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Domestic Antitrust Laws and Exem


									  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 has never been amended

   Fishermen have similar protection
         Sherman Act of 1890

Sec. 1 -- 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. 2 -- 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

  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

   Business reacts with merger mania

 Courts hold farmer cooperatives are “illegal
combinations in restraint of trade”
        Teddy the “Trust Buster”

   Roosevelt ascends to Presidency in 1901

 Urges “Big Business” to recognize a social
      Teddy the “Trust Buster”

 Sues Northern Securities Company, and

 Sues two holding companies known for
predatory tactics against competitors,
American Tobacco and Standard Oil of New
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
     Territorial allocations
     Group boycotts
     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. 2 -- Price discrimination
   Sec. 3 -- Tying agreements
   Sec. 7 -- 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

   In 1922, Capper-Volstead becomes law
       Includes “stock” cooperatives
       Spells out what producer associations can do
         Capper-Volstead Act

 Sec. 1 -- Describes the scope of the limited
antitrust protection provided

 Sec. 2 -- 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

     Act together in associations, corporate or
    otherwise, with or without capital stock

     In collectively processing, preparing for
    market, handling and marketing their farm
        Capper-Volstead Sec. 1

   Such associations may

       Have marketing agencies in common

     Enter into contracts and agreements
    necessary to carry out their collective
    marketing activity
        Capper-Volstead Sec. 1

   Such associations must

    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

    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”

  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”

 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

  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 Supreme Court refused to rule that
domestic insurers waived their antitrust
protection by working in concert with foreign
   Capper-Volstead and
International Memberships

 One last thought:

 There was no Wal-Mart in 1922

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