“Clone Wars” program – March 3, 2014

On March 3rd,  the Agriculture and Food Committee is sponsoring a program on Abraham & Veneklasen Joint Venture, et al. v. American Quarter Horse Association, et al., which was decided at a jury trial last July and is presently on appeal.

The program is free to ABA Section of Antitrust members and $25 for non-members.  Registration and other additional information can be found here.

 

Fifth Circuit reverses $25 million chicken price fixing lawsuit under PSA § 192(e)

On August 27, 2013, the U.S. Fifth Circuit Court of Appeals issued an opinion reversing a judgment in excess of $25 million in favor of more than 90 contract poultry growers who alleged that Pilgrim’s Pride Corporation attempted to manipulate chicken prices in violation of Section 192(e) of the Packers and Stockyards Act, 1921 (“PSA”) by idling certain chicken processing plants and terminating the growers’ poultry grower agreements. The Fifth Circuit’s decision, styled Agerton, et al. v. Pilgrim’s Pride Corporation, No. 12-40085, 2013 WL 4523500 (5th Cir. Aug. 27, 2013), reverses and renders judgment in Pilgrim’s Pride’s favor nearly two years after a magistrate judge issued findings of fact and conclusions of law imposing liability on the company because the plant idlings and concomitant termination of the growers’ contracts presented the likelihood of an anticompetitive effect.

The growers’ Section 192(e) claims stem from Pilgrim’s Pride’s restructuring efforts after seeking voluntary bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code in December 2008. According to the Agerton opinion, “[t]he primary reason” for the company’s weak financial condition “appeared to be the company’s over-extension into the commodity chicken market,” of which Pilgrim’s Pride apparently “held an estimated 50% market share.” Id. at *1. Pilgrim’s Pride targeted for idling operations “unnecessarily producing a surplus of commodity chicken at great cost to itself.” Id. As Pilgrim’s Pride idled the facilities, it also terminated the poultry grower agreements of local poultry growers who raised poultry for processing at the plants. Id. Despite evidence demonstrating that “the total domestic supply of commodity chicken actually increased” after the idlings (id. at *4 n. 11), liability was imposed under Section 192(e) on the grounds of a likelihood of harm to competition. Id. at *2.

On appeal, the Fifth Circuit characterized the magistrate judge’s analysis as “simple” because it imposed liability under the PSA merely because Pilgrim’s Pride “hoped to increase chicken prices by reducing the quantity of chicken offered on the market.” Id. at *2. The Agerton court wrote that “Section 192(e) does not forbid all conduct which might affect prices, but only conduct that is designed to manipulate or control prices.” Id. at *3. According to the panel, “[t]he relevant question” was whether Pilgrim’s Pride’s reduction of its chicken output “was improper and anticompetitive.” Id. Ultimately, the Fifth Circuit concluded that Pilgrim’s Pride’s “conduct was merely the legitimate response of a rational market participant to changes in a dynamic market. If a firm inadvertently overproduces a good and drives down prices, it does not break the law by cutting production so that prices may recover.” Id. at *4. Consequently, the Court held that Pilgrim’s Pride did not violate PSA Section 192(e) by reducing its commodity chicken output. Id.

This opinion marks the second time in less than four years that the Fifth Circuit addressed poultry grower claims under the PSA. In December 2010, the Fifth Circuit, sitting en banc, held in Wheeler v. Pilgrim’s Pride Corporation, 591 F.3d 355 (5th Cir. 2009) that proof of an anticompetitive effect or likelihood thereof is necessary to prevail under PSA Subsections (a) and (b). Notably, in addressing how to determine whether Pilgrim’s Pride’s conduct in Agerton resulted in harm to competition or likelihood thereof, the Fifth Circuit applied a “rule of reason” analysis to the poultry growers’ PSA Section 192(e) claims. Agerton, 2013 WL 4523500, at *3.

This update is courtesy of Clayton E. Bailey of Bailey Brauer PLLC, who served as Pilgrim’s Pride Corporation’s trial and appellate counsel in Agerton v. Pilgrim’s Pride Corporation and Wheeler v. Pilgrim’s Pride Corporation.

Federal Jury Verdict in Antitrust Case Against Horse Registration Association

On July 30, 2013, a federal jury in the Northern District of Texas unanimously found that the American Quarter Horse Association (AQHA) had conspired to bar cloned horses from the organization’s horse registry, and monopolize the U.S. market for high quality registered Quarter Horses, in violation of Sections 1 and 2 of the Sherman Act (15 U.S.C. §§ 1 and 2), and Sections 15.05(a) and 15.05(b) of the Texas Free Enterprise and Antitrust Act of 1983 (Tex. Bus. & Comm. Code §§ 15.05(a)-(b)). The jury, however, award zero damages.

The AQHA is the world’s largest equine breed registry and membership organization. Among other things, it records the pedigrees of the American Quarter Horse to preserve the breed. This includes maintenance of a DNA registry and the issuance of registration accreditation. In 2004, the AQHA adopted a rule that rendered horses produced by any cloning process ineligible for registration. Registration is an alleged prerequisite to participate in horse shows, races, and other events.

The plaintiffs are a rancher and a joint venture that breed cloned horses. In their original complaint, filed on April 23, 2012, the plaintiffs alleged that the AQHA refused to changes its rule prohibiting registration of cloned horses. The plaintiffs claimed that, by instituting and maintaining its rule against registering cloned horses, the AQHA had monopolized or attempted to monopolize the market for “high quality registered Quarter Horses” in the United States, in violation of Section 2 of the Sherman Act and the Texas state law analogue. The plaintiffs subsequently amended their complaint to add claims under Section 1 of the Sherman Act and Section 15.05(a) of the Texas Free Enterprise and Antitrust Act. The plaintiffs further alleged that certain AQHA officers or committee members influenced AQHA’s decisionmaking to ban cloned horses because they have a financial incentive to block competition in races and other events from the plaintiffs and others who breed, show, sell, or race cloned horses. Without AQHA registration, the plaintiffs alleged, their otherwise elite Quarter Horses were “virtually worthless.”

On May 24, 2013, the district court granted summary judgment in part, and denied it in part. It held that the plaintiffs’ conspiracy claims could proceed on the theory that the AQHA itself “is the conspiracy, because it is in fact controlled by competitors with interests to ban clones.” Mem. & Order (ECF 60), at 5 (emphasis original). The court also found that genuine issues of material fact precluded summary judgment on the monopolization claims, though it did grant summary judgment on the attempted monopolization claims. See id. at 8-10.

A jury trial commenced on July 26, 2013. The jury rendered its unanimous verdict for the plaintiffs on all counts on July 30, 2013. See Verdict (ECF 122) at 2. The jury found that the AQHA had caused damage to each of the plaintiffs, but did not award any damages. Post-trial proceedings, including the nature and form of the requested injunctive relief, likely will follow.

The case is Abraham & Veneklasen Joint Venture, et al., v. American Quarter Horse Association, et al., No. 2:12-cv-0103 (N.D. Tex.).

Free ABA Summer Associate/Intern Career Panel and Happy Hour 7/11/2013, Washington, D.C.

David Conway, the Young Lawyer’s Representative for the ABA Section of Antitrust Law’s Private Advertising Litigation Committee, will moderate a program and a related networking event on July 11, 2013, at Venable LLP’s DC offices. The program will provide career advice to summer associates and interns interested in practicing consumer protection, privacy and advertising law, and should also be relevant to other young attorneys starting-out in these fields. The program will be held from 5:00pm – 6:00pm ET and immediately followed by a networking event from 6:00pm – 8:00pm ET.

This should be a good opportunity for young lawyers, as well as summer associates or interns, to get some practical advice and network. If you attend, please introduce yourself to David Stanoch, the YLR for the Agriculture and Food Committee. The program and networking event are free, but advance registration is required. Please register through the attached program fliers.

ABA Networking Happy Hour

ABA Summer Associate Panel

Supreme Court Decision on Patented Genetic Traits of Seeds (Bowman v. Monsanto Co.)

On May 13, 2013, a unanimous U.S. Supreme Court held in Bowman v. Monsanto Co. that the patent exhaustion doctrine does not give a farmer who purchases beans containing Monsanto’s patented genetic traits the right to replicate the patented genes by planting and harvesting a crop containing the patented traits. Some background and highlights from this important opinion follow.

Monsanto’s patented soybean seeds have been genetically modified (GM) to survive exposure to glyphosate, the active ingredient in many herbicides, so weeds can be sprayed after a planted crop emerges without killing the crop. Monsanto sells the GM soybean seeds under a limited license that permits a grower to plant the purchased seeds in one, and only one, season. The grower may consume the resulting soybeans or sell them as a commodity, but may not save any of them for replanting. These license restrictions prevent farmers from creating their own copies of Monsanto’s patented GM seeds without paying Monsanto, since the patented genetic trait is passed on from the planted seeds to the harvested soybeans.

Bowman purchased commodity soybeans — anticipating that most were grown from seeds containing Monsanto’s patented herbicide resistant genes – from a local grain elevator that sold beans for human or animal consumption, not as seeds. Instead of using these beans for consumption or feed, however, Bowman planted them. By applying herbicide after the beans germinated, he eliminated the non-GM beans and grew a crop of GM beans. From this first crop, Bowman replicated Monsanto’s patented beans for eight seasons by saving some of each crop for replanting in the next growing season, thereby using and replicating Monsanto’s patented technology without re-purchasing GM seeds from Monsanto.

When Monsanto sued Bowman for patent infringement, Bowman argued unsuccessfully in the federal district court and on appeal to the Federal Circuit that Monsanto’s effort to restrict his use of beans lawfully sold by local farmers to the grain elevator that supplied Bowman’s beans violated the doctrine of patent exhaustion. Affirming the Federal Circuit, the Supreme Court held that, although the patent exhaustion doctrine requires that “the initial authorized sale of a patented article terminates all patent rights to that item,” Bowman was not protected by the doctrine because, by planting and harvesting the beans and replicating Monsanto’s patented technology in the harvested beans, he had gone beyond use of the purchased beans to “mak[ing] additional patented soybeans without Monsanto’s permission . . . .” Bowman v. Monsanto, slip. op., at 4, 5. It is settled that the patent exhaustion doctrine “leaves untouched the patentee’s ability to prevent a buyer from making new copies of the patented item,” the Court stated. Bowman v. Monsanto, slip. op., at 4-5. “Because Bowman thus reproduced Monsanto’s patented invention, the exhaustion doctrine does not protect him.” Id., at 6.

March 18, 2013 ABA Program on “De Facto Partial Exclusive Dealing”

On March 18, 2013, from 12:30 – 1:30 pm Eastern, the ABA Section of Antitrust Law’s Agriculture and Food Committee, Joint Conduct Committee and Pricing Conduct Committee will present a call-in panel discussion of the Third Circuit’s ZF Meritor decision. David Stanoch of Dechert LLP will moderate as four panelists discuss the Third Circuit’s split decision, where the majority held that, notwithstanding a supplier’s above-cost prices, a jury applying the rule of reason could properly find that the supplier’s customer arrangements foreclosed competition in a substantial share of the market. Please join the discussion as panelists Jonathan M. Jacobson (Wilson Sonsini Goodrich & Rosati), Fiona M. Scott-Morton (Yale School of Management), Peggy J. Wedgworth (Milberg LLP) and Saami Zain (Antitrust Bureau, NY Attorney General’s Office) analyze and discuss the contours and significance of this recent antitrust decision. The program is free to Committee members, but advance registration is required. Please see the attached program flyer for more information and to register. ABA program on “De Facto Partial Exclusive Dealing”

Judge Refuses to Stay Sale of Bread Assets in California

On February 13, 2013, federal district court judge Emmet Sullivan denied a motion by Grupo Bimbo, S.A.B. de C.V. and Bimbo Bakeries USA, Inc. (collectively, “Bimbo”) to stay temporarily the divestiture of certain bread assets in California. On November 9, 2010, Bimbo agreed to acquire the North American Fresh Bakery business of Sara Lee Corporation. The United States Department of Justice, Antitrust Division (“DOJ”) investigated the acquisition, and concluded that it would likely substantially lessen competition for fresh sliced, bagged bread in eight geographic markets. DOJ filed suit on October 2, 2011. On February 16, 2012, with the parties’ consent, Judge Sullivan entered a final judgment, under which Bimbo agreed to divest Sara Lee bread assets in the California, Kansas City, Omaha, Oklahoma City, and Pennsylvania areas. Bimbo did not complete the sale of the California Assets within the allotted time. Accordingly, per the Final Judgment and on DOJ’s unopposed motion, Judge Sullivan appointed James A. Fishkin, of Dechert LLP, as the Divestiture Trustee charged with selling the California (and, ultimately, the Kansas City and Oklahoma City) Assets. The Divestiture Trustee entered into an agreement to sell the California Assets to Flowers Foods, Inc. (“Flowers”) on October 24, 2012, and that agreement was subsequently approved by DOJ on October 26, 2012. The sale is set to close on February 23, 2013. Flowers can terminate for any reason after May 30, 2013.

On January 29, Bimbo moved to stay the sale to Flowers. Bimbo cited the January 11 announcement that Flowers is the “stalking horse” bidder for the Hostess bread assets, which are scheduled to be sold at bankruptcy auction on February 28, 2013, and with a final approval hearing before the bankruptcy court in New York on March 5, 2013. The thrust of Bimbo’s motion was that drastically altered circumstances – namely, that Flowers allegedly stands to acquire a significant share of the California bread market if it successfully acquires both the Sara Lee and Hostess assets – at least required time for all parties (particularly DOJ) to assess whether Flowers remained an appropriate buyer for the California Assets. DOJ opposed Bimbo’s motion, arguing in part that, under a Tunney Act proceeding, a court should focus on the competitive harm alleged in the case before it, and whether the remedy will address that harm. That is, the divestiture of the California Assets would remedy the harm alleged by Bimbo’s acquisition of Sara Lee. Flowers’ potential acquisition of the Hostess assets presented a different matter that DOJ would investigate (in fact, it has already commenced its investigation) and take appropriate action if it deemed appropriate. DOJ also noted that Bimbo had other remedies available, such as filing a private action under Section 7 of the Clayton Act. Flowers intervened and argued that it is losing substantial sums of money daily in anticipation of acquiring the California Assets on February 23. At the court’s request, the Divestiture Trustee also submitted a brief setting forth his efforts to find a viable buyer for the California Assets. The Trustee noted that, if the deal with Flowers falls apart because of a delay (court-imposed or otherwise), there were no other viable buyers interested in the assets.

Judge Sullivan held a hearing the next day, on January 30, during which he set an accelerated briefing schedule. On February 13, he held a full hearing on Bimbo’s motion. Judge Sullivan orally denied Bimbo’s motion the same day. In his lengthy oral ruling (he orally delivered his opinion over the course of approximately 50 minutes), Judge Sullivan found, among other things, that Bimbo had not satisfied its burden of demonstrating a compelling need that warranted the “extraordinary relief” of relieving a party from its obligations under an agreed final judgment. He found that the harm Bimbo alleged – such as that Flowers might acquire the Hostess assets in bankruptcy; that DOJ might not require Flowers to divest Hostess assets; that a combined Flowers-Hostess entity would substantially lessen competition even though Hostess bread has been off the shelves since November, when the company went into liquidation – was simply too contingent. The Court also agreed with the Divestiture Trustee that it was highly speculative and unlikely that alternative, viable buyers might be found for the California Assets were the deal with Flowers not to close.