What Is the "Copperweld Doctrine"?
In Copperweld Corp. v. Independence Tube Corp. (1984) 467 U.S. 752, the Court outlined the broad principles applicable to assessing whether the alleged conspirators are sufficiently separate to be capable of combining within the prohibition of the antitrust laws.
Copperweld cautioned that the mere existence of separate incorporated entities does not automatically suffice to show that these entities are capable of combining; instead the entities must have separate and independent interests that are combined by the unlawful conspiracy.
Under Copperweld, legally distinct entities do not conspire if they "pursue the common interests of the whole rather than interests separate from those of the group itself . . . . Because such coordination . . . does not represent a sudden joining of two independent sources of economic power previously pursuing separate interests, it is not activity that warrants Sherman Act section 1 scrutiny." ( Copperweld, supra, 467 U.S. at pp. 770-771.)
The court in City of Mt. Pleasant, Iowa v. Assoc. Elec. Co-Op. (8th Cir. 1988) 838 F.2d 268 applied the Copperweld principles in the context of separate entities that formed a joint venture to provide a product that the separate entities had previously been unable to provide.
In Mt. Pleasant, a single entity (Associated) operated an electricity-generating plant. Associated was owned and managed by six "generation and transmission" (G&T) cooperatives that purchased electricity from Associated and transported and wholesaled electricity in their respective regions. The G&T cooperatives were owned by local electricity distribution cooperatives; these local cooperatives purchased electricity from their respective G&T cooperative and retailed it to the customers in their service area. ( Mt. Pleasant, supra, 838 F.2d at p. 271.)
Associated also sold electricity to third parties at rates higher than it charged its members. ( Mt. Pleasant, supra, 838 F.2d at p. 272.)
A third party customer claimed the dual price scheme was a "price squeeze" conspiracy in violation of antitrust laws.
The Mt. Pleasant court applied the Copperweld principles and concluded the constituent members, although legally distinct entities, comprised a single enterprise pursuing a common goal of generating low-cost electricity that none of the members separately had previously produced or were capable of producing. The Mt. Pleasant court examined whether any of the G&T cooperatives pursued interests diverse from those of Associated: were any of the G&T cooperatives actual or potential competitors of Associated or hold sufficiently divergent interests. "In the language of Copperweld, were there facts showing . . . the coordination between any two defendants was a 'joining of two independent sources of economic power previously pursuing separate interests.' " ( Id. at p. 276, quoting Copperweld, supra, 467 U.S. at p. 771.)
In Mt. Pleasant, the plaintiff claimed the G&T cooperatives had independent and conflicting economic interests because two of the G&T cooperatives disagreed with the dual rate policy, attempted to change it, and would have received economic benefits without the dual rate policy that other G&T cooperatives would not have realized. ( Mt. Pleasant, supra, 838 F.2d at pp. 276-277.) The Mt. Pleasant court rejected the argument, stating:
"We agree with plaintiff that these interests were 'diverse,' but not in the sense necessary to create a fact issue on whether these companies are part of a single enterprise. It will always be true that separate companies, in one enterprise, that are located in separate areas and serve separate customers, will have varying interests. This case, considering the disputes among the defendants on the issue of municipal sales, is a perfect example. Coalitions will come and go according to changing conditions and the interests of the various factions.
"But is this a sufficient basis from which to draw a reasonable inference that their coordination is a 'joining of two independent sources of economic power previously pursuing separate interests'? In this case, we think not. Even though the cooperatives may quarrel among themselves on how to divide the spoils of their economic power, it cannot reasonably be said that they are independent sources of that power. Their power depends, and has always depended, on the cooperation among themselves. They are interdependent, not independent. The disagreements we have described are more like those among the board members of a single enterprise, than those among enterprises which are themselves separate and independent." (838 F.2d at p. 277.)
The principles articulated in Copperweld and applied in Mt. Pleasant have been followed by other federal courts.
In In re Appraiser Foundation AntiTrust Litigation (D.Minn. 1994) 867 F. Supp. 1407, eight separate associations of appraisers created an entity (Foundation) to set appraisal standards for the industry. Although the constituent members of the Foundation may have competed for members, and the individual members of the constituent associations may have competed with each other for appraisal business, the court rejected the conspiracy claim because the Foundation was a single enterprise whose members were interdependent (because its influence derived from representing the entire industry) and shared a common purpose of establishing standards and ethics for the entire industry. There were no facts showing any of the members pursued interests diverse from or antithetical to the interests of the Foundation. ( Id. at pp. 1418-1420.)
In Williams v. I.B. Fischer Nevada (9th Cir. 1993) 999 F.2d 445, involving an antitrust suit alleging that an agreement between a franchiser and his franchisee was unlawful, the court concluded the parties could not conspire because they were part of a common enterprise. ( Id. at p. 447.)
In contrast, when independent entities combine through an agreement that controls or restrains trade in products or services in which they previously had been actual or potential competitors, there is a "joining of two independent sources of economic power previously pursuing separate interests" ( Copperweld, supra, 467 U.S. at p. 771) within the antitrust proscriptions against combinations. For example, in United States v. Topco Associates (1972) 405 U.S. 596, a group of regional supermarket chains participated in a cooperative buying agency (Topco) to purchase products for resale by its constituents under the Topco label. However, the territories in which each constituent was entitled to market Topco products were restricted. ( Id. at pp. 598-604.)
The court held this horizontal division of territory violated section 1 of the Sherman Act because the constituent sellers were actual or potential competitors in the sale of Topco products for the territories from which some or all of them were excluded. ( Id. at pp. 606-612 92 S. Ct. at pp. 1133-1136.)
Similarly, in United States v. Sealy, Inc. (1967) 388 U.S. 350, a consortium of mattress and bedding manufacturers jointly owned and operated Sealy, which licensed the member-manufacturers to use its trademark but granted them territorial exclusivity for sale of Sealy trademarked products. ( Id. at pp. 352-355.)
The court concluded the horizontal division of territory violated section 1 of the Sherman Act because the constituent manufacturers were actual or potential competitors of each other in territories from which they were excluded and the association (Sealy) was a mere instrumentality effectuating their agreement to create an unlawful horizontal restriction on competition. ( Id. at pp. 355-358.)
We use the term "joint venture" in its colloquial rather than legal sense because under Copperweld it is the economic substance, not the legal formalities, that determine whether the entities are sufficiently separate and their combination coalesces previously separate and competing interests. ( Copperweld, supra, 467 U.S. at p. 773, fn. 21 104 S. Ct. at p. 2743.)
For this reason, it does not matter whether local associations are treated as shareholders in an entity that is their alter ego ( Bondi v. Jewels by Edwar, Ltd. (1968) 267 Cal. App. 2d 672, 678 dismissing antitrust claim against corporation and its alter ego shareholders for not alleging a concert of action by persons "maintaining separate and independent interests"), or whether Sandicor's corporate form is entirely disregarded and local associations are treated as partners in a partnership owning the countywide MLS. Under the latter characterization, local associations as partners would be treated as agents of the partnership in connection with the partnership business ( Corp. Code, 16301) and the "agent immunity rule" deems agents incapable of conspiring with their principle. ( Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal. 4th 503, 511-512 and fn. 4.)
In F.B. Leopold Co. v. Roberts Filter Mfg. Co., Inc. (W.D.Pa. 1995) 882 F. Supp. 433, an antitrust suit alleging that a patentee conspired with its independent sales agents, the court applied the Copperweld principles (Copperweld Corp. v. Independence Tube Corp. (1984) 467 U.S. 752) and concluded these parties could not conspire because the sales agents, although independent and having a diverse interest of maximizing their commissions, had economic interests and purposes so closely intertwined with the interests of the patentee that they formed a " 'unified economic consciousness incapable of conspiring with itself' quoting Pink Supply Corp. v. Hiebert, Inc. (8th Cir. 1986) 788 F.2d 1313, 1317." (Id. at p. 446.)