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IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 13-11043 United States Court of Appeals
Fifth Circuit
FILED
ABRAHAM & VENEKLASEN JOINT VENTURE; January 14, 2015
ABRAHAM EQUINE, INCORPORATED; Lyle W. Cayce
JASON ABRAHAM, Clerk
Plaintiffs - Appellees
v.
AMERICAN QUARTER HORSE ASSOCIATION,
Defendant - Appellant
Appeal from the United States District Court
for the Northern District of Texas
Before JOLLY and JONES, Circuit Judges, and AFRICK*, District Judge.
EDITH H. JONES, Circuit Judge:
Jason Abraham, Abraham Equine, Inc., and Abraham & Veneklasen
Joint Venture (“Plaintiffs”) filed suit alleging that the American Quarter Horse
Association (“AQHA”) violated Sections 1 and 2 of the Sherman Act and the
Texas Free Enterprise and Antitrust Act. 1 The antitrust allegations stem from
votes by the Stud Book and Registration Committee (“SBRC”) of the AQHA,
* District Judge of the Eastern District of Louisiana, sitting by designation.
1 Because the Texas Free Enterprise and Antitrust Act utilizes the same standards as
the Sherman Act for establishing a violation, the Sherman Act analysis applies to Plaintiffs’
state law claims as well.
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which had blocked AQHA registration of horses created through somatic cell
nuclear transfer (“SCNT”), also known as cloning. At trial, AQHA moved for
judgment as a matter of law (“JMOL”), Fed. R. Civ. P. 50(a), which was denied
by the district court. AQHA appeals the denial of its motion. We REVERSE
the denial of AQHA’s motion for Judgment as a Matter of Law and RENDER
judgment in favor of AQHA.
BACKGROUND
The plaintiffs here include Abraham & Veneklasen Joint Venture, a
business formed by Jonathan Abraham and Gregg Veneklasen. Abraham is
the sole shareholder of Abraham Equine, Inc., which provides recipient mares
that act as surrogate mothers for Quarter Horse embryos. Veneklasen is a
veterinarian, owner of a veterinary hospital, and an expert in advanced equine
reproductive techniques. The two formed Abraham & Veneklasen Joint
Venture to invest in shares of multiple Quarter Horses that were produced by
cloning top prize winners in racing and cutting horse competitions. Without
access to AQHA’s breed registry, however, the cloned horses cannot participate
in the lucrative racing, breeding or horse shows that are characteristic of the
market for “elite Quarter Horses,” as defined by Plaintiffs’ expert.
Appellant AQHA is a non-profit association with a general membership
of more than 280,000 worldwide that was organized in 1940 to collect and
register the pedigrees and protect the breed of the American Quarter Horse.
In addition to its breed registry, which has listed millions of horses over the
years, AQHA sponsors horse shows that attract international patronage,
supports educational activities, and sanctions races in which only AQHA-
registered horses may compete. Consequently, “[M]eaningful participation in
this multimillion dollar industry is dependent upon AQHA membership and
AQHA registration.” Hatley v. American Quarter Horse Ass’n, 552 F.2d 646,
654 (5th Cir. 1977).
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Strategic decisions for the organization are made by the Board of
Directors, the five-member Executive Committee, and a variety of standing
committees that report to the general membership and the Board. The Board’s
membership has ranged from about 280–340 during the years in question, and
about 99 new Board members joined the Board during the same period. The
Stud Book and Registration Committee is one such standing committee. The
SBRC comprises about 30 members, with partial annual rotating membership,
and its members are selected by the President with the advice and majority
vote of the Executive Committee. The SBRC reviews proposed changes to
AQHA’s equine registration rules and makes recommendations regarding
those proposals to the general membership at the annual convention. During
the annual meeting, general members are allowed to address the SBRC and
observe its discussions. The SBRC’s recommendation is then presented to the
general membership, which determines whether that recommendation is
submitted to the Board for final approval. Only the Board of Directors may
change the breed registration rules.
From its inception, AQHA has maintained rules identifying the
characteristics required of any horse sought to be registered as an American
Quarter Horse, and the organization’s registry has maintained records of the
offspring of registered American Quarter Horses. Originally, the records
consisted essentially of birth certificates for the offspring. As animal
reproductive techniques have evolved, however, AQHA registered horses bred
by means of artificial insemination and embryo transfers.
Most recently, AQHA approved registration of horses “bred” by
Intracytoplasmic Sperm Injection (“ICSI”). ICSI involves the injection of a
single sperm cell into a mature unfertilized egg cell called an oocyte. The
fertilized egg is then transferred to a recipient mare. The plaintiffs’ cloning
techniques, known as Somatic Cell Nuclear Transfer (“SCNT”), create animals
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without distinct sire and dam bloodlines for registry. Instead, each cloned
horse is a “twin separated by time” of only one animal and any other clones of
that initial donor horse.
At its annual convention in 2003, the AQHA Board adopted Rule 227(a),
which declared cloned horses ineligible for AQHA breed registration. Between
2008 and 2013, the AQHA received four requests to change the rule, two of
which were made by Plaintiffs. In 2008, the SBRC responded by
recommending further study; in 2009 the SBRC recommended the creation of
a cloning task force to study the impact and science of cloning; and in 2010 the
SBRC recommended a denial of the rule change proposal. Since 2010, the
SBRC has recommended retention of the rule, and the Board has accepted that
recommendation. 2
The plaintiffs contend that members of the SBRC and the SBRC
conspired with AQHA to prevent cloned horses from being registered as
American Quarter Horses and thus excluded their horses from the market for
“elite Quarter Horses.” Influential members of the SBRC allegedly tainted the
committee’s deliberations because their personal economic interests would be
harmed by competition with cloned horses, especially in breeding and racing.
The plaintiffs articulated a plausible motive for anticompetitive activity, but
the principal questions on appeal are whether they proved an actual conspiracy
to restrain trade in violation of Section 1 of the Sherman Act, or illegal
monopolization by AQHA of breed registration for the “elite Quarter Horse”
market in violation of Section 2.
Plaintiffs filed suit in April 2012, and their case was tried to a jury. The
court denied AQHA’s motion for judgment as a matter of law. After sending
2 In 2013, the Board voted to defend the instant litigation, i.e., to defend the anti-
clone-registration rule.
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two notes asking for clarification, the jury found in favor of the plaintiffs but
declined to award damages. To effectuate the verdict, the court entered a
sweeping injunction that specified the rule changes AQHA must adopt to
permit breed registration of cloned horses. AQHA has appealed, challenging
the sufficiency of evidence for each element of the Sherman Act claims and the
scope of the district court’s injunction. 3
STANDARD OF REVIEW
This court reviews a denial of a motion for judgment as a matter of law
de novo. Evans v. Ford Motor Co., 484 F.3d 329, 334 (5th Cir. 2007). A motion
for JMOL should be granted if the evidence is legally insufficient, such that
“the facts and inferences point so strongly and overwhelmingly in favor of one
party that the Court believes that reasonable men could not arrive at a
contrary verdict.” Boeing v. Shipman, 411 F.2d 365, 374 (5th Cir. 1969) (en
banc), overruled on other grounds by Gautreaux v. Scurlock Marine, Inc.,
107 F.3d 331, 336 (5th Cir. 1997) (en banc). The reviewing court must consider
the facts in the light most favorable to the verdict. Giles v. Gen. Elec. Co.,
245 F.3d 474, 481 (5th Cir. 2001).
DISCUSSION
I. Section 1 of the Sherman Act.
As opposed to Section 2 of the Sherman Act, Section 1 is only concerned
with concerted conduct among separate economic actors rather than their
independent or merely parallel action. Ultimately, “plaintiffs must show that
the defendants (1) engaged in a conspiracy (2) that produced some anti-
competitive effect (3) in the relevant market.” Johnson v. Hosp. Corp. of Am.,
95 F.3d 383, 392 (5th Cir. 1996). But not all nominally separate entities are
capable of violating Section 1 of the Sherman Act through a conspiracy that
3 We do not reach issues concerning the injunctive relief.
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restrains trade. AQHA contends, first, that as a “single entity,” it could not
conspire with its members or with the SBRC. Alternatively, AQHA asserts
that the evidence of conspiracy is legally insufficient to support the verdict.
A. Entities Capable of Conspiring.
As a general rule, Section 1 of the Sherman Act does not apply to single
entities. Am. Needle, Inc. v. Nat’l Football League, 560 U.S. 183, 190,
130 S. Ct. 2201, 2207 (2010). The Court reiterated in American Needle,
however, that “concerted action under § 1 does not turn simply on whether the
parties involved are legally distinct entities.” Id. at 191. Thus, “[a]greements
made within a firm can constitute concerted action covered by § 1 when the
parties to the agreement act on interests separate from those of the firm itself,
and the intra-firm agreements may simply be a formalistic shell for ongoing
concerted action.” Id. at 200. A functional analysis of the parties’ actual
participation in the alleged anticompetitive conduct is necessary to draw the
inference of illegal concerted action. Pursuant to this functional approach, a
corporation and its officers and employees, or a corporation and its divisions or
wholly owned subsidiaries have been held to be a “single entity” that is
incapable of concerted action that impairs competition in the marketplace. See
Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 767, 104 S. Ct.
2731, 2739 (1984). Other legal entities, however, when made up of members
or entities that may compete with each other, may conspire illegally. See, e.g.,
United States v. Sealy, Inc., 388 U.S. 350, 352–56, 87 S. Ct. 1847, 1850–52
(1967); Nat’l Collegiate Athletic Ass’n v. Bd. of Regents of Univ. of Okla.,
468 U.S. 85, 104 S. Ct. 2948 (1984); Associated Press v. United States, 326 U.S.
1, 65 S. Ct. 1416 (1945). The “key”, according to the Court, is whether the
“contract, combination…, or conspiracy” joins together “separate
decisionmakers,” i.e., “separate economic actors pursuing separate economic
interests.” Am. Needle, 560 U.S. at 195, 130 S. Ct. at 2205. If so, then the
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agreement may “deprive[] the marketplace of independent centers of
decisionmaking[.]” Id. at 195, 2212.
Following this explanation, the Court in American Needle readily
concluded that the joint venture formed by thirty-two NFL teams, “at least”
with regard to their decision collectively to license the teams’ independently
owned intellectual property, was engaged in concerted rather than single
entity action and thus potentially violated Section 1. The Court reasoned that
apart from the teams’ agreement to cooperate in exploiting these assets, they
would be competitors in the market to produce and sell team logo wearing
apparel and headgear by licensing their intellectual property and dealing with
suppliers.
On one hand, the Court held that the justification for the National
Football League Properties’ (“NFLP”) cooperative agreement—the structural
necessity of a sports league to produce the “product” of major league football—
is irrelevant to whether there was concerted or independent action at the
threshold of Section 1 analysis. Am. Needle, 560 U.S. at 199, 130 S. Ct. at 2214.
On the other hand, however, the Court recognized that because restraints on
competition like those embodied in sports leagues or joint ventures are
necessary to make a product available at all, the rule of reason rather than per
se rules determines the ultimate question of antitrust violations. Id. at 203.
American Needle’s rejection of “single entity” status for organizations
with “separate economic actors” does not fit comfortably with the facts before
us. AQHA is more than a sports league, it is not a trade association, and its
quarter million members are involved in ranching, horse training, pleasure
riding and many other activities besides the “elite Quarter Horse” market. The
plaintiff’s expert claimed that no more than .5% of the yearlings sold each year
fall within the plaintiffs’ proposed sub-market of AQHA-registered elite
Quarter Horses. Under such circumstances, it is difficult to draw the
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conclusion that because a tiny number of economic actors within AQHA may
“pursue their separate economic interests,” the organization has conspired
with that minority. American Needle, in contrast, involved membership all of
whom owned and profited from the exclusive licensing arrangements entered
into by the NFLP joint venture. Similarly, in the other cases cited by the Court
in American Needle, the organizations found capable of conspiring with
members who were “independent decisionmakers” were trade groups or
competitor groups all of whose members directly profited from the exclusionary
conduct. In American Needle, the Court’s description of potentially illegal
conspiracies involving such organizations is laden with adjectives referring to
the members’ independent economic interests. Am. Needle, 560 U.S. at 196–
97, 130 S. Ct. at 2212–13 (describing members of the NFLP as “independently
managed business[es]” and “competing suppliers of valuable trademarks”).
Here, there is no such unity of interest among over a quarter million members.
Other features appear to distinguish this case from American Needle.
First, no other case has yet held that an animal breed registry organization
can violate the antitrust laws by passing on the qualifications for the breed
itself. This court in Hatley rejected an antitrust conspiracy claim against
AQHA where a horse of undisputed “elite” lineage was denied registration
because it had white markings above the permissible places on its legs. Hatley
v. Am. Quarter Horse Ass’n, 552 F.2d 646, 654 (5th Cir. 1977). Whenever an
organization devoted to the preservation of an animal breed revises its
standards, exclusion from the relevant “market” will occur. See, e.g., Jack
Russell Terrier Network of N. Cal. v. Am. Kennel Club, Inc., 407 F.3d 1027,
1034 (9th Cir. 2005) (affirming dismissal where organization devoted to those
dogs elected not to register dogs that were jointly registered with the American
Kennel Club); Jessup v. Am. Kennel Club, Inc., 61 F. Supp. 2d 5 (S.D.N.Y.
1999), aff’d. on dist. ct. op., 210 F.3d 111 (2d Cir. 2000) (granting summary
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judgment against claims that Labrador dog breed standards were changed in
conspiracy to restrain trade or monopolize). Perhaps setting the standards for
a breed is relevant under American Needle to rule of reason analysis after the
possibility of concerted action has been admitted. If so, then breed standards
for these volunteer groups should often be immune from antitrust scrutiny
because they are essential to “creating the product.”
That the organization’s purpose is to preserve and enhance the breed’s
characteristics creates further tension with American Needle’s paradigm of a
“firm” and “separate economic actors” within the firm whose economic interests
diverge from those of the firm. Contrary to the plaintiffs’ assertions, AQHA is
not narrowly interested in “having more members and more registered horses.”
If that premise were true, AQHA would not insist on maintaining pure
bloodlines and might elect to register the offspring of horses cross-bred with
pure Quarter Horses, if the offspring otherwise complied with Quarter Horse
characteristics. Alternatively, AQHA’s enforcement of its “white rule,” which
denied registration to Hatley’s horse, might have been loosened. See Hatley,
552 F.2d at 646. From this standpoint, AQHA’s self-interest as an
organization is not limited to profit. The district court recognized the fallacy
in the plaintiffs’ reasoning when it concluded that, “It is unclear…whether the
AQHA would benefit or be harmed by allowing clone registration.” Abraham
& Veneklasen Joint Venture v. Am. Quarter Horse Ass’n, No. 2:12-CV-103-J,
2013 WL 2297104, at *3 (N.D. Tex. May 24, 2013). Thus, the divergence of
interests between AQHA and the alleged conspirators, which American Needle
posits, is not clear.
Moreover, an issue not plumbed in American Needle is how to assess
the organization’s ability to conspire with its members given different types of
legal structures. In the NFLP, apparently all the member teams had to agree
on the exclusive licensing arrangement, and all the teams owned intellectual
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property subject to the agreement; there was thus unity of purpose and
decisionmaking by the interested economic actors. AQHA, however, makes
policy through a Board of Directors with around 300 annually rotating
members. The SBRC proposes action on registration rules, but it cannot
unilaterally dispose of the issue. Any AQHA member may propose a rule to
the Board during its annual meeting. A functional analysis of an
organization’s ability to conspire with legally distinct members ought to take
these facts into account. It is not clear whether American Needle applies on a
more abstract plane that covers any organization with actors who have
separate economic interests. See, e.g., Robertson v. Sea Pines Real Estate Cos.,
Inc., 679 F.3d 278, 285–86 (4th Cir. 2012) (refusing to dismiss Section 1 claim
against MLS composed of separate real estate brokerages that were potential
competitors). AQHA, however, urges the Court’s emphasis on the pursuit of
separate economic interests as a cornerstone of its argument that the majority
of SBRC members’ personal interests were not furthered by the anti-cloning
rule.
Given these troubling distinctions, we need not resolve in this opinion
the scope of American Needle for animal breed registry organizations. Instead,
we will assume arguendo that AQHA was legally capable of conspiring with
members of the SBRC in violation of Section 1. The judgment must be
reversed, however, for insufficient evidence of a conspiracy. 4
4The Court was careful to note that being capable of a Section 1 violation through
conspiracy was not the same as proving the existence of a conspiracy or that conspiracy’s
effect on trade. Indeed, the Court explained that the rule of reason should be applied,
ensuring that many entities capable of conspiring would not be ultimately found liable. Am.
Needle, 560 U.S. at 203.
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B. Evidence of a Conspiracy.
To prove a conspiracy in restraint of trade, the Plaintiff must show some
kind of “common design and understanding, or a meeting of minds in an
unlawful arrangement.” Am. Tobacco Co. v. United States, 328 U.S. 781, 810,
66 S. Ct. 1125 (1946); see also Monsanto Co. v. Spray–Rite Serv. Corp., 465 U.S.
752, 761, 104 S. Ct. 1464, 1469 (1984). If direct evidence is unavailable and
the plaintiff relies on circumstantial evidence, the “antitrust plaintiff must
present evidence tending to exclude the possibility of independent conduct.”
Viazis v. Am. Ass’n of Orthodontists, 314 F.3d 758, 763 (5th Cir. 2002) (citing
Monsanto, 465 U.S. at 768). Ultimately, any conduct that is “as consistent with
permissible competition as with illegal conspiracy” cannot support a conspiracy
inference. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
588, 106 S. Ct. 1348, 1356 (1986).
Plaintiffs here introduced only circumstantial evidence to prove their
theory that certain SBRC members, acting to advance their economic interests,
controlled the SBRC, and the Board deferred to them, resulting in a conspiracy
with AQHA to exclude the plaintiffs’ cloned horses from the elite Quarter Horse
market. Whether taken individually or as a whole, the evidence does not raise
a substantial issue of conspiratorial activity. In Plaintiffs’ appellate brief, a
single page is labeled “Evidence: Agreements with and within the SBRC.”
Plaintiffs there contend that trial testimony “reinforced” the existence of an
agreement and provide a string citation to the record without any explanation
of the testimony. The testimony captured by the string citation contains three
types of evidence: (1) some SBRC members, who own, race, show and/or breed
elite Quarter Horses, stand to benefit personally from retaining the ban on
clones; (2) those members were “influential”; and (3) such influential members
spoke vociferously against cloning at SBRC meetings. In its statement of the
case, Plaintiffs’ brief also references (1) an alleged concession by a former
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AQHA president that there was an “agreement” within SBRC to prevent clones
from being registered; (2) meeting notes concerning the “strategy” to defeat
registration; (3) and “sham” procedures over the course of four years while
AQHA discussed and debated registration of cloned horses. 5 Despite Plaintiffs’
provocative descriptions, the evidence of a conspiracy to control the SBRC and
AQHA is lacking.
The first category of evidence in the string citation—some members of
the SBRC stand to gain financially from the clone ban—proved less than
Plaintiffs would like. At trial, plaintiff Jason Abraham testified that twenty
members of the SBRC bred some type of Quarter Horse or were influential in
breeding circles. 6 Abraham, however, acknowledged he did not know about
their status as elite breeders. Plaintiff Veneklasen made the same assertion
about twenty elite breeders on the SBRC, but he had to change his testimony
after being confronted with the membership list. He admitted that the list
showed only four or five members of the SBRC who remained active in horse
breeding, while the other individuals had either retired or had never
participated as breeders in the elite Quarter Horse market. AQHA witness
Jeff Tebow, a member of the SBRC, testified that a few of the SBRC members
had made a substantial amount of money from the industry and a few of them
supported themselves by horse breeding. Tebow referred to these individuals
5Curiously, Plaintiffs’ string citation also contains a reference to testimony that the
SBRC meetings on the science of cloning had fairly presented both sides of the issue. This
evidence seems to cut against Plaintiffs’ burden of providing evidence that tends to rule out
independent action.
6 It should be noted that Plaintiff argues that a majority of SBRC members are
breeders who stand to gain from the restraint of trade, even though many of those breeders
do not participate in the “elite Quarter Horse market” upon which Plaintiffs base their claim.
We do not address the market issue—as this case is resolved under the conspiracy issue—
but Plaintiff’s admission that non elite Quarter Horse breeders are impacted by cloning bans
would have to play some role in determining whether Plaintiff’s “elite Quarter Horse market”
is a distinct market that actually exists.
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as “the leaders of our industry.” SBRC member Butch Wise also testified that
quite a few committee members “had some skin in the game” as breeders, but
he did not distinguish between breeders of elite and non-elite horses. Wise
later testified that it was common for committee members to sell horses for one
another, use a common brokerage firm, and breed horses with one another’s
stock. The picture that emerges from the testimony and relationship diagram
offered by Plaintiffs is that of a committee some of whose members have been
financially successful in aspects of Quarter Horse business and some of whom
have had extensive, fruitful outside business relationships with each other.
This evidence is relevant to the “separate economic interests” test for
determining whether a single entity is capable of a conspiracy, but more than
the existence of the financial interests of a few is required to prove a
conspiratorial agreement among them.
Since Plaintiffs rely on circumstantial evidence, they must show that
circumstantial evidence both supports an inference of conspiracy and tends to
exclude independent conduct. Viazis v. Am. Ass’n of Orthodontists, 314 F.3d
758, 763 (5th Cir. 2002). Any conduct that is “as consistent with permissible
competition as with illegal conspiracy does not, standing alone, support an
inference of antitrust conspiracy.” Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 588, 106 S. Ct. 1348, 1356 (1986). It is here critical to note
that the SBRC, whose membership altered each year, included about thirty
members annually during the relevant period, but only a handful of them were
identified by Plaintiffs as profiting in the elite Quarter Horse market. Yet
there was a conspicuous lack of evidence concerning the dozens of committee
members not financially involved in the elite Quarter Horse market. Whatever
the motivations of the breeders who were singled out by Plaintiffs, they were
outnumbered in voting strength by the others who were not shown to have
such financial interests. Moreover, trial testimony established that SBRC
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members had ethical concerns about cloning in addition to practical concerns
about verifying parentage to maintain the integrity of the registry. At best,
the evidence showed that only a vocal minority of SBRC members both opposed
cloning and had financial interests that could be injured by registration of
cloned elite Quarter Horses.
The second category of testimony contained in Plaintiff’s string citation
is the alleged disproportionate influence of certain SBRC members, but that,
too, cannot support an inference of conspiracy. Plaintiff Gregg Veneklasen’s
trial testimony labeled a few members of the SBRC as a “good ol’ boys club,”
based on each member’s financial success in racing or breeding Quarter
Horses. But aside from hollow labels, Plaintiffs have no evidence that any such
sub-group exerted a disproportionate influence to affect vote outcomes within
the SBRC or the Board. And even if this “boys club” existed to exert influence
generally, the only evidence that its members made any kind of agreement to
oppose cloning amounts to no more than innuendo.
The third category of testimony contained in the string citation—an
AQHA member made unfavorable statements at an SBRC meeting—also fails
to support an inference of a conspiracy. In addition to an agreement among
the members of the committee, Plaintiffs allege a conspiracy between the
committee and AQHA. To support this theory of an agreement between the
AQHA and SBRC, Plaintiffs introduced the testimony of Robert “Blake”
Russell, the President of ViaGen L.C., the laboratory which conducts business
with Plaintiffs. Russell testified that he attended the 2009 AQHA convention
and the corresponding SBRC meeting that was addressed by AQHA Executive
Committee Member John Andreini. Russell testified that Andreini’s
impassioned speech against registering clones included the statement, “I will
not allow this technology to move forward. I will not have sixty First Down
Dashes [a legendarily successful racing Quarter Horse] in every county in this
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country. And I have put millions of dollars in this industry, and if this is
approved, I will take every dime of it out.” Russell testified that he believed
Andreini was concerned with the competitive effects of lifting the clone ban.
AQHA registered clones would be able to compete in lucrative races and take
part in the breeding market. Russell believed Andreini did not want to face
“sixty First Down Dashes” in competition. Assuming arguendo that Andreini
was attempting to restrain competition, the record is devoid of any evidence
regarding SBRC member reactions to Andreini. Did they respond favorably or
negatively? Were they, in any way, influenced by his speech? Was it given any
weight? Without more, Andreini’s impassioned speech is simply a one-sided
complaint about cloning.
This court has already rejected the inferential value of one-sided
complaints in Viazis v. Am. Ass’n of Orthodontists, 314 F.3d 758 (5th Cir. 2002).
In Viazis, an orthodontic devices manufacturer contracted with a dentist to
manufacture and advertise a product that the dentist had invented and
patented. When the dentist aggressively advertised the product himself, the
American Association of Orthodontists (“AAO”) complained of the dentist’s
behavior to the manufacturer. The complaints were coupled with veiled
threats of a boycott. This court held that the evidence of AAO complaints to
the manufacturer was insufficient to infer the second party’s intent to enter
into a conspiracy. With circumstantial evidence, this court noted, the plaintiff
must present evidence that tends to exclude the possibility of the
manufacturer’s independent conduct. Since one-sided complaints could not
exclude the possibility of independent action, the manufacturer’s actions were
as consistent with legal conduct as with conspiratorial conduct, making the
evidence insufficient to support a finding of conspiracy.
Andreini’s one-sided complaints are factually indistinguishable from
Viazis. An agreement requires a meeting of the minds. Like the AAO
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complaints in Viazis, the only evidence here is a one-sided complaint without
any hint of a favorable response from the alleged co-conspirator, the SBRC.
Only half of the equation is present. And a one-sided complaint is just not a
suitable basis for an inference of conspiracy. Even Andreini’s threat to pull his
money from the industry cannot distinguish this case from a typical one-sided
complaint. The AAO in Viazis also threatened monetary retaliation in the form
of a boycott of the manufacturer. And just like the threat of boycott in Viazis,
Plaintiffs would have to show some additional evidence that the SBRC
responded to that economic threat with some action. Viazis, 314 F.3d at 763.
Therefore, no inference of a conspiracy can be drawn from Andreini’s one-side
complaint. 7
In addition to the evidence referenced in the string citation, Plaintiffs’
statement of facts alluded to other evidence they consider incriminating. They
reference testimony of Frank Merrill, a former AQHA president and sometime
SBRC member who was outspokenly opposed to registering cloned horses.
Merrill, they contend, admitted that the SBRC “agreed to exclude” cloned
horses. This is a mischaracterization. Merrill was referring not to a
conspiratorial agreement, but only to the thirty-member committee’s official
votes on the subject. Cf. Tunica Web Advertising v. Tunica Casino Operators
Ass’n, 496 F.3d 403, 410 (5th Cir. 2007) (evidence of emails referencing
“gentleman’s agreement” among competitors sufficient to create fact issue of
conspiracy).
Plaintiffs accuse the AQHA and SBRC of “sham procedures” designed to
defeat registration of cloned horses. They refer to a “secret meeting” in
7 If the plaintiffs intended to use Andreini’s speech as indicative of one-sided
complaints made by other AQHA members, e.g., Frank Merrill, their brief does not say so.
However, mere complaints, without proof of an agreement to exclude cloned horses from
registration, are insufficiently probative of concerted, as opposed to independent action by
the SBRC or its members.
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January 2012 that, behind the back of AQHA’s then president, lay the
groundwork for SBRC’s official rejection of registration for clones. The only
evidence of a meeting in January 2012, however, is an email from the president
inviting certain SBRC members to an official meeting of AQHA’s Executive
Committee meeting to discuss cloning. There was nothing secret about it.
Even more telling, there is no testimony about what transpired at the not-so-
secret meeting.
Plaintiffs contend that AQHA “stacked” the SBRC with hand-selected
industry leaders with interests in conflict with cloning. As has been noted, the
committee was never shown to have a voting majority of members with
interests in elite Quarter Horses, although most of its members,
unsurprisingly, have been breeders of Quarter Horses. In any event, Plaintiffs
failed to explain why the selection of SBRC members was not as consistent
with permissible activity as it was with impermissible activity; selecting
industry leaders who are knowledgeable about breeding for a committee
focused on registration of the breed seems quite reasonable. In regard to
Plaintiffs’ more general challenges to SBRC’s procedures, its relation to
decisionmaking by the Board, and its conduct of the cloning task force,
Plaintiffs offered nothing more than pejoratives without evidence that the
deliberative processes in place deviated from AQHA’s standard procedures or
failed to offer the plaintiffs an opportunity to make their case for registering
cloned horses. As one court explained, “[T]he antitrust laws are not intended
as a device to review the details of parliamentary procedure.” Jessup v.
American Kennel Club Inc., 61 F.Supp. 2d 5, 12 (S.D.N.Y. 1999), aff’d on dist.
ct. op., 210 F.3d 111 (2d.Cir. 2000). Plaintiffs did not produce evidence tending
to exclude the possibility of a decision arrived at by independent, not illegally
concerted action.
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Finally, the plaintiffs focus on a “plan” to delay and ultimately reject
cloned horse registration that allegedly appeared in the handwritten notes of
AQHA’s executive director Don Treadway. The eight pages of random,
scrawled notes span nearly two years and derive from various meetings and
conversations. While they reveal Treadway’s thinking and concerns others
expressed about cloning and AQHA’s possible reaction to it, they contain no
“smoking gun” referencing any agreement within AQHA or its membership to
restrain the market for elite Quarter Horses.
Reasonable jurors, in sum, 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.
In the absence of substantial evidence on the issue of an illegal conspiracy to
restrain trade, AQHA’s JMOL motion should have been granted.
II. Section 2 of the Sherman Act
Because Plaintiffs’ conspiracy claim is unsustainable as a matter of law,
we must consider the alternative verdict that AQHA as a single entity is liable
for illegal monopolization under Section 2 of the Sherman Act. “A violation of
section 2 of the Sherman Act is made out when it is shown that the asserted
violator 1) possesses monopoly power in the relevant market and 2) acquired
or maintained that power willfully, as distinguished from the power having
arisen and continued by growth produced by the development of a superior
product, business acumen, or historic accident.” Stearns Airport Equip. Co. v.
FMC Corp., 170 F.3d 518, 522 (5th Cir. 1999). Having or acquiring a monopoly
is not in and of itself illegal. The illegal abuse of power occurs when the
monopolist exercises its power to control prices or exclude competitors from the
relevant market for its products. See, e.g., United States v. E.I. DuPont de
Nemours, 351 U.S. 377, 391–94, 76 S. Ct. 994, 1005–06 (1956) (discussing
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Section 2 illegal monopoly power in terms of the potential competitors for the
monopolist’s product).
Plaintiffs here contend that AQHA monopolized the relevant market for
elite Quarter Horses. Assuming arguendo that this is a cognizable relevant
market, it is true that AQHA’s breed registry rules admit or exclude horses
from that market. Nothing in the record, however, shows that AQHA competes
in the elite Quarter Horse Market. AQHA is a member organization; it is not
engaged in breeding, racing, selling or showing elite Quarter Horses. AQHA
was entitled to JMOL because it neither enjoyed nor was attempting to enjoy
monopoly power in the elite Quarter Horse market. Beard v. Parkview Hosp.,
912 F.2d 138, 144 (6th Cir. 1990) (defendant hospital that signed exclusive
radiological services contract could not “monopolize” the radiological services
market in which it did not compete).
According to the plaintiffs, competition in the monopolized relevant
market is not a requirement of Section 2. This is incorrect. The only two cases
they cite are inapposite or distinguishable. One case alleged a group boycott
violating Section 1 of the Sherman Act with no claim of a Section 2 abuse of
monopoly power. Tunica Web Adver., 496 F.3d at 409; see also Eastman Kodak
Co. v. Image Technical Servs., Inc., 504 U.S. 451, 481, 112 S. Ct. 2072, 2090
(1992) (“Monopoly power under § 2 requires, of course, something greater than
market power under § 1.”). In the other case relied on by Plaintiffs, an archery
manufacturers and distributors trade association that put on an archery trade
show acted in concert with association members to drive out of business its
only competitor in the market for archery trade shows. Full Draw Prods. v.
Easton Sports Inc., 182 F.3d 745 (10th Cir. 1999). The trade association
competed directly in the monopolized market, and a motion to dismiss was
accordingly reversed. In contrast to Full Draw, the Section 2 claim made in
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this case challenges only the conduct of AQHA (not concerted monopolization
activity), and AQHA is not a competitor of the plaintiffs.
Finally, as case law demonstrates, the essential attributes of illegal
monopoly power are judged by the monopolist’s participation in the relevant
market. See, e.g., American Tobacco Co. v. U.S., 328 U.S. 781, 809, 66 S. Ct.
1125 (1946) (defining monopoly power as the power to “exclude actual or
potential competition from the field”); Heatransfer Corp. v. Volkswagenwerk,
A. G., 553 F.2d 964, 981 (5th Cir. 1977) (“Such a share of the relevant market
is sufficient to establish a monopoly power.”); Sheridan v. Marathon Petroleum
Co. LLC, 530 F.3d 590, 594 (7th Cir. 2008) (“Monopoly power we know is a
seller’s ability to charge a price above the competitive level (roughly speaking,
above cost, including the cost of capital) without losing so many sales to
existing competitors or new entrants as to make the price increase
unprofitable.”)(emphasis omitted). The ability to extract above-market profits
from raised prices, the possession of large market share, and the ability to
exclude one’s competitors are all factors that could only apply to a party who
participates in the relevant market that has been monopolized.
Consequently, the Section 2 claim failed as a matter of law because
AQHA is not a competitor in the allegedly relevant market for elite Quarter
Horses.
CONCLUSION
For these reasons, we REVERSE and RENDER judgment for the
Appellant.
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