Domestic Antitrust Laws and Exemptions Regarding International Membership Donald A. Frederick USDA Rural Development Cooperatives Program

What is the Capper-Volstead Act? A limited shield that protects agricul- tural producers from antitrust liability when marketing their production on a cooperative basis

3 Thoughts Capper-Volstead is a “Producer” law Capper-Volstead is a “Producer” law Capper-Volstead has never been amended Capper-Volstead has never been amended Fishermen have similar protection Fishermen have similar protection

Sherman Act of 1890 Sec Every contract, combination or conspiracy that restrains trade is illegal Every person who signs a contract or participates in a combination or conspiracy that restrains trade, in interstate or foreign commerce, is guilty of a felony

Sherman Act of 1890 Sec Every person who monopolizes, or attempts to monopolize, or combines or conspires with any other person to monopolize any part of interstate or foreign commerce, is guilty of a felony Sec Every person who monopolizes, or attempts to monopolize, or combines or conspires with any other person to monopolize any part of interstate or foreign commerce, is guilty of a felony

Sherman Act of 1890 Senator Sherman introduced an amendment to provide a general exemption for labor unions and farmer cooperatives Senator Sherman introduced an amendment to provide a general exemption for labor unions and farmer cooperatives Adopted by a voice vote in the Senate, but dropped from the Judiciary Committee rewrite of Senator Sherman’s bill that became law Adopted by a voice vote in the Senate, but dropped from the Judiciary Committee rewrite of Senator Sherman’s bill that became law

Sherman Act of 1890 “Literal meaning” decisions shock business “Literal meaning” decisions shock business Business reacts with merger mania Business reacts with merger mania Courts hold farmer cooperatives are “illegal combinations in restraint of trade” Courts hold farmer cooperatives are “illegal combinations in restraint of trade”

Teddy the “Trust Buster” Roosevelt ascends to Presidency in 1901 Roosevelt ascends to Presidency in 1901 Urges “Big Business” to recognize a social responsibility Urges “Big Business” to recognize a social responsibility

Teddy the “Trust Buster” Sues Northern Securities Company, and wins Sues Northern Securities Company, and wins Sues two holding companies known for predatory tactics against competitors, American Tobacco and Standard Oil of New Jersey Sues two holding companies known for predatory tactics against competitors, American Tobacco and Standard Oil of New Jersey

Supreme Court Interprets Sherman Rule of Reason – Only agreements that “unreasonably” restrain trade are illegal under the Sherman Act

Supreme Court Interprets Sherman Rule of Per Se Illegality -- Some conduct is so inherently unreasonable that it is illegal “per se” Price fixing Price fixing Territorial allocations Territorial allocations Group boycotts Group boycotts Tying arrangements Tying arrangements

Congress Responds Federal Trade Commission Act (1914) creates the Federal Trade Commission to investigate and order an end to “unfair methods of competition”

Congress Responds Clayton Act (1914) prohibits certain business practices when the effect may be to substantially lessen competition Sec Price discrimination Sec Price discrimination Sec Tying agreements Sec Tying agreements Sec Mergers and acquisitions Sec Mergers and acquisitions

Congress Responds Section 6 of the Clayton Act provides that the antitrust laws shall not forbid the existence and operation of labor or agricultural organizations, instituted for the purposes of mutual help, without capital stock and not conducted for profit

Farm Leaders React Dairy cooperatives and others argue Sec. 6 of the Clayton Act is adequate for labor unions, but not producer marketing cooperatives Dairy cooperatives and others argue Sec. 6 of the Clayton Act is adequate for labor unions, but not producer marketing cooperatives In 1922, Capper-Volstead becomes law In 1922, Capper-Volstead becomes law Includes “stock” cooperatives Includes “stock” cooperatives Spells out what producer associations can do Spells out what producer associations can do

Capper-Volstead Act Sec Describes the scope of the limited antitrust protection provided Sec Describes the scope of the limited antitrust protection provided Sec Authorizes the Secretary of Agriculture to prevent producers from abusing their collective power to the detriment of the general public Sec Authorizes the Secretary of Agriculture to prevent producers from abusing their collective power to the detriment of the general public

Capper-Volstead Sec. 1 Persons engaged in the production of agricultural products may Persons engaged in the production of agricultural products may Act together in associations, corporate or otherwise, with or without capital stock Act together in associations, corporate or otherwise, with or without capital stock In collectively processing, preparing for market, handling and marketing their farm products In collectively processing, preparing for market, handling and marketing their farm products

Capper-Volstead Sec. 1 Such associations may Such associations may Have marketing agencies in common Have marketing agencies in common Enter into contracts and agreements necessary to carry out their collective marketing activity Enter into contracts and agreements necessary to carry out their collective marketing activity

Capper-Volstead Sec. 1 Such associations must Such associations must Operate for the mutual benefit of their members as producers Operate for the mutual benefit of their members as producers Either use one-member, one-vote or limit dividends on equity to 8 percent per year Either use one-member, one-vote or limit dividends on equity to 8 percent per year Handle more products produced by members each year than by nonmembers, measured by value Handle more products produced by members each year than by nonmembers, measured by value

Capper-Volstead and International Memberships Both the Capper-Volstead Act and its legislative history are silent as to whether non-domestic producers may join a U.S. cooperative without jeopardizing its antitrust protection

Capper-Volstead and International Memberships However, both the Sherman Act and the Clayton Act define “person” and “persons” to include “corporations and associations… existing under…the laws of either the United States, …the territories, …any State, or the laws of any foreign country.”

Capper-Volstead and International Memberships The statutes which define the antitrust liability from which Capper-Volstead cooperatives are exempted include foreign entities in their definition of “persons” The statutes which define the antitrust liability from which Capper-Volstead cooperatives are exempted include foreign entities in their definition of “persons” It is logical to assume that when Congress used the term “persons” in Capper-Volstead it also meant to include foreign entities It is logical to assume that when Congress used the term “persons” in Capper-Volstead it also meant to include foreign entities

Capper-Volstead and International Memberships The Fisherman’s Collective Marketing Act only protects cooperative marketing of aquatic products raised or caught in the several States, territories, insular possessions, “or other places under the jurisdiction of the United States” The Fisherman’s Collective Marketing Act only protects cooperative marketing of aquatic products raised or caught in the several States, territories, insular possessions, “or other places under the jurisdiction of the United States” Congress could have placed the same territorial restriction in the Capper-Volstead Act, but did not do so Congress could have placed the same territorial restriction in the Capper-Volstead Act, but did not do so

Capper-Volstead and International Memberships The Webb-Pomerene Act antitrust exemption for export associations also doesn’t mention foreign memberships The Webb-Pomerene Act antitrust exemption for export associations also doesn’t mention foreign memberships A Federal court of appeals refused to limit the term “associations” under Webb-Pomerene to associations of American-owned firms A Federal court of appeals refused to limit the term “associations” under Webb-Pomerene to associations of American-owned firms

Capper-Volstead and International Memberships The McCarren-Ferguson Act antitrust exemption for the insurance industry also doesn’t mention foreign memberships The McCarren-Ferguson Act antitrust exemption for the insurance industry also doesn’t mention foreign memberships The Supreme Court refused to rule that domestic insurers waived their antitrust protection by working in concert with foreign insurers The Supreme Court refused to rule that domestic insurers waived their antitrust protection by working in concert with foreign insurers

Capper-Volstead and International Memberships One last thought: There was no Wal-Mart in 1922 There was no Wal-Mart in 1922