Who is Capable of Conspiring to Violate the Antitrust Laws?

When you think about Sherman Act Section 1 antitrust cases (the ones involving conspiracies), you usually consider the question—often framed at the motion to dismiss stage as a Twombly inquiry—whether the defendants actually engaged in an antitrust conspiracy.

But, sometimes, the question is whether the defendants are actually capable of conspiring together.

That isn’t a commentary on the intelligence or skills of any particular defendants, but a serious antitrust issue that can—in some instances—create complexity.

So far I’ve been somewhat opaque, so let me illustrate. Let’s say you want to sue a corporation under the antitrust laws, but can’t find another entity they’ve conspired with so you can invoke Section 1 of the Sherman Act (which requires a conspiracy or agreement). How about this: You allege that the corporation conspired with its President, Vice-President, and Treasurer to violate the antitrust laws. Can you do that?

Probably not. In the typical case, a corporation is not legally capable of conspiring with its own officers. The group is considered, for purposes of the antitrust laws, as a “single economic entity,” which is incapable of conspiring with itself. Of course, the situation is complicated if we aren’t talking about the typical corporate officers, but instead analyzing a case with a corporation and corporate agents (or perhaps in a rare case, even employees) that are acting for their own self-interest and not as a true agent of the corporation. The question, often a complex one, will usually come down to whether there is sufficient separation of economic interests that the law can justify treating them as separate actors.

A lot of tricky issues can arise when dealing with companies and their subsidiaries as well. In Copperweld Corp. v. Independence Tube Corporation, for example, the United States Supreme Court held that the coordinated activities of a parent and its wholly-owned subsidiary are a single enterprise (incapable of conspiring) for purposes of Section 1 of the Sherman Act.

After Copperweld, however, it wasn’t entirely clear how to treat partially-owned corporate subsidiaries, joint ventures, and similar entities.

Are You Ready for Some Football?

I certainly am. As a loyal Minnesota Vikings fan from the age of 4, I am always optimistic about the upcoming season. Every year, however, has ended in tears. But not next year!

But this is an antitrust blog, not a football blog, so back to the law.

In 2010, the US Supreme Court addressed the conspiracy-capability question in an antitrust lawsuit against a joint venture formed by each of the National Football League teams to (jointly) manage their intellectual property. The case is American Needle, Inc. v. National Football League, and I would classify it as an instant antitrust classic.

The issue, of course, was whether the 32 NFL teams were capable of conspiring to violate the antitrust laws.

Here’s what happened: In 2000, the teams, through a joint venture called National Football League Properties (NFLP) voted to depart from their previous approach of granting non-exclusive licenses to many vendors—such as the plaintiff, American Needle—to sell gear with team insignias. They instead granted Reebok International an exclusive 10-year license and declined to renew American Needle’s non-exclusive license.

American Needle was probably a big football fan and didn’t like being excluded from the jersey-selling game, so they did what was natural: They sued. They alleged that the NFL, its teams, the NFLP (the joint venture) and Reebok violated the antitrust laws. This set up the legal issue of whether the teams were even capable of conspiring together—joint venture or not.

As the Supreme Court went through its analysis, it made, what I view as a significant point that underlies its present and likely future approach to antitrust cases: In rejecting an approach based upon whether the parties are legally distinct entities, the Court said that “we have eschewed such formalistic distinctions in favour of a functional consideration of how the parties involved in the alleged anticompetitive conduct actually operate.”

In case you read it quickly, I will repeat it here: “we have eschewed such formalistic distinctions in favour of a functional consideration of how the parties involved in the alleged anticompetitive conduct actually operate.” Remember that line if you are considering antitrust issues. Labels don’t matter. What matters is how entities and markets actually function.

The Supreme Court explained that they have consistently ignored the formalities of the entity when it was, in essence, a vehicle for ongoing concerted activity. The Court said the same with regard to professional organizations and trade groups—including, cited the Court, Goldfarb v. Virginia State Bar, which like the North Carolina Dental Board in another famous Supreme Court case, was a state entity for some purposes. Of course, the Virginia State Bar in Goldfarb was capable of conspiring to violate the antitrust laws and was not protected by state-action immunity.

But if formalities don’t really matter, but the function does, how do you decide if the actors are capable of conspiring together? The Court told us: The key issue is whether the concerted action, the conspiracy, “joins together separate decisionmakers.” That is, does the agreement join separate economic actors pursuing separate economic interests such that the agreement “deprives the marketplace of independent centres of decisionmaking,” of “diversity of entrepreneurial interests,” of “actual or potential competition”?

Applied to the NFL teams, the Supreme Court held that the teams are, in fact, “independent centres of decisionmaking,” for purposes of the intellectual property market. “To a firm making hats, the Saints and Colts are two potentially competing suppliers of valuable trademarks.”

Not surprisingly, the Court rejected the teams’ argument that because they formed a single entity—a joint venture—they were incapable of conspiring together through that venture. That formal structure didn’t matter in light of the functional considerations that the teams are “independent centres of decisionmaking.” “The teams remain separately controlled, potential competitors with economic interests that are distinct from NFLP’s financial well-being.”

In another notable holding, the Supreme Court also made clear that the justification for cooperation is not relevant to whether that cooperation is concerted or independent action. So just because there is a good reason to form a joint venture, it doesn’t mean that the activities are not concerted under the antitrust laws.

The takeaway from all this is that when competitors combine to do something, there aren’t easy loopholes from antitrust liability by setting up this structure or that structure. And if an antitrust lawyer tries to sell you on such a plan, find a better attorney.

A court and the antitrust agencies will go deeper into the issue to determine whether the combination enhanced competition—perhaps by creating a product or service that wasn’t available before the venture—or limiting competition by depriving the market of independent centres of decisionmaking.

Antitrust, like any specialized area, has a lot of jargon and complex doctrine. But in the end, you can usually find the right answer by asking whether the challenged action, conduct, or structure improved or lessened competition.