The Compact Clause vs. the Multistate Tobacco Cartel

Over at Balkinization, guest blogger Michael Greve offers an excellent post explaining the Competitive Enterprise Institute’s pending cert. petition in a case challenging the tobacco cartel. In short, the 1998 Master Settlement Agreement for the lawsuits initiated by some state Attorneys General against the largest tobacco companies is a violation of the Compacts Clause. Article I, sect. 10, of the Constitution list some things that states may never do, and other things that states may only do with the consent of Congress.  The Compact Clause mandates: “No State shall, without the Consent of Congress…enter into any Agreement or Compact with another State…”

As Greve explains, the Supreme Court has not done much to enforce the Compact Clause for the last quarter century; but Greve points out that in 2009, the Roberts Court enforced another provision in section 10 (the Tonnage Clause) which had last been heard from in 1935. Even the Court’s most lax interpretations of the Compact Clause have not left the clause without meaning, and Greve persuasively argues that if the Compact Clause has any legal meaning, it must prohibit the MSA.

The CEI website has a page with links to various documents in the case, including an amicus brief in support of the cert. petition, signed by the impressively diverse and brilliant team of Kathleen Sullivan, Richard Epstein, and Alan Morrison.

As a practical matter, the MSA is a scheme by which a few tobacco giants, all of which were accused of decades of substantial misdeeds, including fraud, were allowed to create a system to cartelize the tobacco market, and to insulate their market shares against competition from smaller companies which had committed no wrong-doing. The VC’s Todd Zywicki participated in an antitrust professor amicus brief in favor of the cert. petition. That brief points out that the tobacco cartel is a classic violation of the Sherman Antitrust Act. As the Sherman Act has been interpreted, price-fixing is per se illegal, and price-fixing is the only antitrust violation which frequently results in criminal prosecution. While some precedents allow Sherman Act violations if they are part of a regulatory system supervised by a state, the antitrust professors argue that the tobacco cartel doe not fit within the scope of exceptions which have been authorized by Supreme Court precedent.