Cooperative Information Report 38
Managing Cooperative Antitrust Risk
Donald A. Frederick
Cooperative Service Division
Agricultural Cooperative Service
U.S. Department of Agriculture
This report explains the essentials of antitrust law and why limited antitrust protection
granted in the Capper-Volstead Act is critical to cooperative marketing by agricultural
producers. It outlines who is covered by Capper-Volstead, how a cooperative must be
organized to qualify for limited antitrust protection, and what types of activity are
protected. It also discusses several areas that pose special antitrust risks for farmer
cooperatives and other points of law cooperative leaders must be aware of to successfully
manage their antitrust risk.
Key Words: cooperative,
antitrust, Capper-Volstead Act, law, management, risk
Cooperative Information Report Number 38
While an antitrust problem is not inherent in every decision made by a cooperative's
management team, one mistake can cause a cooperative to become embroiled in exhausting,
costly, and embarrassing litigation. Ideally, every cooperative would have an antitrust
expert on hand to review the exposure associated with each important management decision.
But in the real world, a limited number of antitrust experts are available and their time
can be costly.
This report will help cooperative directors,
managers, and advisers with limited experience in antitrust problems cope with the issue
of managing antitrust risk. It is not intended to help them handle major antitrust
problems, but to help them avoid inadvertent violations of the antitrust law, recognize
conduct that poses an antitrust risk, and make decisions that limit antitrust exposure.
The author gratefully acknowledges the
contributions of four experts in cooperative law--James Baarda, Dale Cunningham, Donald
Graham, and Wayne Hoecker. Many of the real insights are from their comments.
COOPERATIVE ANTITRUST RISK
ACCEPTABLE LEVEL OF RISK
OF ANTITRUST LAW
The Sherman Act
The Federal Trade Commission and Clayton Acts
OF ANTITRUST LAWS
The Rule of Reason
The Rule of Per Se Illegality
ANTITRUST PROTECTION -BACKGROUND
Who Is Covered
Agreements on Price and Terms of Sale
Undue Price Enhancement
Substantial Market Share
Mergers and Acquisitions
Limitations on Quantities Handled
OTHER POINTS TO
Personal Liability for Leaders and Advisers
Private Treble-Damage Litigation
State Antitrust Laws
Business Review Letters
A - CAPPER-VOLSTEAD ACT
B - OTHER IMPORTANT STATUTES
Every management decision carries with it some risk of legal action. Open access to the
courts is a fundamental right in this country, and all cooperative leadership can do is
discourage litigation by positioning their association to win any suit as swiftly and
decisively as possible.
Antitrust law poses a special litigation risk
to agricultural marketing cooperatives. The courts have held that certain conduct by
independent businessmen--agreeing on prices, terms of sale, and whom to sell to--amounts
to a per se violation of the Sherman Antitrust Act. And this is the conduct that farmers
undertake through their marketing associations.
The Capper-Volstead Act provides a
limited antitrust exemption for agricultural marketing associations. Capper-Volstead
protection is available only to associations that (1) limit membership to bona fide
agricultural producers, 2) either limit members to not more than one vote because of the
amount of stock owned or limit dividends on membership capital to 8 percent per year, (3)
do a majority of their marketing for association members, and (4) operate for the mutual
benefit of their members as producers.
Producers whose cooperative meets these
requirements can agree on prices and terms of sale, select the extent of their joint
marketing activity through their association, agree on common marketing practices with
other cooperatives, and achieve substantial market share and influence.
Because Capper-Volstead does not provide total
antitrust exemption, cooperative managers, directors, and advisers must make decisions
that sometimes expose the organization to antitrust risk. Risk is usually greatest when
the decision involves business arrangements with persons and firms that are neither
agricultural producers nor cooperative associations of producers.
Business arrangements that pose special
antitrust risk for cooperatives include agreements on prices and terms of sale, undue
price enhancements, reaching for substantial market share, merger and acquisition
activity, customer selection, member selection, transportation, limitations on quantity of
product handled, and predatory conduct.
While supply cooperatives may not qualify for
Capper-Volstead protection, they have avoided the types of restraints of trade that courts
find unreasonable and thus illegal.
When assessing the antitrust risk of a business
decision, cooperative leaders should keep certain considerations in mind. These include
the fact that leaders and advisers can be personally liable if the association is found
guilty of an antitrust violation. Also, private parties injured by illegal anticompetitive
conduct can recover three times the extent of their injury. State antitrust laws may also
Antitrust risk can neither be ignored nor
permitted to paralyze business planning. It must be understood and managed if cooperatives
are to fulfill their objective of assisting producers to enhance their overall farming
MANAGING COOPERATIVE ANTITRUST RISK
Donald A. Frederick
"It has been the law for centuries
that a man may set up a business in a small country town, too small to support more than
one, although thereby he expects and intends to ruin some one already there, and succeeds
in his intent. In such a case he is not held to act unlawfully and without justifiable
"The reason, of course, is that the
doctrine generally has been accepted that free competition is worth more to society than
it costs, and that on this ground the infliction of the damage is privileged." _1/
The above statement, by famous jurist Oliver Wendell Holmes, captures the essence of the
relationship between rural America and our antitrust policy. It is relatively easy to
start most businesses that serve rural areas. The emergence of a new competitor, or the
possibility that a new competitor will be started if existing businesses act inefficiently
or irresponsibly, is the primary protection for the public.
The development of agricultural cooperatives is
naturally compatible with this policy. Farmers individually may not have the time or
resources to start a new firm to compete with existing providers of supply and marketing
services. But when new competition is required to protect their farm income, they can
unite in a cooperative to provide that service.
While cooperatives are procompetitive factors
in the marketplace, they have characteristics that make it difficult to apply antitrust
policy to them. This creates special problems for cooperative leaders who must evaluate
antitrust implications of their management decisions.
_1/ Vegelahn v. Guntner,
44 N.E. 1077, 1080 (Mass. 1896), dissenting opinion.
AN ACCEPTABLE LEVEL OF RISK
Open access to the courts, by Government agencies and private citizens, is a fact of life
for American business. There is no strategy that can guarantee protection for any
business, including agricultural cooperatives, from being sued. And the consequences, in
terms of drains on resources and management time, can be enormous. As one judge stated,
"The filing of a complaint in a Federal court is, in effect, a license to the
plaintiff to subject the defendant to the expense and difficulties of extensive discovery
Cooperative leaders and advisers have a
responsibility to take the risk of litigation into account when making management
decisions. The objectives of prudent litigation risk management policy might be to
minimize the chances of being sued, minimize the likelihood of losing a lawsuit, and
position the cooperative to successfully resolve litigation as quickly as possible at the
lowest possible cost, both in terms of money and prestige.
Antitrust litigation is a particular risk for
agricultural marketing cooperatives. A primary reason farmers join marketing cooperatives
is their desire to remain independent businesspeople while eliminating competition among
themselves over prices and other terms of sale. And this is the very type of conduct
antitrust laws are intended to eliminate.
Because antitrust is a legal problem, risk
management should be approached from a legal perspective. A cooperative that sets its goal
as total avoidance of litigation is probably being too conservative. It may shun legal
business opportunities out of undue fear that a competitor or Movement agency will sue.
As a general rule, the major cost of defending
an antitrust suit is preparation for trial. This is because distinguishing between legal
conduct by a vigorous competitor and illegal conduct is often subtle. This distinction
often turns upon factual determinations involving intent and the presence or absence of a
legitimate economic justification for the conduct. The evidence is usually circumstantial
and buried in business records or the recollections of persons only incidentally involved
in the matter under review. Discovering, analyzing, and organizing the relevant economic
evidence can be prohibitively expensive.
Therefore, the goal of all but the most
aggressive associations should be to have any antitrust suit against them dismissed before
trial. In technical parlance, this usually means being in position to have the court grant
a motion for summary judgment.
A motion to dismiss a case on summary judgment
can be made by, and granted to, any party to a lawsuit. The motion is a request that the
court rule that even assuming the facts are as alleged by the other side, the person
making the motion wins the case as a matter of law.
Summary judgment can be awarded in antitrust
cases as in other litigation. While the Supreme Court has said summary judgment should be
granted sparingly in complex antitrust cases, this should not discourage cooperatives from
seeking this route because of the reduced legal costs involved. _3/
The hazard of litigation doesn't mean every management decision
must be dissected looking for potentially grave antitrust consequences. In most instances,
there simply aren't any. Rather, cooperative leaders should become familiar enough with
antitrust principles to recognize when an antitrust problem is possible so they do not
inadvertently violate the law.
Not surprisingly, a cooperative that adopts a
policy of being in position to quickly resolve antitrust suits in its favor is also going
to minimize the probability of being sued at all and of ultimately losing an antitrust
To follow this policy--or to be more aggressive
and test the limits of permissible conduct--cooperative leaders must understand the
development of antitrust law, including agriculture's role in that development; be
knowledgeable about statutes enacted to protect cooperative marketing; know how a
cooperative must be organized and operated to qualify for protected status; and be able to
recognize situations where exposure may be great.
This report provides information in these area
at a level of detail appropriate for use by cooperative directors and managers and by
professional advisers with limited experience in cooperative antitrust issues. It will not
make the user an expert in antitrust law. Whenever a situation with antitrust implications
is identified, the only prudent response is to contact a competent attorney with special
skills in this area of the law, preferably one knowledgeable about both cooperatives and
the services the cooperative provides.
Archie O. Dawson, "Seminar on Protracted Cases, " 23 F.R.D. 325, 431 (1958).
_3/ Tillamook Cheese and Dairy Ass'n v. Tillamook County Creamery Ass'n,
358 F. 2d 115, 117 (9th Cir. 1966).
DEVELOPMENT OF ANTITRUST LAW
Our antitrust law, like most of our legal traditions, is founded on English common law.
When common law was developing, the "trades" were tightly controlled by guilds
and towns. If someone entered into an agreement not to practice his trade, he might become
a burden on the public. Therefore, the courts refused to enforce any contract that
This view was gradually relaxed, and by the
early 18th century, agreements in restraint of trade were enforceable if reasonably
related to a lawful transaction. Gradually the pendulum moved to the other extreme, and
the common law of trade restraint became largely a dead letter.
After the Civil War, industrial leaders in the
United States took advantage of the hands-off attitude adopted by our courts and mounted a
serious challenge to free competition. Persons in the same line of business, including
industries important to farmers-steel, petroleum, farm machinery, sugar, cotton oil, and
A "trust" was an early version of the
holding company. Controlling blocks of stock in previously separate (and usually
competing) companies were placed in a trust under the control of a single board of
trustees. The trustees could then control virtually an entire industry, by controlling the
output and prices of all the largest producers. Farmers, particularly in the South and
West, responded to the trusts by organizing the so-called Grange movement. They used their
political influence to play an important part in securing first State and then Federal
laws to limit the power of the trusts. While the trust is now an archaic form of business
structure, the term "antitrust" has survived to describe laws aimed at
protecting the competitive market system.
The Sherman Act
Sherman Act of 1890, the first Federal antitrust law, remains the most important such act.
_4/ Most antitrust suits against cooperatives allege violations of
sections 1 and 2 of this act.
Section 1 makes "every contract,
combination in the form of trust or otherwise, or conspiracy in restraint of trade or
commerce among the several States.....illegal. _5/
This section also states that any person who makes a contract or
engages in a combination or conspiracy to restrain trade is guilty of a felony. While
criminal sanctions are not frequently invoked, it would be unwise to ignore the
possibility that willful violators may be subjected to heavy fines and possible
Section 1 reaches not only the traditional
"cartel" or "horizontal" arrangements between competing firms engaged
in the same level of production or distribution. It also covers agreements between firms
at different levels of the production and distribution system, such as between producers
and processors, often called "vertical" agreements.
Section 2 states that "every person who
shall monopolize, or attempt to monopolize, or combine or conspire with any other person
or persons, to monopolize shall be deemed guilty of a felony._6/
This section is aimed at preventing a single firm, or a
combination of firms, from acquiring the power to fix prices or eliminate competition.
The Federal Trade Commission
and Clayton Acts
The Sherman Act was drafted in broad, constitutional terms. Cooperative leaders need to be
familiar with two additional Federal laws, both enacted in 1914, that supplement the
Sherman Act by prohibiting specific restraints of trade and establishing additional
enforcement tools. They are the Federal Trade Commission Act _7/ and the
Clayton Act. _8/
The Federal Trade Commission Act created an independent
regulatory commission to eliminate unfair methods of competition in their inception,
before they substantially lessen competition. The act was later amended to also prohibit
unfair or deceptive acts or practices.
The Clayton Act was passed to make it clear
that no matter how the sweeping language of the Sherman Act was interpreted, certain
specific acts were unlawful when their effect was to substantially lessen competition or
to tend to create a monopoly. These included discrimination in price (section 2), use of
exclusive dealing arrangements and tie-in sales requiring a purchaser of a desired
commodity to purchase other goods as well (section 3), and acquiring the stock or assets
of a competitor (section 7).
The Clayton Act also authorizes private persons
injured by any violation of the antitrust laws, including the Sherman Act, to sue and
recover treble damages and attorneys fees (section 4) and holds directors, officers, and
agents personally liable for a corporation's violation of any criminal provision of any
antitrust law (section 14).
_4/ 15 U.S.C. 1-7.
_5/ 15 U.S.C. 1. Section 3 of the Sherman Act, 15 U.S.C. 3, makes section
1 applicable to commerce involving the District of Columbia.
_6/ 15 U.S.C. 2.
_7/ 15 U.S.C. 41-58.
_8/ 15 U.S.C. 12-27.
INTERPRETATION OF ANTITRUST LAWS
When Congress passed the Sherman Act, it seemed to be influenced by the earliest common
law traditions of trade restraint. The act forbids any agreement that restrains trade and
any act tending to monopolize commerce.
At first, the Supreme Court applied the Sherman
Act prohibition of all trade restraints literally._9/ However, when the
series of major antitrust cases started by President Theodore Roosevelt came before the
court, it found that practical application of the Sherman Act called for substantial
When applying the antitrust laws to specific
situations, particularly the broad language of sections I and 2 of the Sherman Act, courts
have relied on two contrasting yet complementary rules, the rule of reason and the rule of
per se illegality.
_9/ United States v.
Trans-Missouri Freight Assn., 166 U.S. 290 (1897).
The Rule of Reason
A literal reading of the Sherman Act prohibition of every agreement in restraint of trade
could lead to the absurd conclusion that all commercial contracts are prohibited, since
all contracts limit the freedom of the parties to some extent and thereby
Likewise, section 2 would prohibit any
monopolization, even in small rural communities where there may be only enough customers
to support one pharmacist, a single funeral parlor, dairy, and so forth.
To avoid this abnormality, the courts adopted
the rule of reason as a basic standard for interpreting the Sherman Act. The rule of
reason means sections 1 and 2 only prohibit contracts, combinations, and conspiracies that
"unreasonably" or "unduly" restrain or monopolize trade. _10/
Determining if conduct is an "unreasonable" restraint
of trade that violates section 1 of the Sherman Act often requires an intense and
subjective analysis of the facts in the case. Courts look at facts peculiar to the
business, the history of the restraint, the reasons why it was imposed, and the economic
consequences of restraint. The purpose of the analysis is to determine the competitive
significance of the restraint; that is, is it an unjustifiable or substantial interference
with the free market the law is supposed to protect.
Similarly, section 2 of the Sherman Act is
interpreted to require an analysis of the purpose of the party or parties and the means
employed to obtain monopoly power.
_10/ Standard Oil
Company v. United States, 221 U.S. 1 (1911); Board of Trade of the City of Chicago v.
United States, 246 U.S. 231 (1918).
The Rule of Per Se Illegality
The development of the rule of reason was balanced by the contemporaneous recognition that
certain acts are so anticompetitive and without business justification that a lengthy and
burdensome trial to establish their unreasonableness was not justified. If the act itself
was proven, the court automatically found the conduct illegal. Such conduct is labeled
"illegal per se."
The rule of per se illegality is most
frequently applied to agreements to fix prices and divide markets (both territories and
The earliest decisions finding per se
illegality were in cases that involved price fixing, market division, and marketpower.
_11/ However, subsequent decisions have held either price fixing _12/
or market division _13// can be illegal per se without proof of
market power or adverse impact on competition.
The per se rule has a substantial potential
impact on agricultural marketing cooperatives. A logical application of the rule of reason
would place much cooperative marketing by agricultural producers outside the scope of the
antitrust laws. Their collective activity would not result in enough market power to
significantly restrain trade. Risk would be limited except for an association that somehow
acquired sufficient market power to control prices and eliminate competitors, and for
cooperatives who conspired with other businesses to restrain or monopolize trade.
But the farmer members of virtually every
marketing cooperative, regardless of how new or limited in scope, agree on prices and
collectively decide to whom they will sell their products.
Because this conduct is conclusively presumed
to be illegal, an agricultural cooperative defending an antitrust suit is precluded from
introducing evidence showing a legitimate economic objective being pursued by the
This exposes farmers to considerable antitrust
risk unless their joint marketing activity is conducted in a manner exempt from antitrust
prohibitions. As one judge phrased it:
"It is clear that if individual
agriculturalists, through the medium of a cooperative, jointly fixed prices, reasonably or
otherwise, without statutory authorization, they would be subject to
prosecution." (emphasis added) _14/
Thus the need for statutory protection for cooperative marketing
United States v. Addyston Pipe & Steel Co., 85 F. 271 (6th Cir. 1898), modified as to
decree and aff'd, 175 U.S. 211 (1899); United States v. Trenton Potteries Co., 273 U.S.
_12/ United States v.
Socony-Vacuum Oil Co., 310 U.S. 150 (1940).
_13/ United States v. Topco Associates, 405 U.S. 596 (1972).
_14/ April v. National Cranberry Association, 168 F. Supp. 919, 921 (D.C.
COOPERATIVE ANTITRUST PROTECTION - BACKGROUND
When the Sherman Act was being considered in Congress, the development of cooperative
marketing associations was in its infancy. A few alert legislators foresaw the proposed
language could cripple efforts of farmers to create organizations strong enough to protect
their interests in the marketplace. _15/
Senator Sherman even proposed an amendment
providing the act:
"... shall not be construed to apply to
any arrangements, agreements, associations, or combinations among persons engaged in
horticulture or agriculture made with the view of enhancing the price of their own
agricultural or horticultural products." _16/
The amendment was not adopted. Senator Sherman was persuaded by
his colleagues that no one would consider applying the antitrust statute to agricultural
producers. Many legislators felt it was important not to limit the applicability of the
new law in any way. In view of the embryonic state of cooperative marketing at the time,
it is remarkable that their status was considered at all.
Developments in the early 1900's raised doubts
among agricultural leaders about the adequacy of the Sherman Act. First, the evolution of
the rule of reason created concern the act would not be applied vigorously enough to
effectively mitigate the power of industrial trusts.
Second, the Sherman Act and similar statutes
adopted by the States were used to attack farmer associations as unreasonable restraints
of trade. _17/
Thus, the antitrust law farmers had fought for was turning out
to be a burden rather than an asset. As a consequence, agricultural organizations sought
legislation that would protect them from overzealous enforcement of the Sherman Act.
Congress first recognized producers' needs for
limited antitrust protection when it passed the Clayton Act in 1914. Section 6 of the
Clayton Act states:
"Nothing contained in the antitrust laws shall be construed to forbid the existence
and operation of labor, agricultural, or horticultural organizations, instituted for the
purposes of mutual help, and not having capital stock or conducted for profit, or to
forbid or restrain individual members of such organizations from lawfully carrying out the
legitimate objectives thereof; nor shall such organizations, or the members thereof, be
held or construed to be illegal combinations or conspiracies in restraint of trade, under
the antitrust laws." _18/
While this language was a clear expression by Congress that forming a cooperative was not
a violation of the antitrust laws, it did not indicate the types of activities such an
association could lawfully engage in. Also, its benefit was limited by the fact that it
only applied to nonstock organizations.
_15/ 21 Cong. Rec.
2561, 2562, 2606 (1890)
_16/ 21 Cong. Rec. 2726 (1890)
_17/ Loewe v. Lawler, 208 U.S. 274, 301 (1908); Ford v. Chicago
Milk Shippers' Ass'n, 39 N.E. 651 (Ill. 1895); Reeves v. Decorah Farmers' Co-operative
Society, 140 N.W. 844 (Ia. 1913).
_18/ 15 U.S.C. 17.
Agricultural leaders recognized the shortcomings of the cooperative provision in the
Clayton Act and, after several years of intense congressional education, secured enactment
of the Capper-Volstead Act in 1922. _19/
Sometimes referred to as the Magna Charta of cooperative
marketing, Capper-Volstead has enabled producers to develop a broad range of agricultural
businesses that enhance their profit opportunities as farmers.
And just as important, farmers who market
products through a cooperative that is not organized and operated as required by
Capper-Volstead are in probable violation of the antitrust laws.
Capper-Volstead has two provisions. Section 1
sets out who is covered by the act, activities protected from antitrust liability, and
requirements on organizational structure to receive its protection.
Section 2 protects the public from harmful
conduct by cooperatives. It empowers the Secretary of Agriculture to prevent cooperatives
operating within the scope of Capper-Volstead from using their market power to unduly
enhance the price of products they market.
Section 2 does not give the Secretary of
Agriculture jurisdiction over charges of antitrust law violations outside the scope of
Capper-Volstead. _20/ The Department of Justice, the Federal Trade
Commission, and private parties may all sue cooperatives over anticompetitive conduct not
protected by Capper-Volstead. _21/
The following discussion of section 1 explains how a cooperative
must function to shield itself from antitrust liability.
_19/ 7 U.S.C. 291, 292. An outline of the
Capper-Volstead Act is provided in appendix A.
_20/ United States v. Borden Co., 308 U.S. 188 (1939); Maryland
& Virginia Milk Producers Ass'n v. United States, 362 U.S. 458 (1960).
_21/ Fishermen receive the same protection as farmers under the
Fishermen's Collective Marketing Act, 15 U.S.C., 521-522. For additional information
on this statute, see Donald Frederick "Fisheries Marketing Cooperatives: An Antitrust
Perspective, " 9 Journal of Agricultural Taxation & Law 47 (Spring 1987).
Who Is Covered
protection of the Capper-Volstead Act is available only to cooperatives that limit
membership to agricultural producers and associations of producers. An agricultural
producer is someone performing traditional farming activities such as tilling the soil and
tending to animals. Cooperative leaders should react with caution whenever they receive a
membership application from someone who does not clearly conform to this standard.
One common area of difficulty for cooperatives
seeking to identify producers is the landlord-tenant relationship. The tenant farmer is
clearly a producer. A landlord whose rent is a portion of the crop or proceeds of the sale
is also a producer. However, a landlord who receives a flat rental fee for the land is not
a producer. In the latter case, the landlord is not participating in production, so the
landlord is considered an investor rather than a farmer.
A situation that requires special consideration
is the application for membership from an entity engaged in packing or processing
agricultural commodities. If a noncooperative firm engaged solely in packing or processing
is accepted as a member, the exemption is lost. _22/ Such applicants must
However, if an applicant devotes a substantial
portion of its resources to agricultural production, and also has a packing or processing
operation, the applicant is considered a producer and may belong to a marketing
A more difficult question is the status of a noncooperative
processor with only a modest investment in agricultural production. The courts have said
other producers do not forfeit Capper-Volstead protection if their cooperative accepts a
large corporate grower as a member, provided that grower's role is limited to the extent
of its own production that it markets through the association. _24/
This rule is not likely to change unless the Capper-Volstead Act
is amended. As one court noted:
"There are those who contend that the
economics of farming have changed so dramatically in recent years through farm growth and
mechanization that the Capper-Volstead Act is no longer needed to equalize bargaining
power (cites omitted). It is for Congress, not the courts, to determine whether there is
sufficient merit in this argument to warrant a redesign of the statute." _25/
Nonetheless, involvement of such a firm in a cooperative is a
"red flag" that may attract scrutiny from antitrust officials.
Another issue that must be dealt with is the need to keep cooperative membership rolls
current. The requirement to be an association of producers places a duty on leaders to
regularly review the membership roll and revoke the memberships of persons who are no
longer producers. Many cooperatives have a bylaw providing for automatic termination of a
member who is no longer a producer or stops marketing products through the cooperative.
A membership is revoked when the member's right
to vote is rescinded. A prudent cooperative will have both a bylaw rescinding inactive and
ineligible memberships and a policy of making sure the bylaw is enforced so only current
producer-patrons retain the right to vote at membership meetings.
While this is not a day-to-day requirement, _26/
a cooperative's status as an association of producers will be in jeopardy if it
does not have a program to keep the membership roll current.
Co. v. Sunkist Growers, Inc., 389 U.S. 384 (1967); United States v. National Broiler
Marketing Association, 436 U.S. 816 (1978)
_23/ Case-Swayne v. Sunkist, 389 U.S. 384. the court
mentioned grower-processors held membership in Sunkist but only required the purging of
In a letter to counsel for the
Texas Produce Marketing Cooperative, dated March 17, 1988, the Department of Justice
advised the cooperative could have members who provide packing and marketing services for
themselves and other members.
_24/ Northern California Supermarkets v. Central California Lettuce
Producers Cooperative, 413 F. Supp. 984 (N.D. Cal. 1976), aff'd, 580 F. 2d 369 (9th Cir.
1978), cert. denied, 439 U.S. 1090 (1979). Presence of United Brands as a member did not
weaken claim to Capper-Volstead protection.
_25/ Fairdale Farms v. Yankee Milk, 635 F.2d 1037, 1045 n.7. (2d
Cir. 1980), cert. denied 454 U.S. 818 (1981).
_26/ Alexander v. National Farmers Organization, 687 F. 2d 1173,
1186 (8th Cir. 1982), cert denied 461 U.S. 937 (1983). the court was tolerant of a
few shortterm nonproducer members who were not processors or other middlemen using the
exemption to shield otherwise illegal conduct.
The plain language of the statute imposes well defined constraints on producer
associations that wish to qualify for its protection. If an association determines it
cannot function within these constraints, then the association should, approach antitrust
risk management as if the exemption does not apply.
One-member, one-vote or limited return on capital.
Either the association must not allow a member more than one vote because of the amount of
stock or membership capital owned in the association, or it may not pay dividends on stock
or membership capital in excess of 8 percent per year. Many associations do both.
Member business must exceed nonmember
business. Capper-Volstead permits great flexibility in marketing products of
nonmembers. However, a protected association may not deal in the products of nonmembers in
an amount greater in value than such products are handled by it for members. This means
produced by members. Goods purchased from other sources by members and marketed through
the cooperative must be counted as nonmember products because they were not produced by
Mutual Benefit of Members as Producers.
The association must promote the mutual benefit of the members as agricultural producers.
This presents abuse of the legislation. For example, major road builders in an area cannot
put a broccoli patch behind their garages and then form a vegetable marketing cooperative
to serve as a shield for colluding on construction contract bids, nor can a group of food
processors with limited agricultural production use a cooperative to agree on prices for
their entire manufacturing output.
The heart of the Capper-Volstead Act is language stating that agricultural producers may
act together in collectively "processing, preparing for market, handling, and
marketing" their products.
The key term is marketing, which has been
interpreted to include virtually all services a marketing cooperative could reasonably be
expected to provide its members. As one court stated:
"We think the term marketing is
far broader than the word sell. A common definition of marketing is this: 'The aggregate
of functions involved in transferring title and in moving goods from producer to consumer,
including among others buying, selling, storing, transporting, standardizing, financing,
risk bearing, and supplying market information.' (cite omitted)... We see no
reason to give that word a special meaning within the context of the Capper-Volstead
Act." (court's emphasis) _27/
The courts have said marketing can involve a minimum of
collective activity, such as establishing a floor price below which no member will sell
product. _28/ Or cooperatives can integrate forward throughout the
marketing chain. The members of Land O'Lakes, Ocean Spray, Sun Diamond, Blue Diamond, and
Welch's are examples of producers that put their product right on the grocery store shelf.
Cooperative associations are authorized to have
common marketing agencies and to make the necessary contracts and agreements to carry out
permitted marketing and related activities.
Farmers who are members of one cooperative can
agree on marketing practices with farmer members of another cooperative by having their
associations use a common marketing agent _29/, form a federation _30/,
or simply work together to accomplish their legitimate marketing objectives. _31/
Valley Potato Bargaining Ass'n v. Ore-Ida Foods, 497 F.2d 203, 215 (9th Cir. 1974), cert.
denied 419 U.S. 999 (1974)
_28/ Northern California Supermarkets, 413 F. Supp. 984.
_29/ United States v. Maryland Cooperative Milk Producers, Inc.,
145 F.Supp. 151 (D.C.D.C. 1956).
_30/ Sunkist Growers, Inc. v. Winckler & Smith Citrus Products
Co., 370 U.S. 19 (1962).
_31/ Treasure Valley, 497 F.2d 203.
AREAS OF ANTITRUST RISK
The Capper-Volstead Act does more than merely extend section 6 of the Clayton Act to
cooperatives with stock. The act authorizes a range of collective activity. The main
benefit of qualifying for protection under Capper-Volstead is that producers can pursue
opportunities in these areas with little risk of adverse antitrust consequences.
While Capper-Volstead offers farmers an
opportunity to enhance their marketing power, it is not a total exemption from antitrust
law. Cooperative leaders must deal on a regular basis with situations that pose antitrust
problems. These are the areas of conduct that risk management requires be carefully
reviewed, and sometimes avoided.
As these situations are discussed, a common
theme will be repeated. Conduct that is frequently permissible if engaged in exclusively
by agricultural producers becomes illegal if both producers and nonproducers are involved.
Thus the first element of a risk management policy should be to carefully review any
proposed anticompetitive conduct with nonproducers before it begins.
This does not prevent cooperatives from making
agreements with noncooperative firms. Such a prohibition would make it impossible for them
to do business, and that fact is recognized in Capper-Volstead by language specifically
authorizing contracts and agreements for normal business purposes.
Agreements with noncooperative firms are judged
as if they were between two noncooperative firms. If challenged, the usual tests for
measuring compliance with the Sherman, Clayton, and Federal Trade Commission Acts will be
Agreements on Price and Terms
Price agreements are considered the most objectionable violation of the antitrust laws.
The primary benefit to agricultural producers of forming a marketing association that
qualifies for Capper-Volstead protection is that producers who are members of such an
association can agree among themselves on the prices they will accept for the agricultural
products they produce and all reasonable terms of sale. _32/
This protection for price agreements does not extend to
agreements with noncooperative competitors. In the first decision interpreting
Capper-Volstead, the U.S. Supreme Court ruled that a price agreement between a marketing
cooperative and noncooperative businesses, unions, and government officials violated the
Sherman Act. _33/
Counsel to cooperatives have sometimes advised their clients to
leave a meeting, particularly a commodity group meeting, "if they start to talk
Whether this is necessary depends on who is in
the room and the nature of the conversation. If everyone in attendance represents a
cooperative with Capper-Volstead protection, then prices can be freely discussed.
Cooperative representatives can also agree on
prices with a single buyer. This is a reasonable restraint of trade essential to normal
However, if a noncooperative competitor or more
than one noncooperative buyer is present, caution is essential. While some exchange of
general information may bc permissible, anything that indicates the meeting may be a
pretext for a tacit agreement can cause problems. The issue of risk management is deciding
at what point one wants to leave the room.
_32/ GVC Cannery v.
California Tomato Growers Ass'n, 511 F. Supp. 711 (N.D. Cal 1981); Washington Crab, 66
F.T.C. 45 (1964).
_33/ United States v. Borden, 308 U.S. 188 (1939).
Undue Price Enhancement
Section 2 of the Capper-Volstead Act protects the public from abuse by a marketing
cooperative. It directs the Secretary of Agriculture to order a cooperative to cease
monopolizing or restraining trade if the monopolization or restraint of trade results in
unduly enhanced prices.
Regulations spelling out the procedures to be
followed in conducting an investigation under section 2 of Capper-Volstead are published
at 7 CFR 1. 160. The regulations follow generally accepted administrative law principles.
If an order by the Secretary of Agriculture to cease anticompetitive conduct is ignored,
the Department of Justice is responsible for enforcing that order.
Substantial Market Share
Farmers may, through a single cooperative "or in combination with other exempt
cooperatives, obtain monopoly power in a given market so long as it is achieved through
natural growth, voluntary confederation and without resort to predatory or anticompetitive
This means farmer cooperatives are free from the prohibition on
monopolization in section 2 of the Sherman Act, as long as they achieve their market
share through legitimate business practices.
Again, any agreement with noncooperative firms
to monopolize any part of trade or commerce is outside the scope of Capper-Volstead
protection and subjects the parties involved to liability under the conspiracy to
monopolize language of the Sherman Act. _35/
_34/ Alexander v. NFO,
687 F.2d at 1182.
_35/ Maryland and Virginia Milk Producer's Ass'n v. United States,
362 U.S. 458 (1960).
Mergers and Acquisitions
Mergers and acquisitions may result in violations of the antitrust laws. Section 7 of the
Clayton Act forbids any corporate combination or acquisition that may substantially lessen
competition or tend to create a monopoly. _36/
While this provision does not specifically
exempt mergers among cooperatives, no serious legal challenge has been mounted a
combination of cooperatives. It would make no sense for a court to order producers to
dissolve their cooperatives and rejoin a new association when they could voluntarily have
elected to pursue that option and voted instead to combine directly. _37/
But cooperatives are subject to the same rules as noncooperative
firms when they merge with or acquire a noncooperative business. _38/ The
court will look at the economic effect of the purchase. If it stifles competition, the
purchase is likely to be found to violate antitrust law, usually section 7 of the Clayton
Not all purchases of noncooperative competitors are prohibited.
A merger or acquisition may involve relatively small firms and thus not substantially
lessen competition. A purchase may even enhance competition. For example, the
resulting firm may be better able to compete with stronger competitors than the individual
firms did before the consolidation. Also, if a noncooperative business is likely to fail,
and a cooperative has done nothing illegal to cause the failure, the cooperative may be
free to proceed.
A cooperative contemplating a merger or
acquisition should be cognizant of the premerger notification rules. As a business
combination can be virtually impossible to reverse, the Clayton Act was amended in 1976 to
require firms planning a merger or acquisition, under specified circumstances, to provide
premerger notification to the Department of Justice and the Federal Trade Commission and
to wait a prescribed period before the combination is finalized. _40/ The
courts will not tolerate structuring a deal to avoid premerger notification. _41/
_36/ 15 U.S.C. 18
_37/ The Supreme court has said it will not "impose grave
legal consequences upon organizational distinctions that are of de minimus meaning and
effect to these growers who have banded together for processing and marketing purposes
within the purview of the Clayton and Capper-Volstead Acts." Sunkist Growers v.
Winckler & Smith Citrus Products, 370 U.S. at 29 (1961).
_38/ U.S. v. Rice Growers Ass'n of California, 1986-2 Trade Cases,
par. 67,287, footnote 5 (E.D. Cal., January 31, 1986).
_39/ Maryland and Virginia Milk Producers Ass'n v. United States
362 U.S. 458 (1960).
_40/ Hart-Scott-Rodino Antitrust Improvements Act of 1976, 15
_41/ U.S. v. Rice Growers Ass'n of California, 1986-2 Trade Cases,
par. 67,288 (E.D. Cal., January 31, 1986).
As a general rule, any business, including a cooperative, that does not have monopoly
power is free to select its customers. Most antitrust problems pertaining to customer
selection evolve from efforts to impose unreasonable restraints on customers.
For example, a cooperative and a buyer are free
to voluntarily agree that the cooperative will provide all of a product the buyer needs. _42/
However, if the cooperative coerces the buyer into signing such an agreement, the
courts are likely to find an illegal attempt to monopolize. _43/
Customer selection on the basis of the customer's willingness to
resell product at prices dictated by the cooperative must also he carefully evaluated. For
some time cooperatives have been allowed to refuse to sell to a buyer unless the buyer
terminates its discounting policy _44/, but if the cooperative attempts
to set the price at which the products are resold, a violation may occur. _45/ The
Supreme Court has recently affirmed the application of this rule to business in general. _46/
A decision to refuse to deal with a willing customer should also
be made only after careful thought. As a general rule, producers may agree among
themselves to sell to one buyer and refuse to deal with a competitor of that buyer. _47/
However, if the refusal to deal is a device to acquire a monopoly, fix prices, or
establish market dominance and drive out competitors, it is illegal. _48/
_42/ Isaly Dairy
Company v. United Dairy Farmers, 250 F. Supp. 99 (W.D. Pa. 1966).
_43/ Alexander v. NFO, 687 F.2d at 1196.
_44/ Superior Dairy v. Stark County Milk Producers Ass'n, 100 N.E.
2d 695 (Ct. App, Stark Co., Ohio 1950)
_45/ Bergjans Farm Dairy Co. v. Sanitary Milk Products, 241 F.
Supp. 476 (E.D. Mo. 1965), aff'd 368 F. 2d 679 (8th Cir. 1966).
_46/ Business Electronics Corp. v. Sharp Electronics Corp., 56 USLW
4387 (decided May 2, 1988).
_47/ United States v. King, 229 F. 275 (D.C. Mass. 1915).
_48/ L.S. Good & Co. v. H. Daroff & sons, 263 F. Supp.635
(N.D. W.Va. 1967).
As discussed above, the Capper-Volstead Act require agricultural marketing cooperatives to
limit membership to bona fide producers. Many State statutes that authorize the
incorporation of agricultural cooperatives place the same restriction on supply and
marketing associations organized thereunder._49/
Cooperatives are free to establish other reasonable conditions
on membership, such as purchasing stock, paying membership fees, and signing membership
and marketing agreements.
Sometimes a cooperative has limited capacity
and cannot serve additional members without limiting services available to existing
members. Or cooperative members may feel a particular applicant might disrupt the
association or doesn't produce a high-quality product. In these and similar situations,
the cooperative can usually reject otherwise qualified applicants.
If a rejected applicant can convince a court
that cooperative membership is essential to staying in business and competing with
members, the court might rule other members would have to make room for the applicant.
Talk of such a suit arose during the energy
shortage of the early 1970's, when noncooperative suppliers of petroleum products withdrew
from rural areas. Cooperatives, with their established members already on rationing, were
reluctant to accept producers abandoned by noncooperative firms. The shortage abated
before litigation became a reality.
The U.S. Supreme Court has held that expulsion
of a member by a supply cooperative is not a per se violation of antitrust law. It is an
unreasonable restraint only if the expulsion was intended to, and did in fact,
"result in predominantly anticompetitive effects." _50/ This
decision will carry great weight in any future litigation over the right to be a member of
_49/ James Baarda, State
Incorporation Statutes for Farmer Cooperatives, Agricultural Cooperative Service, USDA,
Cooperative Information Report No. 30, section 10.03.05 (1982).
_50/ Northwest Wholesale Stationers v. Pacific Stationary and
Printing, 472 U.S. 284 (1985).
Even before enactment of the Sherman Act, the Movement had placed regulatory clamps on the
railroad trusts. _51/ In 1935, the trucking industry also was
placed under Federal regulation. _52/ Antitrust was not an important
issue in transportation. The Interstate Commerce Commission set rates and rules of
service, so companies in the industries and users of their services were not free to
engage in conduct that usually triggers antitrust concerns.
The enactment of Federal legislation providing
limited deregulation of the railroad and trucking industries in 1976 and 1980 created
enormous new challenges for all shippers, particularly those dependent on rail service. _53/
This included numerous farmer cooperatives.
Storerooms full of tariff books were suddenly
of greatly diminished importance. Transportation officers, who had matured under a system
that emphasized auditing freight bills to identify overcharges, were thrust into an
environment that called for competition and provided for negotiated contract rates. And at
the same time, antitrust laws were made applicable to the transportation industry.
Confusion arose, and continues, over the extent
that cooperatives are able to work with each other, and with noncooperative firms, to
negotiate rates and terms of service with the carriers. Some familiar rules will help
guide cooperative leaders to a greater understanding.
The earlier quotation from the Treasure Valley
opinion, defining marketing, included "transporting" as one of activities
included in "marketing" as the term is used in the Capper-Volstead Act.
Another court held that the term
"handling" as used in Capper-Volstead also encompasses hauling. _54/
One case involved marketing of potatoes, the
other milk. Thus, case law strongly suggests Capper-Volstead permits producers and
producer associations to jointly negotiate for transportation services when moving their
products as part of the marketing process.
It is questionable if a court would reach the
same conclusion in a case involving the transportation of supplies. However, joint
negotiation of transportation service contracts has not been held to be a per se violation
of antitrust law, so the rule of reason would apply to agreements between cooperatives
when negotiating transportation service contracts covering inputs.
Only cooperatives with a substantial share of
the available market, in this instance traffic, are likely to be exposed to much risk.
This may not make sense to cooperatives that
market grain and furnish farm supplies. They can talk freely and agree with neighboring
cooperatives when arranging to ship grain, but must be cautious when discussing
arrangements with the same cooperatives for bringing supplies into the area.
Agreements to coordinate with noncooperative
shippers on transportation matters are also subject to the rule of reason. They are
permitted as long as they do not unreasonably restrain competition.
Commerce Act, 24 Stat. 379 (1887)
_52/ Motor Carrier Act. 49 Stat. 543 (1935)
_53/ Railroad Revitalization and Regulatory Reform Act of 1976, 90
Stat. 31 (1976); Motor Carrier Act of 1980, 94 Stat. 793 (1980); Staggers Rail Act of
1980, 94 Stat. 1895 (1980).
_54/ Green v. Associated Milk Producers Ass'n, 692 F. 2d 1153, 1157
(8th Cir. 1982).
Limitations on Quantities
Agricultural production in excess of market demand is a continually recurring event that
depresses prices and makes it difficult for cooperatives to sell all of their members'
production. Many cooperatives nonetheless agree to accept all member production of
commodities they handle and to make the best possible effort to market them at the best
Cooperatives are free to limit the amount of
product they will accept, even from members. This may be necessary because the
cooperative's facilities are only adequate to handle a certain quantity of product or
because management feels it can only market so much product.
Any limitations are usually placed in a clause
in the member marketing agreement specifying the quantity the cooperative is obligated to
accept, or the acreage whose production can be delivered. If the cooperative decides later
that it can market additional member production, the cooperative may agree to do so but is
not under a prior obligation to do so.
Cooperative officials may also deal with an
anticipated oversupply problem by providing information to members that suggests they
produce less. Such member education activity was specifically authorized with enactment of
the Cooperative Marketing Act in 1926. Section 5 of that act permits producers organized
in cooperative marketing associations to "acquire, exchange, interpret, and
disseminate past, present, and prospective crop, market, statistical, economic, and other
similar information... ." _55/
There is a limited body of case law indicating
producers may use their cooperative as a vehicle to agree among themselves to limit the
quantity of a commodity they will produce. _56/
The conventional belief among cooperative
scholars is that this goes beyond the extent of the protection available under the
Capper-Volstead Act. _57/ This view is consistent with the position of
the antitrust enforcement agencies. _58/
Cooperatives that want to have a prudent risk management policy will
not do more in this area than limit the quantity of produce they will accept to what
they can profitably market and suggest to members that they limit their own production so
supply will not greatly exceed demand in the marketplace.
_55/ 7 U.S.C.
_56/ Washington Crab, 66 F.T.C. at 126-127; Alexander v. NFO, 687
F.2d at 1188.
_57/ Legal Phases of Farmer Cooperatives, Farmer Cooperative
Service, USDA, Information 100, p. 199 (1976).
_58/ Sherman R. Hill, "Agricultural Cooperatives and the
Federal Trade Commission," American Cooperation 1960, American Institute of
Cooperation, at page 452.
Any time a cooperative steps outside the bounds of accepted competitive practices and
undertakes conduct that is anticompetitive and has no business justification, it is said
to be engaging in predatory conduct. The courts have consistently held that predatory
conduct clearly violates the antitrust laws and is just as clearly outside the scope of
protection provided by Capper-Volstead.
Predatory conduct may be undertaken as part of
a conspiracy with other cooperatives and with noncooperative firms. Even a single,
properly structured cooperative receives no protection if its actions are predatory and
would constitute an attempt to monopolize or a monopolization under the Sherman Act.
Determining if a particular course of conduct
is predatory requires subjective analysis, so the courts will examine the facts in each
Conduct on the part of cooperatives that the
courts have found predatory includes threats of physical violence to force nonmembers to
market through the association _59/, attempting to increase market share
by giving secret cash rebates to customers in plain brown envelopes _60/,
using intimidation and force to prevent nonmembers from selling to buyers at prices below
those set by the association _61/, and setting up pickets outside of
retailers who handle product from noncooperative sources. _62/
While members of a cooperative may refuse to deal with someone,
they cannot pressure outsiders to also refuse to deal with that person. Such conduct is
referred to as an illegal boycott. _63/ Marketing orders and other
Government programs can aid the collective marketing activities of producers. But attempts
to manipulate regulatory schemes to create a monopoly have been held to be predatory
conduct. Providing misleading information to regulators and persistently filing complaints
and appeals to harass competitors and keep them from obtaining operating permits were the
court's examples of predatory conduct. _64/
While there is no foolproof test to identify predatory conduct,
an intuitional feeling that morally the activity just isn't right can be a pretty
effective indicator. Certainly counsel should be consulted before any cooperative
undertakes activity that appears to have little economic justification.
_59/ Steers v. United States, 192 F
1, (6th Cir. 1911).
_60/ Bergjans Farm Dairy v. Sanitary Milk Producers, 241 F. Supp.
476 (E.D. Mo. 1965), aff'd 368 F.2d 679 (8th Cir. 1966).
_61/ Gulf Coast Shrimpers and Oyster Ass'n v. United States, 236 F.
2d 658 (5th Cir. 1956).
_62/ North Texas Producer's Ass'n v. Metzger Dairies, Inc., 348
F.2d 189 (5th Cir. 1965), cert. denied, 382 U.S. 977 (1966). Otto Milk Co. v. United
Dairy Farmers Cooperative Ass'n, 261 F. Supp. 381 (W.D. Pa. 1966), aff'd 388 F.2d 789 (3d
_63/ Boise Cascade v. Northern Minnesota Pulpwood Producers Ass'n,
294 F.Supp. 1015 (D. Minn. 1968).
_64/ Marketing Assistance Plan v. AMPI, 338 F.Supp. 1019 (S.D. Tex.
Supply cooperatives have, to date,
successfully avoided antitrust problems. Thus potentially troublesome issues, such as
whether "preparing for market" as the term is used in Capper-Volstead is broad
enough to include providing supplies, have remained academic exercises.
At least three factors are contributing to the
successful risk management efforts of supply cooperatives. First, when a supply
cooperative sells inputs to its members, the members are selling to themselves. The
conspiracy provisions of the antitrust laws do not prohibit agreements on prices and
allocations of supplies among members of a cooperative, so long as the agreements do not
somehow place unreasonable restraints on the business opportunities of nonmembers. _65/
Second, since the earliest cases interpreting the Sherman Act,
the courts have been reluctant to find conduct violates the monopolization provisions of
the antitrust law unless there is a "dangerous probability" it will reduce
competition. _66/ Supply cooperatives compete with worldwide petroleum,
chemical, and agribusiness firms. No individual supply cooperative has, or is likely to
soon attain, sufficient market power to control prices or eliminate competitors.
Third, supply cooperative leaders have, thus
far, avoided engaging in conduct that leads to antitrust liability. They have not
entered into agreements with competitors that have been challenged as illegal per se or
unreasonable restraints on trade. They have also refrained from anticompetitive conduct
without clear business justification.
_65/ S. Chesterfield Oppenheim, et
al., Federal Antitrust Laws, 4th Ed. (St. Paul, MN: West Publishing Co., 1981), P. 217.
_66/ Swift & Company v. United States, 196 U.S. 375 (1905).
Northwest Wholesale Stationers v. Pacific Stationary and Printing, 472 U.S. 284
OTHER POINTS TO REMEMBER
This section of the report discusses a few
other points that are important to remember when assessing antitrust risk.
Personal Liability for
Leaders and Advisers
The antitrust law is quite clear that individuals in policy positions are as liable as
corporations for violations of the antitrust laws.
Sections 1 and 2 of the Sherman Act state that
individuals who make any contract, engage in any combination or conspiracy, or monopolize
or attempt to monopolize interstate commerce in violation of the act are guilty of a
felony and subject to a fine of up to $ 100,000 and a prison term of up to 3 years. _67/
The scope of this language has been interpreted quite broadly to
encompass outside advisers, including legal counsel that actively participate in
cooperative policymaking. As one court stated:
"The individuals through whom a
corporation acts and who shape its intentions can be held liable on a charge of attempted
"We do not believe that this rule can be
applied to the counsel for a corporation whose activity is brought into question, if the
role of the counsel was only that of a legal adviser. This would be true even if, as
counsel, he mistakenly advised corporate officers that a particular course of conduct
would not violate section 2. But if he goes beyond that role and, acting by himself or
jointly with others, makes policy decisions for the corporation, then he subjects himself
to liability for attempted monopolization as in the case of any executive officer of the
company performing a similar function." _68/ Many cooperatives rely
on attorneys, accountants, bankers, and other outside professionals for business advice.
This can be a valuable service to the association. But it does not relieve the directors
and managers of their potential personal liability under antitrust law. And it can lead to
unexpected exposure for the advisers themselves if they do not understand the potential
antitrust implications of the situation under review.
_67/ Section 14 of
the Clayton Act, 15 U.S.C. 24, also provides that if a corporation violates any penal
provision of the antitrust laws, the officers, directors, and agents who authorized the
offending acts are guilty of a misdemeanor punishable by up to a $5,000 fine, one year in
jail, or both. However, this provision is rarely used as the Justice Department
usually attempts to secure a felony conviction in antitrust cases.
_68/ Tillamook Cheese & Dairy Ass'n v. Tillamook County
Creamery Ass'n, 358 F.2d at 118.
While many major antitrust cases are brought by Government agencies, private litigation
may pose a greater threat to most cooperatives.
The provision in section 4 of the Clayton Act
tripling the damage award is a strong incentive for such suits, especially for a
competitor with severe financial problems.
To recover damages in a private action, the
plaintiff must prove both a violation of the antitrust laws and that the violation was the
proximate cause of the damage suffered. _69/
In one case, a cooperative refused to fulfill a contract to
supply product to a new, price-cutting processor, upon the urging of its other customers.
This refusal to deal, which resulted from an illegal conspiracy to restrain trade, cost
the processor sales and income. The processor was awarded treble damages and costs. _70/
In today's litigious business climate, the likelihood of private
suit must be part of any antitrust risk management program.
Dairy Products Company v. Bar-T Ranch Dairy, 642 P.2d 1240 (Wash. 1982).
_70/ North Texas Producers Ass'n v. Young, 308 F.2d 235 (5th Cir.
State Antitrust Laws
Federal antitrust laws do not totally supersede State laws. While Capper-Volstead provides
protection from State prosecution for activities it authorizes, a cooperative may violate
State law by colluding with noncooperative firms. _71/ Counsel should be
asked to check for any State law provisions that may provide a unique risk for
cooperatives operating within its borders.
_71/ State v.
Golden Guernsey Dairy Cooperative, 43 N.W. 2d 31 (Wis. 1959).
Business Review Letters
Both the Antitrust Division of the Department of Justice and the Federal Trade Commission
have procedures for issuing advisory opinions on whether a proposed course of conduct is
likely to trigger antitrust enforcement activity. _72/ As indicated in
footnote 23, this can help a cooperative evaluate the extent of the risk in a proposed
course of conduct.
Although the Government has honored its
advisory commitments not to prosecute, people don't often apply for this clearance.
Antitrust issues, unlike tax issues for example, are factually intense. The antitrust
enforcement agencies have been careful in their business review letters to limit their
response to the facts as they perceive them at the time the request is made. Thus,
business review letters generally do not provide as much comfort as a private letter
ruling issued by the Internal Revenue Service.
Also, as one commentator put it, "Most
firms feel more secure maintaining a 'low profile' and relying upon. the advice of private
Division Business Review Procedure, 28 C.F.R. 50.6; FTC Advisory Opinion Procedure, 16
C.F.R. 1.1 et seq.
_73/ S. Chesterfield Oppenheim, et al., Federal Antitrust Laws, 4th
Ed. (St. Paul, MN: West Publishing Co., 1981) p. 1041.
Agricultural producers must be ready to deal with more than the decreasing number and
increasing size of domestic processors. Many agricultural markets are becoming truly
worldwide. Foreign competitors are aggressively seeking our domestic and overseas markets.
Multinational firms and conglomerates are becoming more dominant in processing and
While the independent producer can still
survive, the task is becoming more difficult all the time. Group action, through
cooperatives, offers farmers the economic power to compete in today's market environment.
Attaining and using that power is not without
problems of its own, including the threat of antitrust litigation. Cooperative leaders
that recognize the threat, and learn how to deal with it--as opposed to either ignoring it
or letting it paralyze their management planning--will be one step ahead in providing
services their members will need in the years ahead.
APPENDIX A -- CAPPER-VOLSTEAD ACT
Section 1. Extent of the
Section 1 of the Capper-Volstead Act defines the "persons" and
"associations" entitled to claim the limited antitrust exemption granted, and
describes the elements and scope of the exemption. This modified outline breaks out the
key concepts in the statutory language.
A. Membership must be limited to "persons
engaged in the production of agricultural products as farmers, planters, ranchmen,
dairymen, nut or fruit growers ..."
B. Agricultural producers may:
(i) "act together in associations,
corporate or otherwise, with or without capital stock"
(ii) "in collectively processing, preparing for market, handling, and marketing such
products of persons so engaged. "
C. Such associations may:
(i) "have marketing agencies in
(ii) "make the necessary contracts and agreements to effect such purposes."
(i) "such associations are operated
for the mutual benefit of the members..... as...... producers,"
(ii) "no member ... is allowed more than one vote because of the amount of stock or
membership capital he may own, or the association does not pay dividends on stock or
membership capital in excess of 8 per centum per annum"
(iii) "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."
Section 2. Public Interest
Section 2 of the Capper-Volstead Act confers on the Secretary of Agriculture the authority
to prevent agricultural producers from abusing their collective marketing power. It
provides, in part:
"If the Secretary of Agriculture... (following a hearing believes a cooperative)
monopolizes or restrains trade in interstate or foreign commerce to such an extent that
the price of any agricultural product is unduly enhanced thereby, he shall issue ... an
order ... directing such association to cease and desist from monopolization or restraint
"The Department of Justice shall enforce any such order."
APPENDIX B - OTHER IMPORTANT STATUTES
Several other Federal statutes are closely related to the antitrust laws. Cooperative
leaders should be familiar with the main objectives of these acts so they can identify how
these laws may affect cooperative structure and operation.
Cooperative Marketing Act of
In the Cooperative Marketing Act of 1926, Congress authorized farmers, through cooperative
associations, to exchange and disseminate market and economic information among
themselves. This act also provides legislative authorization for the Agricultural
Cooperative Service and its research activities and assistance to cooperatives. _74/
Agricultural Marketing Act of
The stated policy of the Agricultural Marketing Act of 1929 is to promote effective
marketing of agricultural commodities by promoting and financing cooperatives. Although
much of the substance of this act has been superseded by Farm Credit legislation, it still
remains a valid statement of congressional support for agricultural cooperative marketing.
Robinson-Patman Act of 1936
The Robinson-Patman Act prohibits the sale of commodities of the same grade and quality at
prices that discriminate between purchasers without economic justification. While the act
applies to cooperatives, it specifically provides that payment of patronage refunds will
not violate the act. _76/
Agreement Act of 1937
This law authorizes the Secretary of Agriculture to enter into marketing agreements with
producers of certain agricultural products and provides that nothing in those agreements
shall be held to violate the antitrust laws. It also authorizes the Secretary to establish
Federal marketing orders, which are plans developed by growers (often represented by
cooperatives) and handlers to work out supply and demand programs. Marketing orders are
also exempt from the antitrust laws. _77/
Agricultural Fair Practices
Act of 1967
The Agricultural Fair Practices Act protects farmers' rights to organize and join
producer associations. The act establishes standards of fair practice for handlers and
processors who deal with farmers, and prohibits them from discriminating against farmers
because they are members of a producers' association. _78/
Export Trading Company Act of
The Export Trading Company Act provides antitrust protection for legitimate foreign market
development activity. The act provides cooperatives interested in export marketing
flexibility to combine assets with other businesses, including noncooperative processors
and merchandisers, to become big enough to be a factor in the international arena. _79/
_74/ 7 U.S.C.
_75/ 12 U.S.C. 1141.
_76/ 15 U.S.C. 13, 13b.
_77/ 7 U.S.C. 601 et seq.
_78/ 7 U.S.C. 2301-2306.
U.S.C. 61, 45(a)(3). See Janice Payt, "How Agricultural Exporters,
Cooperatives, and Joint Export Marketing Groups Can Use the Export Trading Company
Act," 8 Journal of Agricultural Taxation and Law, p. 34 (Spring 1986).