The two current commissioners of the Federal Trade Commission (FTC) approved another final order and consent agreement with a trade association, this time with the National Association of Animal Breeders, Inc. (NAAB).

WHAT HAPPENED:

  • The new technology, called Genomic Predicted Transmitting Ability (GPTA) was developed by mid-2008.
  • In late 2008, NAAB implemented rules limiting access to the GPTA technology. Specifically, (1) only a NAAB member could obtain a dairy bull’s GPTA; and (2) the NAAB member obtaining a GPTA must have some ownership interest in the dairy bull.

Continue Reading THE LATEST: FTC Settles with Breeder Trade Association over Association Rules That Limited Price Competition for Dairy Bull Semen

On July 6, 2016, Danone S.A. (Danone) agreed to acquire The WhiteWave Foods Company (WhiteWave) for $12.5 billion.

WhiteWave is the leading manufacturer of fluid organic milk in the United States and one of the top purchasers of raw organic milk. Danone is the leading US manufacturer of organic yogurt (Stonyfield). Nearly 90 percent of the raw organic milk used by Danone to manufacture organic yogurt is supplied via a strategic agreement by CROPP Cooperative (CROPP). As of 2009, the strategic supply agreement between Danone and CROPP also includes Danone providing CROPP with an exclusive license for the production and sale of Stonyfield branded fluid organic milk.

WhiteWave and CROPP are the two largest purchasers and top competitors for purchasing raw organic milk from farmers in the Northeast US. Additionally, WhiteWave, CROPP and Danone-CROPP are the only nationwide competitors for the sale of fluid organic milk to retailers and have a 91 percent share of nationwide branded fluid organic milk: Horizon (WhiteWave), Organic Valley (CROPP) and Stonyfield (Danone-CROPP). Continue Reading THE LATEST: Entanglements and Concentrated Markets Require Divestiture in the Dairy Industry

We reported earlier on the Committee on Foreign Investment in the United States (CFIUS) and its legal and practical authority to review M&A transactions for possible risks to US national security posed by foreign ownership of a US business. Sens. Cornyn (R-TX) and Schumer (D-NY) reportedly are working separately on legislation to strengthen CFIUS, which could directly affect some cross-border M&A. Sen. Cornyn’s proposed changes to CFIUS would target Chinese technology investments while Sen. Schumer’s bill would encourage CFIUS to look at economic implications as part of its review.  These legislative efforts follow a bipartisan Congressional request in late Fall 2016 for the Government Accountability Office (GAO) to update its periodic analysis of CFIUS, urging the GAO to evaluate the possible expansion of factors considered by CFIUS in its M&A reviews to cover investment reciprocity and net economic benefits.

WHAT HAPPENED:

  • Now Sen. Debbie Stabenow (D-MI) and Sen. Chuck Grassley (R-IA) have introduced legislation that would add the Secretary of Agriculture and the Secretary of Health and Human Services as voting members of CFIUS. The bill would also direct CFIUS to consider matters of food security, access and safety when it reviews overseas acquisitions of US firms.
  • Though CFIUS may already consider food security as an element of national security, the new proposal would at a minimum enhance this factor. Stabenow said in a statement introducing the bill, “As foreign entities continue their aggressive acquisitions of US food and agriculture companies, it’s imperative that these transactions face additional scrutiny.”

WHAT THIS MEANS:

  • More broadly, the bipartisan legislative activity suggests an increased likelihood that CFIUS reform will gain traction in the Congress. Further support for broadening the scope and force of CFIUS may come from the Trump Administration, which would be consistent with its “America first” trade policy.
  • Any businesses with planned or pending cross-border M&A activity in the US, including those in the agribusiness sector, should monitor these developments.

On October 14, 2014, the Eastern District of Pennsylvania denied a motion for reconsideration brought by members and affiliates of the former Eastern Mushroom Marketing Cooperative (EMMC).  In re Mushroom Direct Purchaser Antitrust Litig., No. 06-0620 (E.D. Pa. Oct. 14, 2014).  In 2009, the court denied defendants’ motion for partial summary judgment, which argued that defendants were immune from antitrust liability as members of an agricultural cooperative under the Capper-Volstead Act, 7 U.S.C. § 291.  The court gave two reasons for denying the motion: (1) the EMMC allegedly conspired with entities that were not engaged in agricultural production and (2) non-grower M. Cutone’s membership in the cooperative destroyed Capper-Volstead immunity.  Defendants moved for reconsideration in light of intervening authority from the Supreme Court in American Needle Inc. v. Nat’l Football League, 560 U.S. 783 (2010), and the Third Circuit in Deutscher Tennis Bund v. APT Tour, Inc., 610 F.3d 820 (3d Cir. 2010).

Defendants argued that, under American Needle, an unlawful conspiracy could not exist between an EMMC grower member and its affiliated distributor.  The court analyzed American Needle and emphasized that “substance, not form, should determine whether a[n] . . . entity is capable of conspiring under § 1 [of the Sherman Act].”  Mushroom, No. 06-0620 at 6 (quoting American Needle, 560 U.S. at 195).  The court held that its prior conclusion that member Kaolin/South Mill and its distribution centers were not a single entity was undisturbed by American Needle.  That the entities were “separate decision makers pursuing separate economic interests” was strongly evidenced, in the court’s eyes, by litigation that had occurred between the entities.  Mushroom, No. 06-0620 at 9.

Defendants also argued that participation in the cooperative by M. Cutone, a non-grower affiliate of grower-member M&V Enterprises, was protected under Capper-Volstead under the same rationale behind the intra-enterprise conspiracy doctrine discussed in American Needle.  The court held that this argument “misconstrue[d] the nature of the single entity defense. . . . Merely because two parties are considered to be a single entity for the purpose of a conspiracy claim under American Needle does not require that they be similarly considered in order to determine whether the cooperative’s membership included non-growers.”  Mushroom, No. 06-0620 at 12.  Therefore, M. Cutone’s “power to participate in the control and policy making of the association through voting . . . destroyed the availability of Capper-Volstead immunity for the cooperative.”  Id. at 11-12 (internal quotation marks omitted).

The court certified both issues for interlocutory review under 28 U.S.C. § 1292(b), as well as the question of whether a cooperative member’s good faith reliance on the advice of counsel can shield it from antitrust liability.  It remains to be seen whether the Third Circuit will take up the appeal.

On September 30, 2014, the Southern District of New York reconsidered the Commodities Exchange Act (CEA) and Sherman Act claims brought against Louis Dreyfus Commodities B.V. and its affiliates in In re Term Commodities Cotton Futures Litigation, 12 Civ. 5126 (ALC)(KNF) (S.D.N.Y. Sept. 30, 2014).  The plaintiffs, cotton futures traders, alleged that the defendants manipulated the price of cotton futures by “unreasonably and uneconomically demanding delivery of certificated cotton in fulfillment of futures contracts,” among other allegations of manipulative behavior.  In December 2013, the court denied defendants’ motion to dismiss, and defendants subsequently moved for reconsideration.  On reconsideration, the court dismissed plaintiffs’ § 1 claim under the intra-enterprise conspiracy doctrine set forth in Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984), but declined to dismiss the CEA or § 2 claims.

The court began its analysis by emphasizing the narrow holding of Copperweld.  It noted that Copperweld’s holding was limited to the relationship between “a parent and its wholly owned subsidiary”; where the relationship between two conspirators is anything less than complete ownership, lower courts “must draw from the analysis in Copperweld without the benefit of a bright line rule.”  Cotton, 12 Civ. 5126 at 6-7.  While the court rejected an interpretation of the intra-enterprise conspiracy doctrine that “Section One claims are not viable where the only named coconspirators are a parent corporation and its subsidiaries” as an overstatement of the law, it did not go so far as to hold that the doctrine only applies to parents and their wholly owned subsidiaries.

The five defendants in Cotton were all related through a web of parent-subsidiary relationships.  The plaintiffs did not specify whether each subsidiary was wholly owned, or clearly plead the nature of the defendants’ relationships.  The court held that, viewing the allegations in the light most favorable to the plaintiffs, it could not conclude that the allegations supported “a reasonable inference that Defendants ha[d] ‘separate corporate consciousnesses.’”  Cotton, 12 Civ. 5126 at 10.  For the defendants that were not wholly owned by other defendants, “the allegations portray[ed] the other Defendants as having ‘ownership’ and ‘control over’ them and giving ‘directions to’ them.  Nothing in the [complaint] demonstrate[d] a rational possibility that Defendants were ‘previously separate and competing entities [that combined] to act as one for their common benefit.’”  Id.

Regarding the § 2 claim, defendants argued that the court should apply the pleading standards for predatory pricing claims established by the Supreme Court in Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., Inc., 549 U.S. 312 (2007).  The court disagreed and concluded that Weyerhaeuser was inapplicable to these facts because the case did not present a classic predatory bidding scheme.  Due to the procedural posture of the case, the court did not discuss any additional issues related to defendants’ alleged monopolization.  Though it did not dismiss the § 2 claim, the court noted “the delicate factual balance in which Plaintiffs’ remaining claims hang” and granted defendants leave to move for summary judgment before the plaintiffs could move for class certification.

On August 27, 2013, the Court of Appeals for the Fifth Circuit reversed a district court damages award of more than $25 million against Pilgrim’s Pride Corporation, a large producer of processed chicken.  A group of chicken growers with whom Pilgrim’s Pride contracted filed suit against the company alleging that the company violated the Packers and Stockyards Act (PSA) by engaging in a course of business for the purpose of “manipulating or controlling prices.”  The Eastern District of Texas held that Pilgrim’s Pride’s conduct of idling or selling its chicken processing plant reduced output to increase prices, and awarded damages over $25 million to plaintiffs.

On appeal, Pilgrim’s Pride argued that the PSA section (7 U.S.C. § 192) that prohibits manipulation or control of prices is, in actuality, an antitrust statute.  Therefore, the PSA section “is only violated by attempts to affect market prices which are anti-competitive, or ‘injurious to competition.’”  Pilgrim’s Pride argued that because its output reductions were not anti-competitive, it did not violate the PSA.  The plaintiffs argued that the PSA should be applied more broadly, not only to conduct that is anticompetitive.

The Fifth Circuit relied on a prior en banc decision addressing the same PSA provision, Wheeler v. Pilgrim’s Pride Corp., 591 F.3d 355 (5th Cir. 2009) (en banc) to hold that there was little question that PSA § 192 “proscribes only anti-competitive conduct.”  The court also reasoned that the use of the terms “manipulation” and “control” meant that Congress intended to prohibit “deceptive, illegitimate, or unnatural—i.e., anti-competitive—attempts to influence prices.”

After establishing that PSA § 192 prohibited only anticompetitive manipulation of prices, the court analyzed Pilgrim’s Pride’s conduct of idling or closing plants under the rule of reason.  Quoting Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 458 (1993), the court stated that the “purpose of [antitrust law] is not to protect businesses from the working of the market; it is to protect the public from the failure of the market. . .  “ The court also stated that a company’s unilateral attempt to raise prices, standing alone, is not inherently anticompetitive.  The court reasoned that Pilgrim’s Pride had, on its own, produced more chicken than the market demanded and was causing damage to its own business.  As a result, the company decided to stop flooding the market.  The court found no evidence that the company’s conduct was anything but a legitimate, rational response to market conditions.  Therefore, the court concluded Pilgrim’s Pride conduct was not anticompetitive, even though the conduct may have affected the price for chicken.

In a well-reasoned opinion, the Fifth Circuit relied on one of the fundamental tenants of antitrust law: that its purpose is to protect competition, not competitors.   However, clients that wish to make price moves, or take other actions that would affect price, should consider whether those contemplated actions could be perceived as anticompetitive by customers or other market participants, and should take steps to document the legitimate business justification behind such moves.   That applies even to regulated industries as illustrated by this case, which presents another example of the adoption of antitrust principles into the analysis of non-antitrust laws, such as intellectual property law and agriculture-related law.

The decision can be found at:  Agerton v. Pilgrim’s Pride Corp., 2013 U.S. App. LEXIS 17921 (5th Cir. Aug. 27, 2013).

by Nicole Castle

On July 23, 2013, Cal-Maine Foods Inc., the largest producer of fresh shell eggs in the U.S., announced that it had agreed to pay $28 million to settlement the direct purchaser claims brought by plaintiffs in In re Processed Egg Products Antitrust Litigation, 08-cv-2002 (E.D. Pa.).  The direct purchaser plaintiffs alleged that Cal-Maine Foods and the other defendants engaged in a long-running scheme to limit egg supply in an effort to raise prices.  

Cal-Maine Foods will be the third defendant to settle with the direct purchasers in this case.  Defendants Sparboe Farms Inc. and Moark LLC previously settled the direct purchaser claims.

Cal-Maine Chairman, President, and CEO Dolph Baker said in a statement on Tuesday: 

We remain confident that our conduct has at all times been lawful, appropriate and fair to our customers.  The largest retailers and egg buyers in the country, including many of our customers, in fact, were fully aware of, and explicitly supported, the industry-wide animal welfare guidelines challenged in this litigation.  And, the USDA was fully aware of, and explicitly supported, these animal welfare guidelines as well as all the other conduct the plaintiffs challenged.  We were able to negotiate a settlement which would eliminate most of our exposure in the antitrust litigation against the Company for an amount that we believe is in the best interest of the shareholders, employees, customers and consumers.  It significantly reduces the distraction, expense, exposure and inconvenience of protracted litigation and potentially multiple appeals, and allows us to focus on executing the long-term strategy of our business.

The terms of the settlement are subject to approval by the court following notice to all class members.  The parties expect to file for preliminary approval of the settlement next week.  The settlement does not affect the class actions filed on behalf of the indirect purchasers. Cal-Maine has stated that it intends to continue to defend the remaining cases and believes that it has strong defenses.

by Paul Devinsky, Cynthia Chen and Lincoln Mayer

The Supreme Court in Bowman v. Monsanto Co. ruled unanimously that a farmer’s replanting of harvested seeds constituted making new infringing articles. While the case is important for agricultural industries, the Supreme Court cautioned that its decision is limited to the facts of the Bowman case and is not a pronouncement regarding all self-replicating products.

To read the full article, click here.

by Gregory E. Heltzer and Nicole Castle

On December 2, 2011, a federal judge overseeing multidistrict litigation involving an alleged potato price-fixing conspiracy denied a motion to dismiss the antitrust conspiracy claims despite the potato grower cooperatives asserting that the concerted action was permissible under the Capper-Volstead Act.  In Re: Fresh and Process Potatoes Antitrust Litigation, No. 10-2186 (D. Idaho).

In particular, the plaintiffs alleged that defendants increased the price of potatoes through reduction of potato planting acreages and by paying farmers to destroy existing stocks.  Not only did the court deny the motion to dismiss on several grounds, but took the “extraordinary step” of providing an “advisory opinion” regarding an area of law with scant precedent.  The court was willing to offer its opinion at this stage because there were no disputed facts on this legal issue, the parties had fully briefed and argued the matter, and in the court’s view providing this holding at this juncture was consistent with the “command of Rule 1” of the Federal Rules of Civil Procedure – the opinion would help secure the just, speedy and inexpensive determination of the proceeding.

The court’s “advisory opinion” held that pre-production agricultural output limitations among growers are not defensible agreements under the Capper-Volstead Act.  The court explained that the plain language of the Capper-Volstead Act protects concerted action after production, that is, growers can collectively process, prepare for market, handle and market its products.  According to the court, coordinating and reducing acreage for planting are not defensible because these actions come before production.

The court later opined that the distinction between pre-production output limitation agreements and post-production marketing decisions to withhold product from markets comports with underlying antitrust theory because if prices rise, “farmers will produce more and consumers will not be overcharged.”  The court explained that this is a “safety-valve against private abuse that ameliorates the adverse consumer impact of the Capper-Volstead exemption” and that this safeguard is not in play if cooperatives can enforce pre-production limitations.

This decision offers new law and should lead cooperatives to revisit any production curtailment agreements and consider whether any such programs comport with this court’s interpretation of the Capper Volstead Act.

by Lincoln Mayer and Gregory E. Heltzer

On August 23, the Third Circuit denied interlocutory review of an order from the Eastern District of Pennsylvania, which held that defendant mushroom growers were "not a proper agricultural cooperative under the Capper-Volstead Act because one of its members was not technically a grower of agricultural produce."  In re: Mushroom Direct Purchaser Antitrust Litigation, Nos. 09-2257, 09-2258, slip op. at 13 (3d Cir. Aug. 23, 2011).

The Third Circuit agreed with the growers that "whether the arguably inadvertent inclusion of an ineligible member strips an agricultural cooperative of Capper-Volstead protection, is both serious and unsettled."  Id. at 16 n.4.  However, the court considered and rejected the growers’ argument that Capper-Volstead provides not merely a defense to liability, but immunity from suit:  "Neither the language of the Capper-Volstead Act nor Supreme Court cases interpreting it indicate that the Act entitles an agricultural cooperative to avoid entirely the burden of litigation.  Because the Act does not provide an immunity from suit, a district court order denying a defendant its protections is not effectively unreviewable after final judgment . . . ."  Id. at 24; see id. at 18-24.

While the holding that the Capper-Volstead Act does not confer immunity from suit is unsurprising, multiple courts have accepted that de minimis accidental inclusion of non-growers in a cooperative does not defeat Capper-Volstead protection.  This decision, however, heightens the antitrust risk associated with such a scenario, and reinforces the importance for Capper-Volstead cooperatives of vigilantly policing their membership roles.  Even just one ineligible member risks exposing the cooperative to unwanted and potentially protracted litigation.