Friday, November 10, 2006

Does the Capper-Volstead Act permit farmers to monopolize?

Antitrust laws, such as the Sherman Antitrust Act, prohibit monopolization, unreasonable restraints on trade (e.g. price fixing), and other anti-competitive activities. Congress enacted the Capper-Volstead Act in 1922 to ensure that farmers could form agricultural cooperatives without violating antitrust laws.

CowThere are two views of the breadth of immunity from antitrust laws that the Capper-Volstead Act gives farmers:

I. The Capper-Volstead Act gives farmers broad immunity from antitrust laws. The primary purpose of the Capper-Volstead Act is to enable agricultural cooperatives to acquire monopoly power.

II. The Capper-Volstead Act gives farmers limited immunity from antitrust laws. The primary purpose of the Capper-Volstead Act is to enable agricultural cooperatives to undertake the same types of business ventures that corporations are permitted to undertake.

These two views are articulated most forcefully by the Second Circuit Court in Fairdale Farms v. Yankee Milk, 635 F.2d 1037 (2d Cir. 1980) and by the Supreme Court in Maryland and Virginia Milk Producers Association v. United States, 362 U.S. 458 (1960).

In Fairdale, the Second Circuit Court asserted that the Capper-Volstead Act's primary purpose is to enable farmers to create agricultural cooperatives with monopoly power. Congress intended to enable agricultural cooperatives to acquire monopoly power to balance the monopoly power held by agribusinesses (i.e. to create a "bilateral monopoly" between agricultural cooperatives and agribusiness). Fairdale, 635 F.2d at 1044. According to the Fairdale court, "Congress wanted and expected farmers to be represented by strong and effective cooperatives, so extensively organized as to be representative of individual cooperatives." Id. at 1043. The Fairdale court noted that Senator Capper opposed a proposed amendment that would have prohibited agricultural cooperative from acquiring monopoly power. The court quotes Senator Capper as arguing: "No association can efficiently operate that does not control and handle a substantial part of a given commodity in the locality where it operates." Id.

Another cowIn Maryland, the Supreme Court asserted that the Capper-Volstead Act's primary purpose is to enable farmers to create agricultural cooperatives with the same business opportunities that corporations have. The Maryland court asserted, "The general philosophy of [the Capper-Volstead Act] was simply that individual farmers should be given, through agricultural cooperatives acting as entities, the same unified competitive advantage - and responsibility - available to businessmen acting through corporations as entities." Maryland, 362 U.S. at 466. According to the Maryland court, the Capper-Volstead Act's purpose was to ensure that the mere formation of agricultural cooperatives, without more, would not be held to violate antitrust laws. The Capper-Volstead Act's purpose was not to give farmers immunity from federal antitrust laws. Specifically, the Act did not give farmers immunity from monopolization claims: "We do not believe Congress intended to immunize cooperatives engaged in competition-stifling practices from prosecution under the antimonopolization provisions of § 2 of the Sherman Act." Maryland, 362 U.S. at 463.

The Fairdale court and the Maryland court differ in their views of how much agricultural cooperatives' activities are restricted by antitrust laws. According to the Fairdale court, the only restrictions on agricultural cooperatives' activities are that agricultural cooperatives may not "unduly increase" the prices of agricultural products or exercise monopoly power in a predatory fashion. In contrast, according to the Maryland court, agricultural cooperatives are prohibited from engaging in actions that would violate antitrust laws if such actions were undertaken by corporations. The Capper-Volstead Act only gives agricultural cooperatives immunity from antitrust laws as long as agricultural cooperatives are pursuing "legitimate objects." "Legitimate objects" are those objects enumerated in Capper-Volstead Act § 1: "collectively processing, preparing for market, handling, and marketing."

Can these two apparently contradictory interpretations of the Capper-Volstead Act be reconciled? If not, was Fairdale wrongly decided? The Second Circuit decided Fairdale in 1980, twenty years after the Supreme Court decided Maryland. Did the Second Circuit impermissibly deviate from Supreme Court precedent? Alternatively, was Maryland wrongly decided? Did the Supreme Court incorrectly interpret the Capper-Volstead Act?

I will address these questions in subsequent posts.


Anonymous D. Daniel Sokol said...

The Antitrust Modernization Commission has taken an interest in this and other antitrust immunities. It will be interesting to see what the AMC will propose in its report.

11/11/2006 3:57 PM  
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