A federal appellate court has considered whether a national dog club could conspire with its regional affiliates in violation of the Sherman Act.
Jack Russell Terriers are a breed of dogs that were first bred in England during the mid-1800s to hunt red foxes. The breed name comes from the renowned British huntsman and breeder, Parson John Russell (a.k.a. "The Sporting Parson"). The American Kennel Club ("AKC") did not recognize the breed until recently and so, since 1976, the Jack Russell Terrier Club of America ("National Club") was the national club and dog registry for the breed. The National Club established breed standards and hosted national trials. As the National Club grew, regional affiliates were formed and held shows conducted pursuant to the standards established by the National Club. Only members of the National Club were allowed to participate in the events held by the club.
In 1991, a small group of breeders contacted the AKC about recognizing the Jack Russell Terrier as an official breed. These breeders formed a "foundation stock" of the dogs and in 1998, the breed was recognized as an official AKC-certified breed (in 2003, the AKC changed the name of the breed to "Parson Russell Terrier").
The National Club objected to the AKC listing of the breed. The National Club believed the AKC standards would de-emphasize the working characteristics of the breed. Thus, the National Club adopted a policy which stated that any member who registered their dog with the AKC would automatically have their membership in the National Club terminated. In addition, the National Club began a campaign to discourage members from registering their dogs with the AKC.
George Fisher and Claudia Sprague (collectively, "Breeders") are breeders of Jack Russell Terriers. Because they had registered their dogs with the AKC, they were banned from National Club events. The Breeders consulted with an attorney about this ban, and the attorney wrote a letter to the Jack Russell Terrier Network of Northern California ("Affiliate"), at the time a regional affiliate of the National Club, threatening legal action if the Affiliate denied the Breeders' the right to participate in their events.
The Affiliate sough indemnification from the National Club in case a lawsuit ensued. The National Club responded by informing the Affiliate that it needed to follow the National Club's rules but the National Club would not indemnify the Affiliate. Based on the potential liability its members could face, the Affiliate decided to allow AKC-registered owners to participate in its events. The National Club then terminated the Affiliate's charter.
The Affiliate filed a lawsuit against the National Club. In its third amended complaint, the Affiliate sought injunctive and declaratory relief, arguing that the National Club had engaged in a group boycott with its other regional affiliates in violation of the federal antitrust laws as well as other claims. The trial court dismissed the antitrust allegations for failing to state a claim. The Affiliate appealed.
The United States Court of Appeals for the Ninth Circuit affirmed the trial court's dismissal of the antitrust claims. The issue before the court was whether the National Club and its regional affiliates were capable of conspiring as separate entities under section 1 of the Sherman Act. Section 1 prohibits "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce". The Affiliate claimed that the National Club and its affiliates conspired to manipulate the Jack Russell Terrier market by eliminating superior dogs not based on merit but simply because of their dual registration.
The court examined the Affiliate's allegations under the rule of reason, which the parties agreed was the proper standard. Under this standard, the Affiliate must prove three things: (1) existence of a contract, combination, or conspiracy among two or more separate entities that (2) unreasonably restrains trade and (3) affects interstate or foreign commerce. Focusing on the first element, the court found that the Supreme Court has held that a corporation cannot enter into a conspiracy with its subsidiaries. Following that decision, courts have extended this principle to other situations such as a franchisor/franchisee situation and a principle/agent relationship. However, no court had ever considered whether a national breed club could conspire with its affiliates and so this was an issue of first impression.
The court rejected Affiliate's arguments. The court found that the National Club and its affiliates were not separate entities pursuing separate economic goals. Instead, the court found they were acting jointly towards a common economic goal: the protection of the Jack Russell Terrier breed. The court also determined that the National Club's affiliates were essentially an extension of the National Club, as the affiliates were required to follow all of the National Club's rules and could only be affiliated with the National Club. Further, the National Club's affiliates were not competitors with each other or the National Club. Therefore, the court found there was no evidence to support the Affiliate's antitrust conspiracy arguments and so the court affirmed the trial court's dismissal of the lawsuit.
Jack Russell Terrier Network of N. California v. Am. Kennel Club, Inc., 407 F.3d 1027 (9th Cir. 2005).