Conspiracy is a basic theory of antitrust liability. It is a theory favored by antitrust plaintiffs and the government, pled often by each, and can form the legal basis of private and public enforcement. Plaintiffs win or lose on its proof. Conspiracy rarely, if ever, enhances efficiency; and competition and consumer welfare often suffer in its presence. In June, the Ninth Circuit limited its use by broadening the circumstances under which two groups can be considered one entity, and therefore, incapable of forming a horizontal agreement. The court held that a national trade association was incapable of conspiring with its affiliated local groups to exclude competition because all parties shared a common unified interest. Only disparate, competing, independent entities with unique economic incentives, motives, and actions are able to unlawfully conspire. Jack Russell Network of Northern California v. American Kennel Club, Inc., 9th Cir., No. 02-17264.

In 1998, the American Kennel Club recognized Jack Russell Terriers as an official breed. Shortly thereafter the Jack Russell Terrier Club of America (“JRTCA”) adopted a “Conflicting Organizations Rule” (“COR”), disallowing members from registering their dogs with any organization other than the JRTCA. JRTCA terminated the membership of those who violated the rule. When two of its members of a local affiliate, the Jack Russell Terrier Network of Northern California (“JRTNNC”), threatened legal action, JRTNNC declined to follow the COR and the JRTCA terminated its charter. Membership in the JRTCA allows members to compete in JRTCA sanctioned events and win awards and thereby promote their kennels in future commerce. JRTNNC and the two members brought suit against the JRTCA.

The plaintiffs alleged that exclusion based on a violation of the COR manipulated the market unreasonably because the exclusion of their dogs was not based on merit. They contended that the local affiliates and the JRTCA were colluding to exclude members that registered with alternate organizations in violation of the Sherman Act. The defendants, on the other hand, believed that an AKC listing of the Jack Russell Terrier was not in the best interest of the breed because the AKC emphasizes aesthetic characteristics while JRTCA values “working dog” traits. JRTCA claimed the COR was part of a campaign to discourage members and the public from participating with AKC and protect the Jack Russell breed.

The Supreme Court has held that a corporation and its wholly owned subsidiaries are incapable of conspiring under the Sherman Act. Copperweld Corp. v. Independence Tube Corp., 467 U.S. 742 (1984). The Ninth Circuit has previously applied Copperweld’s reasoning to a broad variety of economic relationships and elected to do so in the instant case, saying that in order to conspire, “[t]he crucial question is whether the entities alleged to have conspired maintain an ‘economic unity’, and whether the entities were either actual or potential competitors.” JRTNNC. at 5293. The court found both JRTCA and its local affiliates had the same economic interest, namely protecting the value of the Jack Russell breed. The court also found that the local affiliates’ sole purpose is to promote the JRTCA breed standard and they in no way compete with the national club.

This decision broadened the definition of what constitutes a single entity under Copperweld. As a result of this decision, the existence of an overarching common goal may exonerate groups which work together to exclude another entity from involvement. The court does not address what limits, if any, there are on the type of common objectives which are sufficient to render two groups incapable of conspiracy. In the instant case, the two groups are very closely intertwined, in fact, the local chapters exist solely “to be affiliated with the national club and to promote the JRTCA breed standard and philosophy.” The court easily concludes that the groups are not competitors, but offers little guidance on how to determine their status when the evidence is not so clear. How courts further interpret those two issues, i.e., what may constitute a common goal and what will determine if two groups are competitors, will determine just how broad the Ninth Circuit’s definition of a single entity has become.

Authored by:
Robert W. Doyle, Jr.
202-218-0030
rdoyle@sheppardmullin.com

and

Case L. Collard
202-218-6876
ccollard@sheppardmullin.com