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From Antitrust Law Daily, January 15, 2015

Conspiracy to exclude clones from horse registry not established

By Jeffrey May, J.D.

The American Quarter Horse Association (AQHA) was not shown to have been engaging in an antitrust conspiracy when it refused to include cloned horses in its breed registry, the U.S. Court of Appeals in New Orleans has ruled. A jury's verdict in favor of joint venture partners that invested in cloned horses was overturned. The appellate court reversed a lower court's denial of AQHA's motion for judgment as a matter of law on conspiracy and monopoly claims, and judgment was entered for AQHA (Abraham & Veneklasen Joint Venture v. American Quarter Horse Assn., January 14, 2015, Jones, E.).

The AQHA is a non-profit association, with a general membership of more than 280,000 worldwide, whose mission is to register the pedigrees and protect the breed of the American Quarter Horse. The plaintiffs contended that the AQHA's denial of registration to clones and their offspring constituted a conspiracy and that the association maintained its monopoly over the “elite Quarter Horse” market by excluding clones from registration. Specifically, they alleged a conspiracy involving AQHA, AQHA's 30-member Stud Book and Registration Committee (SBRC), and SBRC members. Influential members of the SBRC purportedly tainted the committee’s deliberations because their personal economic interests would be harmed by competition with cloned horses. The plaintiffs argued that, without ACHA registration, the cloned horses could not participate in the lucrative racing, breeding, or horse shows that are characteristic of the market for elite Quarter Horses.

The federal district court in Amarillo, Texas, allowed the case to go to trial, and a jury returned a verdict in the plaintiffs’ favor. While the jury awarded no damages, the district court issued an injunction that specified the rule changes AQHA had to adopt to permit breed registration of cloned horses. AQHA appealed, challenging the sufficiency of evidence for each element of the Sherman Act claims and the scope of the injunction. Issues concerning the injunctive relief were not reached in light of the appellate court's conclusions with respect to the substantive claims.

The appellate court seemed unconvinced that AQHA, SBRC, and SBRC members were capable of conspiring in violation of Section 1 of the Sherman Act. The court distinguished this case from American Needle, Inc. v. Nat’l Football League, 560 U.S. 183, 2010-1 Trade Cases ¶77,019. In American Needle, the Supreme Court concluded that the joint venture formed by 32 NFL teams could be engaged in concerted action in violation of Section 1 of the Sherman Act with regard to their decision collectively to license the teams’ independently owned intellectual property.

Noting that the AQHA was more than a sports league, was not a trade association, and was involved in many other activities besides the “elite Quarter Horse” market, the appellate court stated that American Needle’s rejection of “single entity” status for organizations with “separate economic actors” does not fit comfortably with the facts of this case. “Given these troubling distinctions,” the Fifth Circuit panel decided not to resolve “the scope of American Needle for animal breed registry organizations.” Instead, it assumed that AQHA was legally capable of conspiring with members of the SBRC in violation of Section 1, and turned to the sufficiency of the evidence.

Evidence of conspiracy. “Whether taken individually or as a whole, the evidence does not raise a substantial issue of conspiratorial activity,” the court concluded. The plaintiffs relied on circumstantial evidence. Thus, they had to show that the circumstantial evidence both supported an inference of conspiracy and tended to exclude independent conduct. According to the court, “reasonable jurors could not draw any inference of conspiracy from the evidence presented, because it neither tends to exclude the possibility of independent action nor does it suggest the existence of any conspiracy at all.”

The plaintiffs suggested that a conspiracy was shown because some “influential” members of the SBRC, who owned, raced, or bred elite Quarter Horses, stood to gain financially from the clone ban and spoke out against cloning. However, more than the existence of the financial interests of a few was required to prove a conspiracy, the court noted. The breeders who were singled out by the plaintiffs were outnumbered in voting strength by the others who were not shown to have such financial interests. There also was evidence that members had ethical and practical concerns about cloning. The alleged disproportionate influence of certain SBRC members also did not support an inference of conspiracy.

To support their theory of a conspiracy between AQHA and SBRC, the plaintiffs offered evidence that an AQHA member made unfavorable statements at an SBRC meeting. Because the record was devoid of any evidence regarding SBRC member reactions to the member's “impassioned speech against registering clones,” the speech was simply a one-sided complaint about cloning. An agreement requires a meeting of the minds, the court noted. Other evidence that the plaintiffs considered incriminating, such as accusations of “sham procedures” and a so-called “secret meeting,” also was rejected.

Monopolization. An alternative verdict that AQHA was a single entity liable for illegal monopolization of the market for elite Quarter Horses in violation Section 2 of the Sherman Act also was rejected. Assuming that the market for elite Quarter Horses was a cognizable relevant market, AQHA was entitled to JMOL because it neither enjoyed nor was attempting to enjoy monopoly power in the market. It was not shown that AQHA even competed in that alleged market.

The case is No. 13-11043.

Attorneys: Nancy J. Stone (Nancy J. Stone, Attorney at Law) for Abraham & Veneklasen Joint Venture. Samuel Lee Stein (Law Office of Sam L. Stein, PLLC) for Abraham Equine, Inc. David E. Keltner (Kelly, Hart & Hallman, LLP) and William Wade Arnold (Underwood Law Firm, PC) for American Quarter Horse Assn.

Companies: Abraham & Veneklasen Joint Venture; Abraham Equine, Inc.; American Quarter Horse Assn.

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