Thursday, September 25, 2008

Trade Associations Investigated for Possible Antitrust Violations

Federal prosecutors are examining collusion by egg producers and tomato processors, according to an article in Tuesday’s Wall Street Journal.

Food prices have risen in recent years due to rising energy costs, rising world demand, and drought, and -- for eggs and tomatoes, among other food products – also, in all likelihood, because of collusion. Fresh egg prices are up over 40% over the past year, tomato prices are up 16%, while overall food prices are up 6%.

Possible Collusion Facilitated by a Trade Association: The United Egg Producers is a trade association with over 250 members that compete in the egg industry. According to the Wall Street Journal article, the Association facilitated a scheme designed to increase the domestic prices of eggs. The scheme, as described by the Wall Street Journal, functioned as follows: the United Egg Producers Association arranged for the export of nearly 24 million eggs at below-market prices in late 2006 to early 2007, and again in the spring of 2008. United Egg also reduced the supply of eggs by implementing requirements that producers use larger cages for their hens, and demanded that the producers not build additional cage capacity. Association members adhered to these practices, which resulted in lower egg supplies sold in the United States and higher prices for United States purchasers of eggs.

Federal authorities are also investigating allegations that tomato processors conspired to fix prices, and at least one processor allegedly bribed buyers to pay inflated prices.

The egg producers and tomato processors claim that their coordination is protected by antitrust exemptions such as the Capper Volstead Act, 7 U.S.C. §§ 291-292, which was passed in 1922 to allow farmers to collectively process and market their products. Part of the original intent of the Act was to give farmers greater leverage in bargaining with the much larger corporations that purchased their crops. To enable such collective action, the Act provided agricultural producers an exemption from the antitrust laws in “collectively processing, preparing for market, handling, and marketing . . . such products.” 7 U.S.C. § 291.

An unused provision of the Act tempers the exemption somewhat, at least in theory, providing that the Secretary of Agriculture may issue an order to show cause why a cease and desist order should not be issued if he has reason to believe that an association restrains trade “to such an extent that the price . . . is unduly enhanced by reason thereof.” 7 U.S.C. § 292.

Antitrust Scrutiny of Trade Associations: Historically, trade associations have been scrutinized – and prosecuted – for facilitating anticompetitive practices, such as price fixing, market allocations, or the development of standards to exclude competition. Trade associations often assume substantial legal risk as facilitators of potentially anticompetitive practices. Membership within a trade association often is comprised of competitors within an industry, and associations convene meetings and establish committees that involve competitors working together (or otherwise communicating) to help establish industry guidelines, policies, etc.

Antitrust risk increases substantially when competitors, through a trade association (or otherwise), help establish guidelines, policies, rules, or practices that involve prices charged (or paid to suppliers), the geographic areas in which competitors will compete, the product markets in which competitors will compete, organizations with which competitors will or will not contract, terms upon which technology will be made available to organizations, or other competitively sensitive issues.

Antitrust Counsel: To minimize antitrust risk, trade association activities should be closely monitored by experienced antitrust counsel, such as Kotchen & Low LLP, which has substantial experience in addressing concerns about trade association activities, and is available to consult with trade associations, members of associations, or entities potentially harmed by association activities.


The Law Firm of Kotchen & Low LLP - Civil Litigation, Counseling, and Representation Before Government Agencies

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