
in
Gordon are present here: (1) an area of conduct
squarely within the heartland of securities regulations; (2) clear
and adequate SEC authority to regulate; (3) active and ongoing
agency regulation; and (4) a serious conflict between the antitrust
and regulatory regimes. We therefore conclude that the securities
laws are “clearly incompatible” with the application of the
antitrust laws in this context.
The Second Circuit’s contrary judgment is
Reversed.
Justice Kennedy took no part in
the consideration or decision of this case.
Comments
Be the first to comment
Leave a Comment