National MacAroni Manufacturers Association v. Federal Trade Commission

Court of Appeals for the Seventh Circuit
345 F.2d 421 (1965)

ELI5:

Rule of Law:

An agreement among competitors to standardize the composition of their product with the design and result of depressing the price of an essential raw material constitutes a per se illegal price-fixing agreement under Section 5 of the Federal Trade Commission Act.

Facts:

The National Macaroni Manufacturers Association (Association) represented members who produced 70% of all macaroni products sold in the United States.
The highest quality macaroni products are made from 100% durum wheat, and manufacturers prefer to use it, but a reduction in durum content results in an inferior product.
In 1953, facing a durum wheat shortage, the Association's members agreed that millers would offer a 50-50 blend of durum and other wheat, a practice which continued until 1956.
In the spring of 1961, it became apparent that a drought and increased foreign exports would cause another significant shortage and price increase for durum wheat.
On August 15, 1961, at an Association-sponsored meeting, members discussed how to respond to the shortage and avoid 'astronomical prices' for durum.
Following the larger meeting, the manufacturer-members of the Association met separately and adopted a resolution that durum millers should offer a 50-50 blend and that manufacturers should use this blend.
After the resolution, most manufacturers began using the 50-50 blend, and the domestic sale of 100% durum semolina became negligible.
This collective action resulted in the industry failing to purchase approximately 21 million bushels of available durum wheat during the 1961-62 crop year, thereby suppressing overall demand.

Procedural Posture:

The Federal Trade Commission (FTC) issued a complaint against the National Macaroni Manufacturers Association, its officers, and member manufacturers.
The complaint charged the parties with violating Section 5 of the Federal Trade Commission Act by acting collectively to suppress competition and fix the price of durum wheat.
After evidentiary hearings, an FTC hearing examiner issued an initial decision finding that the parties had violated the Act and entered a cease and desist order.
The Association appealed the examiner's decision to the full Commission.
The Commission affirmed the hearing examiner's findings and conclusions, issuing a slightly modified cease and desist order against the Association and its members.
The National Macaroni Manufacturers Association (petitioners) petitioned the U.S. Court of Appeals for the Seventh Circuit to review the Commission's final order.

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Issue:

Does an agreement among competing macaroni manufacturers to alter the composition of their product, with the purpose and effect of depressing the price of their primary raw material (durum wheat), constitute an unfair method of competition in violation of Section 5 of the Federal Trade Commission Act?

Opinions:

Majority - Hastings, Chief Judge

Yes. An agreement among dominant firms in a market to fix the composition of their product with the design and result of depressing the price of an essential raw material violates the rule against price-fixing agreements. The court found substantial evidence that the Association's resolution was an agreement, not merely a suggestion, intended to ward off price competition for durum wheat by artificially lowering industry-wide demand. This type of combination is illegal per se under the Sherman Act and, by extension, Section 5 of the FTC Act. Under the per se rule, established in cases like United States v. Socony-Vacuum Oil Co., it is irrelevant whether the motives of the participants are good or evil or whether the effect is to raise or decrease prices; any concerted action to tamper with the price structure is illegal.

Analysis:

This case significantly clarifies that illegal price-fixing is not limited to agreements on the final selling price of a product. It extends the concept to cover coordinated actions by buyers to depress the price of raw materials or inputs, even when accomplished indirectly through product standardization. The decision reinforces the broad scope of the per se rule, demonstrating that even actions taken for plausible business reasons, such as managing a supply shortage, are unlawful if they involve a collective agreement to tamper with price mechanisms. This precedent warns trade associations and their members that product standardization initiatives can face antitrust scrutiny if their purpose or effect is to manipulate prices in any market, including input markets.

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