Opinion ID: 2770142
Heading Depth: 3
Heading Rank: 1

Heading: Entities Capable of Conspiring.

Text: As a general rule, Section 1 of the Sherman Act does not apply to single entities. Am. Needle, Inc. v. Nat’l Football League, 560 U.S. 183, 190, 130 S. Ct. 2201, 2207 (2010). The Court reiterated in American Needle, however, that “concerted action under § 1 does not turn simply on whether the parties involved are legally distinct entities.” Id. at 191. Thus, “[a]greements made within a firm can constitute concerted action covered by § 1 when the parties to the agreement act on interests separate from those of the firm itself, and the intra-firm agreements may simply be a formalistic shell for ongoing concerted action.” Id. at 200. A functional analysis of the parties’ actual participation in the alleged anticompetitive conduct is necessary to draw the inference of illegal concerted action. Pursuant to this functional approach, a corporation and its officers and employees, or a corporation and its divisions or wholly owned subsidiaries have been held to be a “single entity” that is incapable of concerted action that impairs competition in the marketplace. See Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 767, 104 S. Ct. 2731, 2739 (1984). Other legal entities, however, when made up of members or entities that may compete with each other, may conspire illegally. See, e.g., United States v. Sealy, Inc., 388 U.S. 350, 352–56, 87 S. Ct. 1847, 1850–52 (1967); Nat’l Collegiate Athletic Ass’n v. Bd. of Regents of Univ. of Okla., 468 U.S. 85, 104 S. Ct. 2948 (1984); Associated Press v. United States, 326 U.S. 1, 65 S. Ct. 1416 (1945). The “key”, according to the Court, is whether the “contract, combination…, or conspiracy” joins together “separate decisionmakers,” i.e., “separate economic actors pursuing separate economic interests.” Am. Needle, 560 U.S. at 195, 130 S. Ct. at 2205. If so, then the 6 Case: 13-11043 Document: 00512901984 Page: 7 Date Filed: 01/14/2015 No. 13-11043 agreement may “deprive[] the marketplace of independent centers of decisionmaking[.]” Id. at 195, 2212. Following this explanation, the Court in American Needle readily concluded that the joint venture formed by thirty-two NFL teams, “at least” with regard to their decision collectively to license the teams’ independently owned intellectual property, was engaged in concerted rather than single entity action and thus potentially violated Section 1. The Court reasoned that apart from the teams’ agreement to cooperate in exploiting these assets, they would be competitors in the market to produce and sell team logo wearing apparel and headgear by licensing their intellectual property and dealing with suppliers. On one hand, the Court held that the justification for the National Football League Properties’ (“NFLP”) cooperative agreement—the structural necessity of a sports league to produce the “product” of major league football— is irrelevant to whether there was concerted or independent action at the threshold of Section 1 analysis. Am. Needle, 560 U.S. at 199, 130 S. Ct. at 2214. On the other hand, however, the Court recognized that because restraints on competition like those embodied in sports leagues or joint ventures are necessary to make a product available at all, the rule of reason rather than per se rules determines the ultimate question of antitrust violations. Id. at 203. American Needle’s rejection of “single entity” status for organizations with “separate economic actors” does not fit comfortably with the facts before us. AQHA is more than a sports league, it is not a trade association, and its quarter million members are involved in ranching, horse training, pleasure riding and many other activities besides the “elite Quarter Horse” market. The plaintiff’s expert claimed that no more than .5% of the yearlings sold each year fall within the plaintiffs’ proposed sub-market of AQHA-registered elite Quarter Horses. Under such circumstances, it is difficult to draw the 7 Case: 13-11043 Document: 00512901984 Page: 8 Date Filed: 01/14/2015 No. 13-11043 conclusion that because a tiny number of economic actors within AQHA may “pursue their separate economic interests,” the organization has conspired with that minority. American Needle, in contrast, involved membership all of whom owned and profited from the exclusive licensing arrangements entered into by the NFLP joint venture. Similarly, in the other cases cited by the Court in American Needle, the organizations found capable of conspiring with members who were “independent decisionmakers” were trade groups or competitor groups all of whose members directly profited from the exclusionary conduct. In American Needle, the Court’s description of potentially illegal conspiracies involving such organizations is laden with adjectives referring to the members’ independent economic interests. Am. Needle, 560 U.S. at 196– 97, 130 S. Ct. at 2212–13 (describing members of the NFLP as “independently managed business[es]” and “competing suppliers of valuable trademarks”). Here, there is no such unity of interest among over a quarter million members. Other features appear to distinguish this case from American Needle. First, no other case has yet held that an animal breed registry organization can violate the antitrust laws by passing on the qualifications for the breed itself. This court in Hatley rejected an antitrust conspiracy claim against AQHA where a horse of undisputed “elite” lineage was denied registration because it had white markings above the permissible places on its legs. Hatley v. Am. Quarter Horse Ass’n, 552 F.2d 646, 654 (5th Cir. 1977). Whenever an organization devoted to the preservation of an animal breed revises its standards, exclusion from the relevant “market” will occur. See, e.g., Jack Russell Terrier Network of N. Cal. v. Am. Kennel Club, Inc., 407 F.3d 1027, 1034 (9th Cir. 2005) (affirming dismissal where organization devoted to those dogs elected not to register dogs that were jointly registered with the American Kennel Club); Jessup v. Am. Kennel Club, Inc., 61 F. Supp. 2d 5 (S.D.N.Y. 1999), aff’d. on dist. ct. op., 210 F.3d 111 (2d Cir. 2000) (granting summary 8 Case: 13-11043 Document: 00512901984 Page: 9 Date Filed: 01/14/2015 No. 13-11043 judgment against claims that Labrador dog breed standards were changed in conspiracy to restrain trade or monopolize). Perhaps setting the standards for a breed is relevant under American Needle to rule of reason analysis after the possibility of concerted action has been admitted. If so, then breed standards for these volunteer groups should often be immune from antitrust scrutiny because they are essential to “creating the product.” That the organization’s purpose is to preserve and enhance the breed’s characteristics creates further tension with American Needle’s paradigm of a “firm” and “separate economic actors” within the firm whose economic interests diverge from those of the firm. Contrary to the plaintiffs’ assertions, AQHA is not narrowly interested in “having more members and more registered horses.” If that premise were true, AQHA would not insist on maintaining pure bloodlines and might elect to register the offspring of horses cross-bred with pure Quarter Horses, if the offspring otherwise complied with Quarter Horse characteristics. Alternatively, AQHA’s enforcement of its “white rule,” which denied registration to Hatley’s horse, might have been loosened. See Hatley, 552 F.2d at 646. From this standpoint, AQHA’s self-interest as an organization is not limited to profit. The district court recognized the fallacy in the plaintiffs’ reasoning when it concluded that, “It is unclear…whether the AQHA would benefit or be harmed by allowing clone registration.” Abraham & Veneklasen Joint Venture v. Am. Quarter Horse Ass’n, No. 2:12-CV-103-J, 2013 WL 2297104, at  (N.D. Tex. May 24, 2013). Thus, the divergence of interests between AQHA and the alleged conspirators, which American Needle posits, is not clear. Moreover, an issue not plumbed in American Needle is how to assess the organization’s ability to conspire with its members given different types of legal structures. In the NFLP, apparently all the member teams had to agree on the exclusive licensing arrangement, and all the teams owned intellectual 9 Case: 13-11043 Document: 00512901984 Page: 10 Date Filed: 01/14/2015 No. 13-11043 property subject to the agreement; there was thus unity of purpose and decisionmaking by the interested economic actors. AQHA, however, makes policy through a Board of Directors with around 300 annually rotating members. The SBRC proposes action on registration rules, but it cannot unilaterally dispose of the issue. Any AQHA member may propose a rule to the Board during its annual meeting. A functional analysis of an organization’s ability to conspire with legally distinct members ought to take these facts into account. It is not clear whether American Needle applies on a more abstract plane that covers any organization with actors who have separate economic interests. See, e.g., Robertson v. Sea Pines Real Estate Cos., Inc., 679 F.3d 278, 285–86 (4th Cir. 2012) (refusing to dismiss Section 1 claim against MLS composed of separate real estate brokerages that were potential competitors). AQHA, however, urges the Court’s emphasis on the pursuit of separate economic interests as a cornerstone of its argument that the majority of SBRC members’ personal interests were not furthered by the anti-cloning rule. Given these troubling distinctions, we need not resolve in this opinion the scope of American Needle for animal breed registry organizations. Instead, we will assume arguendo that AQHA was legally capable of conspiring with members of the SBRC in violation of Section 1. The judgment must be reversed, however, for insufficient evidence of a conspiracy. 4 4The Court was careful to note that being capable of a Section 1 violation through conspiracy was not the same as proving the existence of a conspiracy or that conspiracy’s effect on trade. Indeed, the Court explained that the rule of reason should be applied, ensuring that many entities capable of conspiring would not be ultimately found liable. Am. Needle, 560 U.S. at 203. 10 Case: 13-11043 Document: 00512901984 Page: 11 Date Filed: 01/14/2015 No. 13-11043