You asked if it is legally permissible for two or more states to join together in an agreement to prohibit the granting of tax credits or other tax incentives to induce corporations or other business entities to move into their states. You specifically asked whether such an agreement would violate the federal antitrust laws. This office is not authorized to give legal opinions and this report should not be considered one.

SUMMARY

We found no court case that deals with the precise questions you presented. But it appears that the federal antitrust law would not prohibit states from entering into such an agreement. We spoke with attorney Robert Langer, a legal expert in federal and state anti-trust law. He indicated that an arrangement by states such as the one you expressed would probably not violate the federal anti-trust laws. Further, we are unaware of any other law or constitutional provision that would prohibit Connecticut from entering into such an arrangement.

ANTITRUST LAW

The Federal Sherman Anti-Trust Act generally makes illegal all contracts, combinations, or conspiracies in restraint of trade or commerce (15 USCA § 1 et seq. ). The act also outlaws combinations or conspiracies to monopolize interstate or foreign trade or commerce. The United States Supreme Court has construed this law to make illegal only those contracts or combinations that constitute unreasonable restraint of trade. Thus, not all combinations or conspiracies which affect a restraint on interstate trade violate the act; rather only those restraints that unreasonably restrict competition are unlawful (54 Am Jur 2d Monopolies and Restraint of Trade § 47). Where the primary direct effect of an alleged restraint is not anti-competitive the restraint is reasonable and does not violate this law (Keeld v. National Hockey League 594 F2d 1297 (CA9, Cal. ).

More importantly, the Sherman AntiTrust Act is directed against individuals and not states. Thus, the act forbids only those trade restraints and monopolizations that are created or attempted by individuals or corporations or combinations of individuals or corporations. No violation can be based on a restraint of trade or monopolization that results from valid government actions rather than private actions. Thus, the act does not restrain state actions or other official actions directed by a state even if such actions would violate the act if individuals performed them, at least where the actions are directed by the state while acting in a regulatory capacity as opposed to acting as a commercial participant in a given market.

Under principals of federalism and state sovereignty, a state that imposes an anti-competitive restraint as an act of government has absolute immunity from antitrust liability. (54 Am Jur 2d Monopolies and Restraint of Trade § 21; City of Columbia v. Ommi Outdoor Advertisement, 111 S. Ct. 1344). Under the state action doctrine, therefore, a state legislature that adopts anti-competitive legislation in its policy making capacity is exempt from the operation of the antitrust laws.

GC: eh