Chatham says IDE ban will not fly in the U.S.

One of the world’s largest manufacturers of synthetic diamonds said that any plans to spread the Israel Diamond Exchange ban of synthetic diamonds to diamond exchanges in the United States would most likely violate U.S. antitrust laws.

Tom Chatham, president and CEO of Chatham Created Gems, San Francisco, said that either his company or U.S. authorities would take steps to stop such a ban at U.S. diamond exchanges, because the action by IDE is anti-competitive.

The IDE, in what it called an “historic decision,” announced on March 25 that it had banned trade in synthetic diamonds. At the time, IDE chairman Shmuel Schnitzer said it was the first exchange to ban the sale of these diamonds.

In the same announcement, Schnitzer, who also is president of the World Federation of Diamond Bourses, said he is placing the subject of synthetic diamonds on the agenda of the next World Congress of Diamond Bourses, to be held in October 2004.

“Schnitzer is responsible for getting this enacted in Israel,” Tom Chatham says. “He sits on the board of all the other bourses. This is to let him know that I’m not going to roll over and allow this to happen and I will bet that my competitors are not going to roll over either.”

A legal opinion written for Chatham Created Gems states that if such an action occurred in the United States, it “would likely violate U.S. antitrust law.”

Attorney Patrick Ontiveros of Wendel Rosen Black & Dean, L.L.P, Oakland, said in an April 7 memo to Chatham that such a ban in the U.S. would be in conflict with provisions of the Sherman Act and the Clayton Act. Tom Chatham circulated the letter via e-mail to media outlets throughout the world.

The majority of the letter reads as follows:

The Israel Diamond Exchange has banned the trading of synthetic diamonds by its members. If a similar U.S. trade group or association instituted a similar ban in the U.S., assuming such an organization possessed market power in the relevant product and geographic markets, it would likely violate U.S. antitrust laws.

Section 1 of the Sherman Act (15 U.S.C. §1) provides that “every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.” Only “unreasonable” restraints of trade are illegal. A restraint may be found unreasonable either because it fits within a class of restraints that has been held to be per se unreasonable, or because it violates what is known as the “rule of reason.” Under a rule of reason analysis if the restraint imposed merely regulates, and perhaps even promotes competition, it will be held legal. However, if it suppresses or destroys competition, it will be held illegal.

“Group boycotts” are a category of restraints, along with price-fixing and market-division agreements, that have been declared to be unlawful per se. In these cases, companies with market power boycott, or threaten to boycott, suppliers or customers in order to discourage them from doing business with the companies’ competitors. The actions by a U.S. version of the IDE might very well be found to be a per se violation of the antitrust laws. However, even if such an action did not fall squarely in the per se violation category, Chatham might still prevail under a “rule of reason” analysis.

Under Section 4 of the Clayton Act (15 U.S.C. §15), a person or company injured by a violation of the Sherman Act may sue the alleged wrongdoer and is entitled to receive three times the damages sustained and reasonable attorney’s fees. The plaintiff in such a case also may be entitled to receive prejudgment interest in the court’s discretion.

In addition, under Section 16 of the Clayton Act (15 U.S.C. §26), a person or company is entitled to sue for and receive injunctive relief, in any court of the United States having jurisdiction over the parties, against threatened loss or damage by a violation of the antitrust laws.