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2 Law Notes Gen. Prac. [1] (1965-1966)

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LAW NOTES: OcT., 1965


           Organizing And
Policing Trade Associations*

                   by Samuel W. Murphy, Jr.
                   Donovan Leisure Newton & Irvine
                   New York City


                          I
A. Basic Law
     1. Section 1 of the Sherman Act (.Every . . .
combination . . . in restraint of trade is .). . hereby
declared to be illegal) and Section 5 of the Federal
Trade Commission Act.
     2. Most of the important legal principles gov-
erning the antitrust aspects of trade associations can
be distilled from the series of Supreme Court trade
association decisions in the twenties and thirties:
     American Column and Lumber Co. v. United
     States, 257 U.S. 377 (1921);
     United States v. American Linseed Oil Co., 262
     U.S. 371 (1923);
     Maple Flooring Manufacturers Association v.
     United States, 268 U.S. 563 (1925);
     Sugar Institute v. United States, 297 U.S. 553
     (1936).
B.   Organizing and Policing Trade Associations
     1. Combinations of competitors, whether or not
they act through trade associations, violate the Sher-
man Act if they:
        a. allocate territories or customers;
        b. restrict production;
        c. limit channels of distribution; or
        d. fix or maintain prices.
     2. Any activity which would be illegal if done
by competitors outside of a trade association is prob-
ably equally illegal if done by competitors as mem-
bers of an association.
     3. Moreover, since its nature as a combination
automatically supplies one of the essential ingredients
for a violation of Section 1 of the Sherman Act, an
association must be far more circumspect in its choice
of activities than must a single firm.

                          II
             ADVICE AT THE TIME OF
 INITIALLY ORGANIZING-OR FIRST JOINING-
              A TRADE ASSOCIATION
A. The Question of Purpose
     1. This is a question of first importance. You
  *Outline based upon Mr. Murphy's presentation on this
subject at the Winter Seminar on Compliance With the Anti-
trust Laws conducted by the Practicing Law Institute, and is
used with the permission of the PLI.
Copyright © 1965 American Bar Association. No part of this publication
may be reproduced in any form unless the following statement appears:
reproduced by permission of the American Bar Association 1965.


should advise against your client's joining an associa-
tion, and against the organization of an association,
unless you are satisfied that there are worthwhile and
legitimate purposes to be served. If the initial motivation
and purpose are improper or questionable, it is highly
likely that at some time in the future the association
will fall into illegal activities.
Sugar Institute v. United States, 297 U.S. 553 (1936).
     2. The question as to the purpose of organizing
an association (or for joining it) must necessarily be
answered in terms of one or more of the many ob-
jectives which are more easily achieved by group, than
by individual, action. A number of such objectives may
be pursued quite legally and safely. Others may not.
B. Membership Qualifications
     1. As a practical matter, the only safe course for
a trade association to follow is to open its membership
(on reasonable and non-discriminatory terms) to all
competing members of the industry which it purports
to represent. This is rather clearly necessary for an
association which has any business significance in its
industry; and no association will want to be in a posi-
tion where it is necessary to justify a restricted
membership with arguments that the association is in-
significant.
     Associated Press v. United States, 326 U.S.1
     (1945);
     American Federation of Tobacco Growers v. Neal,
     (4th Cir. 1950); 183 F. 2d 869;
     United States v. New Orleans Insurance Exchange,
     148 F. Supp. 915 (E.D. La., 1947), af'd, 355
     U.S. 22 (1957);
     Montague & Co. v. Lowry, 193 U.S. 38 (1904);
     Ramsay Co. v. Bill Posters Association, 260 U.S.
     501 (1923).
     2. On the other hand, reasonable membership
restrictions which do not involve competitive consid-
erations are usually permissible and may be highly de-
sirable. Vertical membership, involving different
levels of trade in a single association, may be highly
dangerous and is generally to be avoided. The combi-
nation of, for example, manufacturers, wholesalers and
retailers in a single group offers unusually tempting
opportunities for unlawful efforts to stabilize prices and
conditions of trade.
     Radiant Burners v. Peoples Gas Light & Coke
     Co., 364 U.S. 656 (1961);
     Advertising Specialty National Association v. Fed-


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