To determine whether the Sherman Antitrust Act preempts a state law, courts will engage in a two-step analysis, as set forth by the Supreme Court in Rice v. Norman Williams Co..
First, they will inquire whether the state legislation "mandates or authorizes conduct that necessarily constitutes a violation of the antitrust laws in all cases, or... places irresistible pressure on a private party to violate the antitrust laws in order to comply with the statute." Rice v. Norman Williams Co., 458 U.S. 654, 661; see also 324 Liquor Corp. v. Duffy, 479 U.S. 335
Second, they will consider whether the state statute is saved from preemption by the state action immunity doctrine. In California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97, 105, the Supreme Court established a two-part test for applying the doctrine: "First, the challenged restraint must be one clearly articulated and affirmatively expressed as state policy; second, the policy must be actively supervised by the State itself." Id..
The antitrust laws allow coincident state regulation of competition. The Supreme Court enunciated the test for determining when a state statute is in irreconcilable conflict with Section 1 of the Sherman Act in Rice v. Norman Williams Co.. Different standards apply depending on whether a statute is attacked on its face or for its effects.
A statute can be condemned on its face only when it mandates, authorizes or places irresistible pressure on private parties to engage in conduct constituting a per se violation of Section 1.
Rice sets out guidelines to aid in preemption analysis. Preemption should not occur "simply because in a hypothetical situation a private party's compliance with the statute might cause him to violate the antitrust laws." This language suggests that preemption occurs only if economic analysis determines that the statutory requirements create "an unacceptable and unnecessary risk of anticompetitive effect," and does not occur simply because it is possible to use the statute in an anticompetitive manner. It should not mean that preemption is impossible whenever both procompetitive and anticompetitive results are conceivable. The per se rule "reflects the judgment that such cases are not sufficiently common or important to justify the time and expense necessary to identify them." Another important, yet, in the context of Rice, ambiguous guideline regarding preemption by Section 1 is the Court's statement that a "state statute is not preempted by the federal antitrust laws simply because the state scheme might have an anticompetitive effect." The meaning of this statement is clarified by examining the three cases cited in Rice to support the statement. Rice v. Norman Williams Co. supports this misuse limitation on preemption. Rice states that while particular conduct or arrangements by private parties would be subject to per se or rule of reason analysis to determine liability, "here is no basis... for condemning the statute itself by force of the Sherman Act." Thus, when a state requires conduct analyzed under the rule of reason, a court must carefully distinguish rule of reason analysis for preemption purposes from the analysis for liability purposes. To analyze whether preemption occurs, the court must determine whether the inevitable effects of a statutory restraint unreasonably restrain trade. If they do, preemption is warranted unless the statute passes the appropriate state action tests. But, when the statutory conduct combines with other practices in a larger conspiracy to restrain trade, or when the statute is used to violate the antitrust laws in a market in which such a use is not compelled by the state statute, the private party might be subjected to antitrust liability without preemption of the statute.
Evidence from legislative history
The Act was not intended to regulate existing state statutes regulating commerce within state borders. The House committee, in reporting the bill which was adopted without change, declared:
No attempt is made to invade the legislative authority of the several States or even to occupy doubtful grounds. No system of laws can be devised by Congress alone which would effectually protect the people of the United States against the evils and oppression of trusts and monopolies. Congress has no authority to deal, generally, with the subject within the States, and the States have no authority to legislate in respect of commerce between the several States or with foreign nations.
See also the statement on the floor of the House by Mr. Culberson, in charge of the bill,
There is no attempt to exercise any doubtful authority on this subject, but the bill is confined strictly and alone to subjects over which, confessedly, there is no question about the legislative power of Congress....
And see the statement of Senator Edmunds, chairman of the Senate Judiciary Committee which reported out the bill in the form in which it passed, that in drafting that bill the committee thought that "we would frame a bill that should be clearly within our constitutional power, that we would make its definition out of terms that were well known to the law already, and would leave it to the courts in the first instance to say how far they could carry it or its particular definitions as applicable to each particular case as the occasion might arise." Similarly Senator Hoar, a member of that committee who with Senator Edmunds was in charge of the bill, stated
Now we are dealing with an offense against interstate or international commerce, which the State cannot regulate by penal enactment, and we find the United States without any common law. The great thing that this bill does, except affording a remedy, is to extend the common-law principles, which protected fair competition in trade in old times in England, to international and interstate commerce in the United States.
