Source: U.S. Department of Justice news release

The Justice Department filed a civil lawsuit under the Sherman Act and Packers and Stockyards Act today against Koch Foods Incorporated (Koch), the fifth largest poultry processor in the United States. The complaint alleges that Koch anticompetitively and unfairly required chicken farmers, or growers, to pay Koch a termination penalty to switch from working for Koch to a rival chicken processor. At the same time, the department filed a proposed consent decree that would prohibit Koch from penalizing growers for switching processors and require Koch to return certain expenses, fees and penalties it unlawfully imposed on growers who tried to work for other chicken processors.

“Antitrust and competition laws protect growers’ right to benefit from competition for their products, their services and their labor,” said Deputy Assistant Attorney General Michael Kades of the Justice Department’s Antitrust Division. “This enforcement action marks another important step in the division’s renewed partnership with the Department of Agriculture to promote free and fair competition and reinvigorate enforcement of the Packers and Stockyards Act.”

“The Packers and Stockyards Act stands for fairness, and that’s what this enforcement action today delivers,” said Senior Advisor for Fair and Competitive Markets Andy Green of the Department of Agriculture (USDA). “This action to protect growers’ right to compete signals the joint commitment of the USDA and Justice Department to open competitive markets.”

The complaint alleges that Koch, which operates processing facilities in Alabama, Georgia, Mississippi and Tennessee, deterred farmers from switching to other processors by requiring them to repay a substantial share of their income as a penalty if they terminated their contract. As alleged in the complaint, Koch’s termination penalty, which varies across chicken growers, amounted to more than half of most growers’ total annual take-home income and sometimes more than one year’s entire take-home earnings. Koch used the threat of the termination penalty to discourage growers from switching to Koch’s competitors and sued or threatened to sue more than a dozen family farmers who tried to switch to a Koch competitor.

Accordingly, the termination penalty operated as an anticompetitive, de facto noncompete clause, in violation of the Sherman Act. The penalty provision is also an unfair practice or device in violation of the Packers and Stockyards Act, a landmark statute passed in 1921 that protects livestock and poultry producers.

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