Can Government Take Private Property to Eliminate Competition?

Date: March 27, 2017

We occasionally receive complaints from small business owners over unfair competition from public entities. For example, if you make a living teaching yoga, it’s a real problem if your local municipality decides to start providing free yoga sessions, or offering classes at a below market-rate. And, of course, we have serious philosophical objections to government competing with private enterprise—even setting aside the unfairness of allowing public entities to subsidize their services in a manner that may threaten the viability of an independent business. But is there anything illegal with this sort of competition?

As always in the law, it depends. For one, any municipality or political subdivision of the state is going to be subject to statutory rules governing what they can and cannot do. In some instances there may be a ground for saying that a public entity lacks statutory authorization to engage in some sort of enterprise. But in most cases there isn’t much that you can do—that is, not unless the authorities are acting in an outright anticompetitive manner to stomp-out competition. For that matter, NFIB Legal Center has argued, both in the courts and in scholarship, that public authorities violate federal antitrust law if they go so far as to create a monopoly within the local market for a specific sort of service.

For example, we argue that it would be unlawful for a municipality to enact a zoning code that would create a government monopoly on the market for airport parking, or for leasing out space for cell phone towers within the city. If the municipality is generating revenue in its capacity as a service provider, then it should have to play by the same rules as private commercial actors. This necessarily means that public authorities abuse their regulatory powers to the extent they use them as a sword against potential competitors.

We raised just that line of argument in a recent amicus filing in the Louisiana Supreme Court, in challenge to a flagrant act of eminent domain abuse. In St. Bernard Port & Terminal District v. Violet Dock Port, Inc., a public port authority sought to take private docking facilities from an independent business for the transparent purpose of acquiring that company’s existing contracts with the U.S. Navy. The Port Authority was seeking to use the power of eminent domain to coopt its competitor’s facilities—so that it could raise greater revenues to finance future investments.

But as we argued, the Fifth Amendment prohibits eminent domain takings, unless they serve a genuine public purpose. And, of course, no public interest is served by an act that simply destroys an existing business. In fact this taking serves no public purpose because it advances only the port authority’s anti-competitive institutional goals. For this reason, we are calling upon the State Supreme Court to reverse a lower court decision that had approved of this condemnation. As a lower court judge argued in dissent, its flat out unconstitutional to take business facilities for the purpose of eliminating competition.

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