Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Cotton merchant trade association allegedly disparaged yarn manufacturer, (Oct 15, 2015)

By Linda O’Brien, J.D., LL.M.

A trade association of cotton growers and merchants engaged in concert with its association members to eliminate a yarn manufacturer’s plan to bypass the merchants and buy a certain premium cotton directly from cotton growers by arbitrarily revoking the yarn manufacturer’s license to purchase that cotton and disparaging its products, according to a complaint filed in the federal district court in Los Angeles (Tradeline Enterprises Pvt. Ltd. v. Jess Smith & Sons Cotton, LLC, October 14, 2015).

Tradeline Enterprises is an Indian manufacturer of yarn from cotton fiber (known as a “spinner”). Jess Smith & Sons Cotton buys cotton from cotton growers and sells the cotton to spinners (that turn cotton into yarn) or textile mills (that turn yarn into fabric). J.G. Boswell Company is the world’s largest privately owned farm where it goes, among other crops, American Pima cotton.

The complaint states that the Supima Association of America, a trade association composed of cotton growers and cotton merchants, has a goal of promoting American Pima cotton as the world’s premier cotton. The Association has licensed the trademark “Supima®” to promote and market textile and apparel products made with American Pima cotton and provides licensing agreement to spinners, textile mills, manufacturers, and retailers for the purpose of promoting products made using this cotton.

In 2008, Tradeline obtained a Supima® license and producing lower thread count cotton for textile mills that would in turn sell fabric to garment makers of apparel items. Tradeline’s Supima business increased and by August 2010 Tradeline was one of the largest purchasers of Supima cotton in Asia. Tradeline approached the Association and Boswell Co. and proposed that Tradeline bypass cotton merchants such as Jess Smith & Sons Cotton and buy Supima cotton directly from Supima® licensed cotton farms. Instead of being viewed positively as a way to broaden the sale of Supima cotton, the proposal was viewed by Boswell Co., one of the Association’s cotton grower members, as disruptive to the alliance between cotton growers and merchants, the complaint states.

According to the complaint, although the proposed business model would have introduced competition and increased efficiency in bypassing the middlemen merchants, it threatened the middlemen cotton merchants like Jess Smith & Sons Cotton and Boswell Co., which sell their Supima cotton directly to purchasers. Thus, the Association, under the control of Jess Smith & Sons Cotton and Boswell Co., engaged in concerted action to deprive Tradeline of important procedural rights Tradeline had under its license agreement and allowed the conspirators to conceal the falsity of their disparagement of Tradeline’s products.

In March 2011, a textile mill in Portugal sent Supima cotton yarn produced by Tradeline to the Association for testing to confirm it was 100 percent Supima cotton. The Association reported that some of the samples did not conform or were a blend. Following the test report, the textile mill complained to Tradeline and refused offers to replace the challenged shipments. Additionally, an Israeli textile mill canceled plans to purchase Supima cotton yarn from Tradeline after being notified of the Association’s report. In March 2012, the Association revoked Tradeline’s Supima® license and Tradeline’s Supima cotton business came to a crashing halt, the complaint alleges.

The plaintiff asserts claims for restraint of trade in violation of Section 1 of the Sherman Act. The action seeks declaratory relief, treble damages, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 2:15-cv-08048-JAK-RAO.

Attorneys: Dominic Surprenant (Quinn Emanuel Urquhart & Sullivan, LLP) for Tradeline Enterprises Pvt. Ltd.

Companies: Tradeline Enterprises Pvt. Ltd.; Jess Smith & Sons Cotton, LLC; J.G. Boswell Company

News: Antitrust CaliforniaNews