A Matsushita “Quick Look” Analysis Demonstrates that While Plausible, No Evidence Supports An Actionable Conspiracy or Monopoly. Abraham & Veneklasen Joint Venture et al. v. Am. Quarter Horse Ass’n, 776 F.3d 321 (5th Cir. Jan. 14, 2015).
In Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984), the Supreme Court put to rest the “intraenterprise conspiracy” doctrine, and held that a parent corporation and its wholly owned subsidiary constitute a “single enterprise” incapable of “conspiring” with itself for purposes of Section 1 of the Sherman Act. It re-emphasized the basic distinction between concerted and independent action. However, since the Supreme Court’s 2010 decision in American Needle, Inc. v. National Football League, 560 U.S. 183 (2010), the precedential value of Copperweld has been limited to its facts, and arguably relegated to the “mothball fleet” of antitrust, with its intraenterprise predecessors. See Richard M. Steuer, Monsanto and the Mothball Fleet of Antitrust, 30 Antitrust Bulletin 1 (1985). Emphasizing substance over form, the Court held that the inquiry is whether the challenged agreement joins together “separate economic actors pursing separate economic interests” such that it “deprives the marketplace of independent centers of decision making.” (citing Copperweld, 467 U.S. at 768-9). Thus, in American Needle, the Court held that conduct relating to the licensing of individually owned intellectual property covering caps bearing logos and art work of the individual NFL teams, on a joint and exclusive basis, was not categorically beyond the coverage of Section 1. While some restraints on competition will be necessary to produce the NFL’s joint product, the Rule of Reason should be employed to sort the wheat from the chaff. While most joint activities in brand development and promotion will pass muster, some may not. It “depends”. The American Needle Court also noted that the Rule of Reason can at times be applied without detailed analysis, and “can sometimes be applied in the twinkling of an eye”, or on a “quick look” basis. (citing National Collegiate Athletic Ass’n v. Board of Regents of University of Oklahoma, 468 U.S. 85, 109, n. 39).
Abraham is a case in point. There, plaintiffs were engaged in the cloning of quarter horses through a process known as “somatic cell nuclear transfer”. Through this process, animals may be created without distinct sire and dam bloodlines. The AQHA is a breed registry for quarter horses, and dedicated to the preservation of pedigree and ancestry integrity of registered horses. AQHA had a rule against the registration of cloned horses for a number of years. AQHA had developed and operated under a series of breed registry requirements, such as denying registration to “quarter horses”, otherwise qualified for registration, who had excessive white markings. In Hatley v. American Quarter Horse Association, 552 F.2d 646 (5th Cir. 1977) the “white” rule was upheld. A horse with two much white might be a “paint”, but it was not a registerable quarter horse. AQHA operated through a Board of Directors, an Executive Committee, and an appointed Stud Book and Registration Committee (“SBRC”). AQHA received several requests to change the anti-cloning rule, two of which were submitted by plaintiffs. Upon denial, plaintiffs filed an action alleging that the AQHA, its SBRC, and its members violated Sections 1 and 2 of the Sherman Act by blocking the registration of plaintiffs’ cloned horses, and had monopolized the market for “elite quarter horses.” At trial, a jury found for plaintiffs, but refused to award damages. The district court entered a sweeping cloned horse registration injunctive order.
On appeal, the Court of Appeals for the Fifth Circuit reversed, and held that it was error for the trial court to have denied AQHA’s motion for JMOL. Building on the popularity, or notoriety ofAmerican Needle, the Fifth Circuit first considered whether AQHA, SBRC and its members should be deemed a “single entity” for purposes of its Section 1 analysis. It noted that American Needledid not fit the facts before the court. So it assumed that the membership and its committees couldconspire among themselves. It then considered whether there was sufficient evidence of concerted activity from which the jury verdict could be sustained. Now, the clock was turned back to the earlier, but seminal case of Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574 (1986). Relying on Matsushita and Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S.752 (1984), and subsequent cases in this line of analysis, the court noted that the record was bare of any direct evidence of an agreement to restrain trade in the “elite quarter horse” market, if there is such an animal. Finding none, it then asked the question whether plaintiffs had presented evidence that tended to exclude the possibility of independent conduct. If the evidence is “as consistent with permissible competition as with illegal conspiracy”, the charge of conspiracy fails, and defendants are entitled to judgment as a matter of law. The court found that plaintiffs had indeed failed. At best, the record supported differing views among members. But, it seems intuitive, and certainly “plausible” that an organization dedicated to developing and preserving accurate and consistent pedigrees and ancestral records could promulgate a rule denying registration to horses without either. It need not embrace a rule inconsistent with its philosophy of improving its registry. Plaintiffs’ exercise to the contrary was but a needle in a hay bale.