Tie-ups and anti-trust law: U.S. and Canadian perspectives

First published in the MLA Newsletter, June, 2012

It was the era of the robber barons. J.P. Morgan and peers ran the nation’s banks. John D. Rockefeller’s Standard Oil Company had a lock on the emerging oil fields of the nation. Andrew Carnegie had consolidated smaller steel companies to create the behemoth, U.S. Steel. In the 1880s a few industrial titans controlled much of the United State’s economy. Something had to be done. That something was the Sherman Anti-Trust Act of 1890. Its purpose? To ensure competition in the marketplace and prohibit restraint of trade.

Since that time the Act has been used by the federal Department of Justice against large corporations that are suspected of creating monopolies, such as AT&T and most recently, Microsoft Corporation. It has been hailed as one of the strongest laws in the world that promotes business competitiveness. “There are now well over one hundred competition authorities around the world,” explained Mary Anne Mason, a lawyer with DLA Piper LLP in Washington, D.C., and pro bono lawyer for the Maine Lobstermen’s Association. “Virtually all of them have the same basic format that prohibits anti-competitive agreements and unlawful monopoly conduct.”

Unfortunately this same law that was used so successfully against the robber barons of past centuries also applies to those who catch lobsters. Because each Maine lobsterman is an individual business, if a group of lobstermen act collectively and cease fishing for lobsters in order to force an increase in boat price, they can be accused of collusion and restraint of trade under the Act.

In Canada, a different law applies. The Canadian Competition Act was passed by the Canadian Parliament in 1986 to protect consumers by prohibiting anti-competitive business practices and promoting competition in the Canadian marketplace. The Competition Bureau is responsible for enforcement. The Act, which was greatly strengthened in 2009, carries both criminal and civil penalties for violations. And it too considers lobster harvesters who withhold product in order to boost prices in violation of the Act.

“Any individual supplier is allowed to say that at this price, I’m not going to harvest it, whether that is lobsters or a stand of timber,” explained Adam Fanaki, former Senior Deputy Commissioner in charge of the Competition Bureau’s Mergers Branch and presently a partner in Davies Ward Phillips & Vineberg law firm in Toronto. But a group of suppliers cannot work together to withhold their products.

Yet there are exceptions in both countries for those lobstermen who have formed cooperatives. “A separate statute, the Fisheries Cooperative & Management Act of 1934, gives anti-trust immunity to harvesters organized as a cooperative,” Mason said. “The immunity statute treats a cooperative of individual harvesters as a single entity, like an individual.” If two or more cooperatives, however, were to join forces to push the price of lobster up, such action would contravene Section 1 of the Act, which prohibits such restraints of trade.

The Canadian Competition Act also has an exception for cooperative arrangements among harvesters, according to Fanaki. The tie-up among southwest Nova Scotia lobstermen in early May illustrated the contrast between the legal regimes of the two countries.

Christian Brun, executive secretary of the Maritime Fishermen’s Union in Shediac, New Brunswick, said that the tie-up, which ultimately failed, wasn’t in violation of the Competition Act. “Fish harvesters have been historically perceived as a hybrid situation of both being in a labor relationship and owner of small businesses,” he explained via email. “I would suppose that one could make a really stretched argument to contend that the harvesters are in conflict with the principles of the Competition Act, but given the mostly criminal nature of the Canadian Act, the legislated bargaining history in Canada, the history in the fishery . . . I don’t believe this argument would be too seriously considered by the authorities.”

In the United States, however, any appearance of collusion brings down the wrath of the Sherman Anti-Trust Act. “It doesn’t matter what level of the market is affected or the size of the individual participants.

A collective effort to reduce competition can give rise to civil or criminal liability because the Anti-Trust laws are indifferent to everything except the preservation of competition,” Mason said. Even more troubling is the fierce scrutiny given to any actions that could possibly restrain trade. Mason explained that, under the U. S. Act, agreements can be defined as either explicit or tacit. “One of the most difficult things to deal with when defending clients can be a series of circumstantial events that effectively lead to an agreement,” she said. “Conversations followed by specific actions that are consistent with that conversation can be deemed to be an agreement.”

Through its revisions in 2009, the Canadian Competition Act also strengthened provisions pertaining to the definition of agreements. “In order to convict under the conspiracy provision, you had to prove the agreement had been implemented and that it would have a significant anti-competitive effect,” Fanaki explained. “That section was too broad. Now it focuses on agreements between competitors to fix prices, allocate markets and reduce output.”

Thus Maine lobstermen find themselves between the proverbial rock and a hard place. As individual businessmen, they enjoy a high degree of independence, choosing when to work, where to work, and what to pay their sternmen, who are not considered business employees. On the other hand, should two or more individual lobstermen or lobster cooperatives take any actions that appear to influence the price of those lobsters they harvest, they can be accused of violating the Sherman Anti-Trust Act. And so the long arm of a law created in the days of J.P. Morgan and Standard Oil continues to catch many in its trap!