On Jan. 14, 2015, the 5th U.S. Circuit Court of Appeals reversed a district court's order rejecting the American Quarter Horse Association's (AQHA) motion for judgment as a matter of law after a jury found that it violated the Sherman Act by adopting new rules the block the registration of horses created through cloning. Abraham & Veneklasen Joint Venture v. Am. Quarter Horse Assoc., No. 13-11043, 2015 U.S. App. LEXIS 582 (5th Cir. Jan. 14, 2015). While the court assumed that the association could be liable for violating Section 1 under the U.S. Supreme Court's joint venture decision in American Needle, Inc. v. NFL, 560 U.S. 183 (2010), it found that there was insufficient evidence to permit an inference of a conspiracy. The Court also rejected plaintiffs Section 2 claim that the association had monopolized an alleged market for "elite Quarter Horses."
The AQHA is a non-profit association organized in 1940 to collect and register the pedigrees and protect the breed of the American Quarter Horse. The AQHA maintains rules identifying the characteristics of a horse to be registered, and it adopted a rule that declared cloned horses ineligible for registration. Plaintiffs sued, contending that Stud Book and Registration Committee (SBRC), as well as members of AQHA, conspired to prevent cloned horses from being registered, thus excluding their horses from the market for "elite Quarter Horses." They alleged a conspiracy in violation of Section 1 and an attempt to monopolize in violation of Section 2. The jury found for plaintiffs and the court entered an injunction specifying rule changes to permit breed registration of cloned horses.
The court explained that AQHA does not neatly fit into American Needle's analysis of "single entity" status for organizations with "separate economic actors," because the AQHA is more than a sports league, it is not a trade association, and its members are involved in many activities besides the "elite Quarter Horse" market. Due to these and other differences between AQHA and the NFL, the court opted not to decide the scope of American Needle for animal breed registry organizations, and instead simply assumed that members of AQHA were capable of conspiring with members of the SBRC to violate Section 1.
The court then concluded there was insufficient evidence of a conspiracy. The plaintiffs introduced only circumstantial evidence to prove their theory that some SBRC members, acting to advance their own economic interests, conspired with AQHA to exclude plaintiffs' cloned horses from the elite Quarter Horse market. Although a few members of the SBRC had a financial interest in the Quarter Horse market, the vast majority did not. Moreover, some members had ethical concerns with cloning horses, and one-sided complaints about cloning were insufficient to draw the inference of a conspiracy. For these and other reasons, the Court determined that it was not reasonable to draw an inference of a conspiracy, because the evidence did not exclude the possibility of independent action nor did it suggest the existence of any conspiracy at all.
The court also ruled that the Section 2 claim failed because even if there is a relevant market of "elite Quarter Horses," nothing in the record shows that AQHA competes in that market.
The 5th Circuit's decision is available here.
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