1. The Law of Cooperative Corporations University of Arkansas LLM Program, Agricultural Law, 2007 Fayetteville, Arkansas April, 2007 James R. Baarda Antitrust

2. 5. Undue price enhancement 4. Current issues 3. Scope of behavior 2. Capper-Volstead Act 1. The problem Antitrust

3. Syllabus: Antitrust, pp. 1 - 10 1. The problem

4. Basic Antitrust Rules Sherman Act (1890) Sherman Act (1890) - Section 1 - Section 2 Syllabus: Antitrust, pp. 2 - 5 Clayton Act (1914) Clayton Act (1914) - Merger - Cooperative exemption

5. FTC Act (1914) FTC Act (1914) Unfair methods of competition Syllabus: Antitrust, pp. 4 - 5 Robinson-Patman Act (1936) Robinson-Patman Act (1936) Price discrimination Basic Antitrust Rules

6. Judicial development Judicial development - Monopolization - Restraint of trade Syllabus: Antitrust, pp. 5 - 10 Basic Antitrust Rules Rule of reason Rule of reason Per se rules Per se rules

7. Syllabus: Antitrust, pp. 5 - 10 Basic Antitrust Rules Marketing Marketing Purchasing Purchasing Early cooperative issues Early cooperative issues

8. Syllabus: Antitrust, pp. 5 - 10 2. Capper-Volstead Act

9. Capper-Volstead Act (1922) Membership Membership Structure Structure Actions Actions Syllabus: Antitrust, pp. 10 - 11

10. “Persons engaged in the production of agricultural products as farmers, planters ranchmen, dairymen, nut or fruit growers Capper-Volstead Act (1922)

11. Syllabus: Antitrust, pp. 10 - 11 may act together in associations, corporate or otherwise, with or without capital stock in collectively processing, preparing for market, handling, and marketing in interstate and foreign commerce such products of persons so engaged. Capper-Volstead Act (1922)

12. Syllabus: Antitrust, pp. 10 - 11 Such associations may have marketing agencies in common; and such associations and their members may make the necessary contracts and agreements to effect such purposes: Capper-Volstead Act (1922)

13. Syllabus: Antitrust, pp. 10 - 11 Provided, however, that such associations are operated for the mutual benefit of the members thereof, as such producers, and conform to one or both of the following requirements: Capper-Volstead Act (1922)

14. Syllabus: Antitrust, pp. 10 - 11 First, that no member of the association is allowed more than one vote because of the amount of stock or membership capital he may own therein, Capper-Volstead Act (1922)

15. Syllabus: Antitrust, pp. 10 - 11 First, that no member of the association is allowed more than one vote because of the amount of stock or membership capital he may own therein, or, Capper-Volstead Act (1922)

16. Syllabus: Antitrust, pp. 10 - 11 Second. That the association does not pay dividends on stock or membership capital in excess of 8 per centum per annum. Capper-Volstead Act (1922)

17. Syllabus: Antitrust, pp. 10 - 11 And in any case to the following: Third. That the association shall not deal in the products of nonmembers to an amount greater in value than such as are handled by it for members.” Capper-Volstead Act (1922)

18. Syllabus: Antitrust, pp. 10 - 11 Capper-Volstead Act (1922) Control Benefit Finance USE

19. Producer Membership Case-Swayne (1967) Case-Swayne (1967) Packing house membership Packing house membership No de minimus rules No de minimus rules “Economic consequences” “Economic consequences” Focus exclusively on producers Focus exclusively on producers Syllabus: Antitrust, pp. 11 - 16

20. What is a Producer? NBMA (5 th Cir.) (1977) NBMA (5 th Cir.) (1977) Poultry integrators Poultry integrators Contract growers Contract growers Words of the statute Words of the statute Rationale for the Act Rationale for the Act Syllabus: Antitrust, pp. 16 - 28

21. NBMA (S.Ct.) (1978) NBMA (S.Ct.) (1978) No breeder flocks, hatcheries No breeder flocks, hatcheries Rationale for exemption Rationale for exemption - Condition of farmers - Exposure to risks + - Inability to respond Syllabus: Antitrust, pp. 29 - 47 What is a Producer?

22. NBMA (S.Ct.) (1978) NBMA (S.Ct.) (1978) Economic role of member Economic role of member Brennan, concurring Brennan, concurring - Relative economic positions - Conflicts Syllabus: Antitrust, pp. 29 - 47 What is a Producer?

23. NBMA (S.Ct.) (1978) NBMA (S.Ct.) (1978) White, dissenting White, dissenting - Changing agriculture - Economic position - Risk-bearing Syllabus: Antitrust, pp. 29 - 47 What is a Producer?

24. Hinote (1993) Hinote (1993) Catfish farm production Catfish farm production Processing issue Processing issue Syllabus: Antitrust, pp. 47 - 54 What is a Producer?

25. Foreign Membership Reasons for foreign members Reasons for foreign members Ocean Spray (2004) Ocean Spray (2004) Plain meaning of the word Plain meaning of the word No untoward impact No untoward impact Syllabus: Antitrust, pp. 54 - 60

26. Syllabus: Antitrust, pp. 60 - 137 3. Scope of behavior

27. Pricing Actions Protected Entity requirement Entity requirement Membership entities Membership entities Bargaining, pricing Bargaining, pricing Syllabus: Antitrust, pp. 60 - 84

28. Treasure Valley (1974) Syllabus: Antitrust, pp. 63 - 65 Pricing Actions Protected

29. Central California (1976) Syllabus: Antitrust, pp. 67 - 78 Pricing Actions Protected

30. In re Central California (1977) Syllabus: Antitrust, pp. 78 - 85 Pricing Actions Protected

31. Cooperative Marketing Act of 1926 Syllabus: Antitrust, pp. 85 - 86 … may acquire, exchange, interpret, and disseminate past, present, and prospective crop, market, statistical, economic, and other similar information by direct exchange between such persons, and/or such associations or federations thereof, and/or by and through a common agent…. Pricing Actions Protected

32. Actions Among Cooperatives Independent cooperatives Independent cooperatives “Marketing agencies in common” “Marketing agencies in common” Syllabus: Antitrust, pp. 86 - 91

33. Cooperative Actions Among Cooperatives

34. Maryland Cooperative (1956) Maryland Cooperative (1956) Syllabus: Antitrust, p. 86 Actions Among Cooperatives

35. Maryland Cooperative (1956) Maryland Cooperative (1956) Syllabus: Antitrust, p. 86 “Obviously, it must have been contemplated that a common marketing agency would fix the same prices for the products of all its principles and would not discriminate among them.” Actions Among Cooperatives

36. Treasure Valley (1974) Treasure Valley (1974) Syllabus: Antitrust, p. 86 “[I]t would follow that without such a separate [marketing] agency [in common], the associations may act together in marketing and make the necessary contracts to accomplish their legitimate purposes.” Actions Among Cooperatives

37. GVF Cannery (1981) GVF Cannery (1981) Sherman section 1 Sherman section 1 Syllabus: Antitrust, p. 88 “In short, that which agricultural producers may combine to accomplish within a single association, they may lawfully combine to achieve by way of multiple organizations.” Actions Among Cooperatives

38. Sherman section 2 Sherman section 2 Syllabus: Antitrust, pp. 88, 89 “It would be anomalous indeed to hold that a defendant agricultural association’s alleged § 1 combination constituted a legitimate Capper- Volstead purpose, while claims based on the same facts which are brought under § 2 are not similarly protected.” Actions Among Cooperatives

39. Cape Cod Food Products (1954) Cape Cod Food Products (1954) Syllabus: Antitrust, p. 88 “It is not unlawful under the antitrust acts for a Capper-Volstead cooperative … to try to acquire even 100% of the market if it does it exclusively through marketing agreements approved under the Capper-Volstead Act.” Actions Among Cooperatives

40. GVF Cannery (1981) GVF Cannery (1981) Syllabus: Antitrust, p. 89 “Because an agricultural cooperative may lawfully achieve 100% of a market, it necessarily follows that two or more such organizations may together hold such monopoly power.” Fairdale Farms (1980) Fairdale Farms (1980) Actions Among Cooperatives

41. DOJ equivocation DOJ equivocation Syllabus: Antitrust, p. 90 “Economic analysis predicts that DFA and Land O’Lakes would find anticompetitive coordination to be profit-maximizing, particularly because both firms … are agricultural cooperatives between whom explicit collusion would be legal and could not be challenged under the antitrust laws.” Actions Among Cooperatives

42. Related Entities Related Entities Sunkist v. Winckler & Smith (1962) Sunkist v. Winckler & Smith (1962) Syllabus: Antitrust, pp. 91 - 93 Actions Among Cooperatives

43. Related Entities Related Entities Sunkist v. Winckler & Smith (1962) Sunkist v. Winckler & Smith (1962) Syllabus: Antitrust, pp. 91 - 93 “[T]he 12,000 growers here involved are in practical effect and in the contemplation of the statutes one “organization” or “association” even though they have formally organized themselves into three separate entities.” Actions Among Cooperatives

44. Sunkist v. Winckler & Smith (1962) Sunkist v. Winckler & Smith (1962) Syllabus: Antitrust, pp. 91 - 93 “To hold otherwise would be to impose grave legal consequences upon organizational distinctions that are of de minimus meanings and effect to these growers who have banded together for processing and marketing purposes within the purview of the Clayton and Capper- Volstead Acts.” Actions Among Cooperatives

45. Unprotected Actions Syllabus: Antitrust, pp. 94 - 96

46. Borden (1939) Borden (1939) Syllabus: Antitrust, pp. 94 - 96 Unprotected Actions

47. Borden (1939) Borden (1939) Syllabus: Antitrust, pp. 94 - 96 “The right of these agricultural producers to unite in preparing for market and in marketing their products, and to make the contracts which are necessary for that collaboration, cannot be deemed to authorize any combination or conspiracy with other persons in restraint of trade that these producers may see fit to devise.” Unprotected Actions

48. Maryland & Virginia Milk (1960) Maryland & Virginia Milk (1960) Purchase of Embassy Dairy Purchase of Embassy Dairy Associated actions and contracts Associated actions and contracts “Predatory” practices “Predatory” practices Syllabus: Antitrust, pp. 97 - 104 Unprotected Actions

49. Maryland & Virginia Milk (1960) Maryland & Virginia Milk (1960) Syllabus: Antitrust, p. 99 “[W]e do not believe that Congress intended to immunize cooperative engaged in competition- stifling practices from prosecution under the antimonopolization provisions of § 2 of the Sherman Act ….” Unprotected Actions

50. Maryland & Virginia Milk (1960) Maryland & Virginia Milk (1960) Syllabus: Antitrust, p. 100 “[T]he general philosophy of [Clayton Act § 6 and the Capper-Volstead Act] both was simply that individual farmers should be given, through agricultural cooperatives acting as entities, the same unified competitive advantage – and responsibility – available to businessmen acting through corporations as entities.” Unprotected Actions

51. Boise Cascade (1968) Boise Cascade (1968) Independent pulpwood operators Independent pulpwood operators The “entity” The “entity” Syllabus: Antitrust, pp. 104 - 108 Unprotected Actions

52. Boise Cascade (1968) Boise Cascade (1968) Syllabus: Antitrust, p. 108 “Whether or not [exemption applies] …, defendants cannot continue their boycott in violation of their existing contracts,.. Assemble … to dissuade or interfere with [others], nor … persuade or attempt to persuade others not to perform their contracts or … refuse normal business relations ….” Unprotected Actions

53. Treatment of Members Power in the marketplace Power in the marketplace Supply/purchasing organizations Supply/purchasing organizations Non-Capper-Volstead Non-Capper-Volstead Non-agriculture Non-agriculture Syllabus: Antitrust, pp. 109 - 112

54. Northwest Wholesale (1985) Northwest Wholesale (1985) Non-member patrons Non-member patrons Expulsion Expulsion Group boycotts – per se violation Group boycotts – per se violation Syllabus: Antitrust, pp. 109 - 112 Treatment of Members

55. Northwest Wholesale (1985) Northwest Wholesale (1985) Syllabus: Antitrust, p. 111 “Although a concerted refusal to deal need not necessarily possess all of these traits to merit per se treatment, not every cooperative activity involving a restraint or exclusion will share with the per se forbidden boycotts the likelihood of predominantly anticompetitive consequences.” Treatment of Members

56. Northwest Wholesale (1985) Northwest Wholesale (1985) Syllabus: Antitrust, p. 111 “Wholesale purchasing cooperatives … are not a form of concerted activity characteristically likely to result in predominantly anticompetitive effects. Rather, such arrangements would seem to be ‘designed to increase economic efficiency and render markets more, rather than less, competitive.’” Treatment of Members

57. Northwest Wholesale (1985) Northwest Wholesale (1985) Syllabus: Antitrust, p. 111 “Unless the cooperative possesses market power or exclusive access to an element essential to effective competition, the conclusion that expulsion is virtually always likely to have an anticompetitive effect is not warranted.” Treatment of Members

58. Mergers Logic of cooperative merger Logic of cooperative merger Maryland & Virginia (1960) Maryland & Virginia (1960) DFA (2000) DFA (2000) - Consent decree - Competitive impact Country Lake Food Country Lake Food Syllabus: Antitrust, pp. 112 - 124

59. Monopoly Power Cape Cod (1954) Cape Cod (1954) Fairdale Farms (1980) Fairdale Farms (1980) Legislative history and size Syllabus: Antitrust, pp. 124 - 134

60. Fairdale Farms (1980) Fairdale Farms (1980) Syllabus: Antitrust, p. 130 “[W]hen Congress enacted the Capper-Volstead Act, it did not intend to prohibit the voluntary and natural growth that agricultural cooperatives needed to accomplish their assigned purpose of effective farmer representation.” Monopoly Power

61. Fairdale Farms (1980) Fairdale Farms (1980) Syllabus: Antitrust, p. 130 “That farmers’ legitimate desires for unity of effort would incorporate of necessity a concept of corporate aggrandizement did not per se make this method of cooperative growth illegal.” Monopoly Power

62. Syllabus: Antitrust, p. 134 - 139 Production control Production control - Potatoes - Milk - Mushrooms Monopoly Power

63. Current Issues - I Justification and challenges Justification and challenges National Commission National Commission - Bergland testimony (1978) Antitrust Modernization Comm. Antitrust Modernization Comm. - Keith Collins testimony - National Council testimony - Other Syllabus: Antitrust, p. 134 - 139

64. Current Issues - II Local market power Local market power Market concentration Market concentration Competitive market power Competitive market power Food prices Food prices Dairy Farmers of America Dairy Farmers of America Strategic alliances, subsidiaries Strategic alliances, subsidiaries

65. Current Issues - III What is a producer? What is a producer? Mutual benefit of members Mutual benefit of members New cooperative statutes New cooperative statutes “Outside” investors “Outside” investors What is a cooperative? What is a cooperative?

66. Capper-Volstead, Section 2 “Undue price enhancement” “Undue price enhancement” Syllabus: Antitrust, p. 139 “If the Secretary of Agriculture shall have reason to believe that any such association monopolizes or restrains trade …

67. “Undue price enhancement” “Undue price enhancement” Syllabus: Antitrust, p. 139 “to such an extent that the price of any agricultural product is unduly enhanced by reason thereof … Capper-Volstead, Section 2

68. “Undue price enhancement” “Undue price enhancement” Syllabus: Antitrust, p. 139 “[the Secretary may issue an order] … directing [the cooperative] to cease and desist from monopolization or restraint of trade.” Capper-Volstead, Section 2

69. Not exclusive remedy Not exclusive remedy No price control No price control Remedy directed only to “monopolization or restraint of trade” Remedy directed only to “monopolization or restraint of trade” Syllabus: Antitrust, pp. 139 - 155 Capper-Volstead, Section 2

70. What is “undue”? What is “undue”? - Level of price - Method of enhancement What is monopolization or restraint of trade? What is monopolization or restraint of trade? Capper-Volstead, Section 2 Syllabus: Antitrust, pp. 139 - 155

71. Enforcement mechanism Enforcement mechanism Capper-Volstead Committee Capper-Volstead Committee Capper-Volstead, Section 2 Syllabus: Antitrust, pp. 139 - 155

72. Control Benefit Finance USE

73. 5. Undue price enhancement 4. Current issues 3. Scope of behavior 2. Capper-Volstead Act 1. The problem Antitrust