Would Kentucky's proposed 2000 ban on below-cost gasoline sales survive constitutional review?

Plain-English summary

The Legislative Research Commission asked about a proposed Kentucky Fair Competition Act of 2000 aimed at below-cost motor-fuel sales and other pricing practices. The Attorney General predicted that a court would find the bill unconstitutional under Section 2 of the Kentucky Constitution. Its definitions of fuel "cost" included labor, rent, and other retail operating expenses, which the opinion said resembled cost formulas rejected in earlier Kentucky pricing cases. The bill was a proposal, not a law whose existing enforcement the opinion reviewed.

The opinion also discussed federal antitrust law. It said a Sherman Act challenge would turn on whether state involvement amounted to genuine control over pricing under the state-action cases. The Attorney General expressly declined to predict what a court would decide on that federal issue. It described the proposed act's validity under that doctrine as questionable and said a court might never reach it if the state constitutional question disposed of the case.

Currency note

This opinion was issued in 1999. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Q: Did the Attorney General think the proposed below-cost fuel bill would be constitutional? A: No. The opinion predicted that a court would reject it under Kentucky's prohibition on arbitrary power, relying on earlier decisions concerning below-cost pricing statutes.

Q: What troubled the opinion about the bill's definition of fuel cost?
A: The proposed formulas included portions of a retailer's labor and rental expenses. The opinion said using operating costs to calculate product cost could suppress a seller's legitimate competitive advantage, as earlier Kentucky cases had found with similar laws.

Q: Did the opinion hold that the bill violated the Sherman Act?
A: No. It said the federal analysis depended on whether the state itself exercised sufficient control over prices, and it did not predict a court's answer on that question.

Q: Was this opinion about an enacted fuel-pricing law?
A: No. It evaluated bill draft 00 RS BR 454, described in the opinion as the proposed Kentucky Fair Competition Act of 2000.

Background and statutory framework

The proposal covered several motor-fuel pricing and supply practices and defined separate cost measures for refiners and nonrefiners. The opinion compared those measures with Kentucky Supreme Court decisions that had invalidated pricing rules under the state constitution's arbitrary-power clause. For the federal issue, it reviewed the Sherman Act and the state-action exception, emphasizing that authorization of private price setting alone did not supply the state supervision discussed in the cited cases. It said the Clayton and Robinson-Patman Acts did not furnish the same basis for assessing this proposed state law.

Citations and references

Authorities: Kentucky Constitution, §2; 15 U.S.C.A. §§1-11; KRS 367.175.

Cases: Kentucky Milk Marketing and Antimonopoly Com’n v. Kroger Co., 691 S.W.2d 893 (1985); Remote Services, Inc. v. FDR Corporation, 764 S.W.2d 80 (1989).

Source

• Landing page: https://kdla.access.preservica.com/uncategorized/IO_43cb84d4-885a-43bb-8fc7-31347529b9fb/
• Original PDF: https://kdla.access.preservica.com/download/file/IO_43cb84d4-885a-43bb-8fc7-31347529b9fb

Original opinion text

OAG 99-9
December 17, 1999
Subject:

Validity of proposed motor fuel marketing act

Requested by:

Bobby Sherman, Executive Director
Legislative Research Commission

Written by:

Scott White
Assistant Deputy Attorney General

Syllabus:

The proposed Kentucky Fair Competition Act of 2000,
which would regulate motor fuel marketing, violates
§2 of the Kentucky Constitution and raises Federal
law issues of validity under the Sherman Anti- trust
Act.

Statutes construed:
15 U.S.C.A. §§1-11
15 U.S.C.A. §§ 12-27
15 U.S.C.A. §§13-13b, 21a
Kentucky Constitution, §2
KRS 367.175
OAGs cited:

OAG 93-74

Opinion of the Attorney General
This is in response to your request for an opinion of the Attorney
General’s Office regarding the predicted constitutionality of proposed
legislation found in bill draft 00 RS BR 454. This proposed legislation is
titled the Kentucky Fair Competition Act of 2000 (“Act”).

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The Act is in response to what some have viewed as unfair trade
practices in the motor fuel industry. Specifically, the Act seeks to prohibit the sale of motor fuel below cost. The Act provides detailed definitions for such “cost” related terms as “refiner cost,” “reasonable rental value,” “direct labor costs,” and “sale.” The Act prohibits no less than seven acts and practices which are deemed to be unfair trade practices. These seven prohibited acts and practices are as follows: (1)A motor fuel refiner or nonrefiner selling below cost where the effect is to injure competition; (2) A motor fuel refiner selling below the price charged under written contract with others in the relevant geographic area where the effect is to injure competition; (3) A motor fuel refiner or nonrefiner selling at a price lower than the price at which the motor fuel is sold at the same time to another at the same level of distribution within the relevant geographic area where the effect is to injure competition; (4) A motor fuel refiner or nonrefiner knowingly receiving for resale any motor fuel at a price lower than the price at which the seller sells motor fuel to another at the same level of distribution within the relevant geographic area where the effect is to injure competition; (5) A motor fuel refiner limiting or allocating motor fuel available under contract because of being prevented from meeting minimum quantities, unless such limitations or allocations are uniformly applied in a reasonable manner to all supplied by the refiner; (6) A motor fuel refiner limiting or allocating for more than a set period of time the quantity of motor fuel available purchased under contract, unless such limitations or allocations are uniformly applied in a reasonable manner to all supplied by the refiner;

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(7) A motor fuel refiner giving rebates, subsidies, or concessions not uniformly available to all supplied by the refiner. Exceptions to the above-summarized prohibited practices are few and generally narrow. Fines can amount to $10,000 per day for knowing violations of the Act. The Act further grants this Office the authority to investigate alleged violations of the Act, as well as the authority to file suit to recover penalties. Finally, the Act creates a private cause of action for persons injured whereby they can recover triple actual damages as well as reasonable attorney’s fees, in addition to immediate remedies such as injunctive relief. State Law Analysis Previous statutes that attempted to prohibit below cost sales have been scrutinized under both Federal and State law. The crux of previous opinions on such unfair trade practice statutes has been the definition of “cost.” Ultimately, all such statutes were found unconstitutional under state constitutional law. The two most notable cases dealing with unfair trade practice statutes are Kentucky Milk Marketing and Antimonopoly Com’n v. Kroger Co., Ky., 691 S.W.2d 893 (1985) and Remote Services, Inc. v. FDR Corporation, Ky., 764 S.W.2d 80 (1989). The first such attempt can be found in Kentucky Milk Marketing, supra. At issue was the Kentucky Milk Marketing Law. The Court provided a synopsis of the law as follows: In summary, this law prohibit[ed] any distributor, processor, bulk milk handler, store, or producer-handler from engaging in any marketing practice established as unreasonable by the Commission (or the Act) for the purpose or with the effect of restraining, lessening or destroying competition or injuring one or more competitors or injuring one or more persons dealing in milk production or to impair or prevent fair competition in the sale of milk and milk products. [Citation omitted.] Specifically, this section of the Act prohibit[ed] selling “below cost” for the purpose of injuring or destroying competition or with the effect of otherwise in-

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juring a competitor, or destroying competition, or of creating a monopoly. [Citation omitted.] Id. at 896. In determining the validity of this law, the court focused on the definition of “cost.” The statute defined “cost to the store” as the invoice price of the milk paid by the retailer, plus the cost of doing business which included but was not limited to: all costs incurred in the conduct of said store such as labor, salaries, rent, interest, depreciation, power, supplies, maintenance, selling cost, advertising, transportation, delivery cost, credit losses, all overhead expenses, and all types of licenses, taxes, insurance and advertising.” Id. at 897. In the analysis of this definition of “cost,” the Court held that the evidence was “incontrovertible that many, if not all, of the costs incurred by grocery retailers have nothing to do with the actual cost of selling milk.” Id. It was the inclusion of these costs of doing business that convinced the Court that the Milk Marketing Law was really a minimum mark-up law rather than an anti-monopoly law. As a minimum mark-up law, the Court found the Milk Marketing Law to be arbitrary and capricious, violating §2 of the Kentucky Constitution. This section of the Constitution pertains to the denial of absolute and arbitrary power. It states: “Absolute and arbitrary power over the lives, liberty and property of free men exists nowhere in a republic, not even in the largest majority.” Id. The Court has interpreted this section to mean: “Whatever is contrary to democratic ideals, customs and maxims is arbitrary. . . . [W]hatever is essentially unjust and unequal or exceeds the reasonable and legitimate interests of the people is arbitrary.” Kentucky Milk Marketing, supra., at 899. The test that is often derived from Kentucky Milk Marketing is that the definition of “cost” must not include elements of business operation that have nothing to do with the cost of selling the product. This greatly underestimates the contempt with which the Kentucky Supreme Court holds legislation which attempts to prevent the sale of

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products below cost. The Court expressed this deep seated dislike for
such legislation in Kentucky Milk Marketing when it cited its holding in
General Electric Co. V. American Buyers Cooperative, Ky., 316 S.W.2d
354 (1958). In that case, the Court said:
Our Bill of Rights declares as one of “the great and essential principles of liberty and free government” and as “inherent and inalienable . . . the right of acquiring and protecting property” . . . This is free enterprise. Our economic system is founded upon competition --“the life of trade.” It is an established principle that the constitutional guaranty of the right of property protects it . . . from any unjustifiable impairment or abridgement of this right, such as depriving the owner of any of its essential attributes or such as restricts or interrupts its common necessary or profitable use. . . The right of the owner to fix the price at which his property shall be sold is an inherent attribute of the property itself . . .” Supplemental to this property right provision is §2 of the Constitution which forbids the exercise of arbitrary power of government over the “property of free men.” Citation omitted. Kentucky Milk Marketing, supra., at 900. The Court went on to state that regardless of whether the Kentucky Milk Marketing Act was interpreted as a minimum mark-up law or simply a prohibition of selling below costs, it was: clearly an arbitrary interference with ‘the right of the owner to fix the price at which his property shall be sold.’
[Citation omitted.] It is an arbitrary interference with the
free flow of commerce -- the free enterprise system--and is
not justified by the police power of the state. It is clearly a
violation of the letter and spirit of Section 2 of our Bill of
Rights
Id.

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The Court felt so strongly about this position that when the issue
was revisited in Remote Services, Inc. v. FDR Corporation, Ky., 764
S.W.2d 80 (1989), it took an equally unyielding stance. At issue in this
case was the Unfair Trade Practices Act, an act which prohibited any
person within the state from selling, offering for sale, or advertising for
sale “any article or product, or service or output of a service trade, at
less than the cost thereof to such vendor.” Id. at 81. “Cost” was defined as:
[T]he invoice or replacement cost, whichever is lower, of
the article or product to the distributor and vendor plus the
cost of doing business by the distributor and vendor. The
‘cost of doing business’ or ‘overhead expense’ means all
cost of doing business incurred in the conduct of the business and must include without limitation the following items of expense: Labor (including salaries of executives and officers), rent, interest on borrowed capital, depreciation, selling cost, maintenance of equipment, delivery cost, credit losses, all types of licenses, taxes, insurance, and advertising. Id. Appellants were accused of selling gasoline below cost in violation of this act. The Kentucky Court of Appeals upheld the act, finding that it was simply a “trade-practice measure” rather than a minimum mark-up law. In its analysis, the Court of Appeals majority stated:
[T]he monopolistic potential of price undercutting is, in the
long run, more hostile to public interest than is the value of
temporarily low prices. The benefits to be gained from
transiently low prices are so Lilliputian as to be grossly outweighed by the potential for an economic leviathan to destroy all competition and thus to consume the consuming public. Id. at 81. When Remote Services, Inc. reached the Kentucky Supreme Court, the justices responded to the Court of Appeals analysis. They stated:

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Analyzing the legislative policy of the General Assembly in
enacting the statute, [the Court of Appeals] concluded, in a
quantum leap of logic and with a considerable amount of
fact finding on its own, that temporary price cutting would
lead to monopolies which would “consume the consuming
public.” There is no basis for such a conclusion in the
record before us and no such conclusion can be justified by
the wording of the statute. That statement, at best, represents a subjective view of the majority, and does not comport with either the facts or viable economic theory. Id. at 82. The Court went on to hold that when “cost” or “cost of doing business” includes the cost of “labor, salaries, rent, interest, depreciation, power, supplies, maintenance, selling costs, transportation, delivery costs, lease taxes, etc.,” this goes beyond the cost of the product. Id. It amounts to the inclusion of other legitimate competitive advantage and violates the constitution. Id. Such a broad definition of “legitimate competitive advantage” makes it difficult to define cost as anything other than the invoice cost of the product. A narrow definition of cost, limited only to the invoice cost of the product, is also consistent with prior opinions of this Office. In OAG 9374, this Office was asked to opine on the constitutionality of the Unfair Cigarette Sales Law. This law forbade the sale of cigarettes below cost. The “cost to the retailer” was defined to include the basic cost of the cigarettes plus the cost of doing cigarette business by the retailer. In determining the cost of doing cigarette business by the retailer, the cost of doing all business by the retailer was calculated, including all overhead costs to the seller. This amount was then multiplied by the fraction of the retailer’s business that was cigarette sales over the past six months. This was an attempt to scale the cost of doing business to represent only that portion of operating expenses which relate to the product being regulated. This Office opined that by the inclusion of the seller’s operational expense into the cost calculations, courts would view the law as having the same defect that defeated both the Milk Marketing Law and the Unfair Trade Practices Act.

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As is evident from Kentucky Milk Marketing, Remote Services,
and OAG 93-74, the Kentucky Supreme Court views both minimum
mark-up laws and prohibitions against selling below cost as “an arbitrary interference with the free flow of commerce --the free enterprise system.” Kentucky Milk Marketing, supra.,at 900. As a result, cost definitions which include even a fraction of the seller’s operational expense will likely be found to be a minimum mark-up and, thereby, violative of §2 of the Kentucky Constitution. From dicta in both Kentucky Milk Marketing and Remote Services, Inc., even if the perfect definition of “cost” was drafted, the Court would likely find that a statute prohibiting product sales below cost would still violate §2 of the Kentucky Constitution as “an arbitrary interference with the free flow of commerce.” Kentucky Milk Marketing, supra.,at 900. The Kentucky Fair Competition Act of 2000 (“Act”) defines “cost” variables in several areas of the proposed legislation. “Direct labor costs,” “Nonrefiner costs,” “Reasonable rental value,” and “Refiner cost” are all definitions which address some portion of what is ultimately considered the cost below which motor fuel cannot be sold. “Direct labor cost” include:
[T]he personnel costs incurred at a retail facility attributable to providing motor fuel sales at a retail facility, including, but not limited to, the personnel costs relating to the purchase, storage, inventory, and sale of motor fuel, the maintenance of equipment, and environmental reporting and compliance, but does not include the costs of environmental cleanup or remediation. Act, §1(4). “Nonrefiner cost” is defined to include:
[T]he nonrefiner’s invoice cost of the motor fuel . . . to
which shall be added federal, state, and local taxes and inspection fees applicable to motor fuel; freight charges to the retail facility; and direct labor costs and the reasonable

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rental value of the retail facility attributable to the sale of
motor fuel by the nonrefiner.
Act, §1(7).
“Reasonable rental value” is defined to include:
[T]he bona fide amount of rent that would reasonably be
paid in a transaction for the use of the specific individual
retail facility, including land and improvements, utilized for
the sale of motor fuel. The value of the land and improvements shall include the cost of equipment; signage; utilities, property taxes, and insurance, if paid by the owner; and environmental compliance including testing, detection, and containment systems ... When motor fuel is sold at the retail level along with other products, the reasonable rental value attributable to the sale of motor fuel at the retail facility shall be allocated by the percentage of gross sales attributable to motor fuel sales. Act, §1(10). Finally, “Refiner cost” is defined to include:
[A] refiner’s posted terminal price plus state, federal, and
local taxes, inspection fees applicable to motor fuel, freight
charges to the refiner’s retail facility, and direct labor costs
and reasonable rental value of the retail facility attributable
to the retail sale of motor fuel by the refiner.
Act, §1(12).
If the Act is submitted to the Court on a constitutional challenge,
all the above definitions will be scrutinized under the same standards
used in Kentucky Milk Marketing and Remote Services, Inc.. Under
such an analysis, each definition would fail. These definitions are similar to those used in the Unfair Cigarette Sales Act and examined in OAG 93-74. They are similar in that only a portion of the seller’s overall cost of doing business is applied in determining cost. They are also

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similar in that the overall cost of doing business still comprises an integral part of the “cost” calculation. To determine the personnel costs incurred at a retail facility attributable to providing motor fuel sales, an element of “direct labor cost,” one must use the overall personnel costs of the retail facility. To determine the direct labor costs and the reasonable rental value of the retail facility attributable to the sale of motor fuel by the refiner and nonrefiner, an element of “refiner cost” and “nonrefiner cost”, one must use the overall labor costs and total rental value of the retail facility. It is the use of operational costs to determine product cost that has led the Court to find that legitimate competitive advantage was included in past definitions of “cost.” It is the opinion of this Office that the Act’s use of operational costs to determine motor fuel costs will permit the Court to find the Act unconstitutional as well. Federal Law Analysis The three federal acts that become issues with fair marketing legislation are the Sherman Anti-Trust Act, (15 U.S.C.A. §§1-11), the Clayton Act, (15 U.S.C.A. §§12-27) and the Robinson-Patman Act (“R-P Act”), (15 U.S.C.A. §§13-13b, 21a). Some commentators have proposed that it is unnecessary to analyze state unfair trade practices legislation under Federal laws such as the Sherman, Clayton, and R-P Acts. Perkins, Phillips, Schwartz, A Place For Fair Competition Acts In Motor Fuel Marketing, 26 Northern Kentucky Law Review 211, 226-227 (1999). In this article the authors state: While the Sherman Act, Clayton Act, and Robinson-Patman Act govern anticompetitive pricing and monopolization, none effectively promotes fair competition. . . . [F]ederal antitrust laws have the single goal of promoting efficiency and consumer welfare by encouraging practices that reduce prices, regardless of the effect on competitors or the competitive fabric of the local market. . . . Thus, the real task of keeping the fabric of local markets competitive falls in the jurisdiction of state fair competition acts.

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Id. Even so, previous courts have engaged in Federal law analysis
when considering the validity of state fair competition laws. As a result, those decisions and the Federal laws themselves must be considered when opining on the potential validity of the Act. The Sherman Act is an antitrust measure found in 15 U.S.C.A.
§§1-11. The sections of greatest applicability when determining the validity of a state fair competition law are sections 1 and 2. Section 1 states: Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal. 15 U.S.C.A. §1. Section 2 states: Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony. . . 15 U.S.C.A. §2. Sections 3 through 11 pertain to territories and the District of Columbia as they are not included in sections one and two, jurisdictional matters, the addition of parties, forfeiture of property, trade with foreign nations, a definitional section, and the importing of articles from foreign countries. Section 1 of the Sherman Act “is directed at concerted action between two separate individuals or entities only. Unilateral actions are not encompassed within the statute.” A Place For Fair Competition Acts In Motor Fuel Marketing, supra. at 220. Section 2 of the Sherman Act “encompasses not only concerted action among several individuals or entities but extends to unilateral action as well.” Id. The authors of this article note a further distinction between sections 1 and 2 of the Sherman Act. Decisions indicate that section 2 “may be violated when there is a ‘dangerous probability’ that an attempt to achieve monopoly power will succeed.” Id. (Citation omitted). On the whole, “[a]pplying

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the Sherman Act requires a court to consider whether a restraint of
trade is ‘unreasonable.’” Kazee, The Sherman Act And The Arbitrary
Power Section Of The Kentucky Constitution As Applied To Kentucky
Fair Trade Laws, 20 Northern Kentucky Law Review 297, 298 (1993),
citing Standard Oil Co. of New Jersey v. United States, 221 U.S. 1
(1911).
Kentucky decisions applying the Sherman Act to state fair competition laws are sparse. Both Kentucky Milk Marketing and Remote Services were decided on state law grounds rather than Federal law. However, the Court does engage in a perfunctory Federal law analysis. In Kentucky Milk Marketing, supra., the Court notes that because it decided the case on state constitutional grounds, they would not discuss the Federal law implications, specifically those relating to the Sherman Act. Id. at 895. However, the Court does recognize that “minimum mark-up laws (unless authorized as state action) are violative of the Sherman Anti-Trust Act.” Kentucky Milk Marketing, supra., at 900. In Remote Services, supra., the Court simply applied the same reasoning used in Kentucky Milk Marketing to find the Unfair Trade Practices Act unconstitutional. Id. at 82. As a result, there was no federal law analysis. The Supreme Court of the United States has provided Sherman Act analysis of state unfair trade practice legislation in two noteworthy cases. Parker v. Brown, 63 S.Ct. 307, 310 (1943) dealt with a challenged California raisin marketing program implemented by the California state legislature. The purpose of the program was to “restrict competition among the growers and maintain prices in the distribution of their commodities to packers.” Id. at 311. Plaintiffs alleged that the program constituted restraint of trade. Id. at 310. The Court found “nothing in the language of the Sherman Act or its history which suggests that its purpose was to restrain a state or its officers from activities directed by its legislature.” Id. As a result of this decision, state legislated price regulation was given an immunity to the Sherman Act. The Supreme Court again considered state unfair trade practice legislation in California Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 100 S.Ct. 931 (1980). The Court derived from Parker a two prong test which, if met, gives anti-trust immunity to state price regulation.

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“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. at 943. The Midcal case involved California legislation that required wine producers, wholesalers, and rectifiers to file fair trade contracts or price schedules in an attempt to prevent wine merchants from selling wine below set prices. Id. at 940. The Court applied the two prong test to the legislation. It found the legislative policy to be “forthrightly stated and clear in its purpose to permit resale price maintenance.” Id. at 943. Therefore, the legislation meet the first prong. The Court then went on to hold that the legislation did not met the second requirement. It stated: The State simply authorizes price setting and enforces the prices established by private parties. The State neither establishes prices nor reviews the reasonableness of the price schedules; nor does it regulate the terms of fair trade contracts. The State does not monitor market conditions or engage in any “pointed reexamination” of the program. The national policy in favor of competition cannot be thwarted by casting such a gauzy cloak of state involvement over what is essentially a private price-fixing arrangement. As Parker teaches, “a state does not give immunity to those who violate the Sherman Act by authorizing them to violate it, or by declaring that their action is lawful...” Id. Kentucky courts did have the opportunity to interpret the Supreme Court’s analysis and apply the two prong “state action” test from Midcal in Alcoholic Beverage Control Board of the Commonwealth of Kentucky v. Taylor Drug Stores, Inc., Ky., 635 S.W.2d 319 (1982). The Kentucky Supreme Court noted that “the real problem in this and other similar cases is to determine whether the anticompetitive conduct is primarily state action or the action of private individuals under a cloak of state authority.” Id. at 323. The standard developed by the Kentucky Supreme Court is as follows:

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It seems to us that the critical test of “state action” must
be whether the state exercises some reasonable degree of
control over the prices. Somewhere along the line, an
agency of the state must possess and must exercise the
right to pass judgment, either by itself establishing the
price, or by reviewing and accepting, rejecting or modifying
a price set by someone else. Without this ultimate power,
no amount of monitoring, supervision, re-examination, or
prescribing of contract terms can have any meaningful effect.
Id. at 324.
This Office cannot opine as to what a court would decide when
considering the Act’s validity under the Sherman Act and the two prong
“state action” test. Considering the decisions in Milk Marketing and
Remote Services, there is a great probability that Kentucky courts
would not even reach Federal law analysis. Should the court commence such an analysis, bear in mind that they will be looking for “state action” amounting to at least a “reasonable degree of control over prices.” Taylor Drug, supra. at 324. Without such “state action”, state unfair trade practice acts are found to be merely state sanctioned “private price-fixing.” Midcal, supra. at 943. The Sherman Act has state law implications as well. The Kentucky Consumer Protection Act contains an antitrust provision, found in KRS 367.175, which has language analogous to the Sherman Act. In fact, in the case of Borg-Warner Protective Services Corp. v. Guardsmark, Inc., 946 F.Supp. 495, 500, FN. 5, (E.D.Ky. 1996), the Court noted that: the Kentucky Consumer Protection Act is virtually identical to the Sherman Anti-Trust Act and has been interpreted as such. Therefore, if the defendant is entitled to summary judgment on the Sherman Antitrust Act claim, it is also entitled to summary judgment on the Kentucky Consumer Protection Act claim.

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Subsections (1) and (2) of KRS 367.175 mirror sections (1) and
(2) of the Sherman Act. Subsection (1) of KRS 367.175 makes unlawful
“[e]very contract, combination in the form of trust and otherwise, or
conspiracy, in restraint of trade or commerce.” Subsection (2) of KRS
367.175 makes it unlawful “to monopolize, or attempt to monopolize or
combine or conspire with any other person or persons to monopolize
any part of the trade or commerce in this Commonwealth.” In recognition of the similarities, Kentucky courts have looked to federal court interpretations of the Sherman Act to derive the appropriate standards to apply when interpreting KRS 367.175. Mendell v. Golden-Farley of Hopkinsville, (Ky.App.) 573 S.W.2d 346, 349 (1978). Therefore, if the Kentucky Fair Competition Act of 2000 were found to violate the “state action” doctrine derived from the Sherman Act, a court would likely find this to be a violation of the Kentucky antitrust provisions as well. The remaining Federal laws to consider are those found in the Clayton Act and Robinson-Patman Act (R-P Act). The Clayton Act is an antitrust measure found in 15 U.S.C.A. §§12-27. The R-P Act consists of amendments to the Clayton Act, found in 15 U.S.C.A. §§13-13b and 21a. While the Sherman Act has been utilized in Parker v. Brown, Midcal, and Taylor Drug to determine the validity of state fair competition acts, this is not the case for the Clayton or R-P Act. The application of the latter two acts has been limited, thus far, to enforcement against sellers and buyers accused of involvement in price discrimination. The argument has been made that the language of the Clayton and R-P Acts create boundaries which no state fair competition act can exceed. This argument was rejected in Arkansas Hospital Ass’n v. Arkansas State Board of Pharmacy, 763 S.W.2d 73 (1989). In that case, the Arkansas Supreme Court held that the fact that an Arkansas statute which prohibited non-profit hospitals from holding retail pharmacy permits was broader in scope than the R-P Act did not invalidate the state statute. Id. at 75. Therefore, in a Federal law analysis of the validity of a state unfair trade practice act, it is unnecessary to consider either the Clayton Act or the R-P Act. Thus far, their application has been limited to buyers and sellers and not state unfair trade practice statutes. In conclusion, it is the opinion of this Office that a court would find the language of the proposed Kentucky Fair Competition Act of 2000 to be unconstitutional, consistent with the decisions of Milk Mar-

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keting and Remote Services. The validity of the Act under the Sherman Act and “state action” doctrine analysis would be questionable, hinging on the amount of control the state exercises in setting and reviewing prices. Albert B. Chandler Attorney General

Scott White
Assistant Deputy Attorney General