Antitrust by association(s)

Antitrust enforcers have always been concerned about the potential for harm arising from the activities of trade groups made up of competitors. From its earliest days, the FTC has examined the conduct of trade associations. For example, here’s a passage from the FTC’s first annual report circa 1916:

One of the most important questions of trade policy at the present time relates to the practice of trade associations. Their activities are of a varied character, and many of them are of great benefit not only to the branch of trade concerned therein, but also to the public. Nevertheless, their activities have sometimes involved them in practices which have been condemned by the courts as violations of the antitrust laws.

In one of its very first decisions, FTC v. Association of Flag Manufacturers of America, 1 FTC 55 (1918), the newly-formed FTC ordered a voluntary association of flag manufacturers to stop engaging in concerted efforts to raise the prices of American flags sold in the U.S. Once the collusive scheme was exposed and halted by the FTC, the trade association dissolved, having had no purpose other than coordinating prices among its members.

It is a fundamental principle of antitrust law that competitors – whether businesses or individuals – cannot join together to limit the way that they offer products or services to potential customers, especially where there is no legitimate business purpose other than avoiding competition. Strictly speaking, competitors are expected to compete.

Today’s trade associations typically serve many legitimate purposes, and from an antitrust perspective, most trade association activities are procompetitive or benign. But sometimes, trade association rules, codes, or bylaws can cross the line into forbidden antitrust territory. When such conduct or rules regulate or restrict the activities of members, it pays to remember that they will be viewed by antitrust enforcers and courts as joint decision-making by otherwise independent competitors. Trade association conduct or rules that restrict competition in a way that harms consumers will continue to invite antitrust scrutiny.

Last month, the FTC made final two orders prohibiting unreasonable trade association rules. In one case, an association of legal support professionals not only banned comparative ads but also prevented members from offering discounted rates to another member’s clients or recruiting another member’s employees without giving prior notice. In the other case, the code of ethics of an association of music teachers prevented members from soliciting clients from a rival, in effect preventing members from offering services to students who were already taking lessons from another member.

In a statement released when the cases were announced, the Commission explained the harm created by these types of restrictive trade association rules:

Competing for customers, cutting prices, and recruiting employees are hallmarks of vigorous competition. Agreements among competitors not to engage in these activities injure consumers by increasing prices and reducing quality and choice. Absent a procompetitive justification, these types of restrictions on competition are precisely the kind of unreasonable restraints of trade that the Sherman Act was designed to combat.

Each association agreed to settle the FTC charges and to change its rules.

These cases serve as a reminder that the Commission, as it was a century ago, remains vigilant about trade association activity that restrains competition among the members without a legitimate business justification. If you are a member of a trade association or provide counsel to one, remember that there are no special antitrust rules for trade associations. Trade association rules, codes, or bylaws that seek to override the normal give-and-take among competing members may interfere with the competitive process and risk antitrust review. When in doubt, trade associations may apply for a staff advisory opinion regarding proposed rules that potentially raise antitrust concerns.

As the FTC celebrates its centennial year, it’s worth recalling old-time antitrust principles that still guide modern-day trade group collaboration. In future blog posts, we will address other aspects of trade association activity that have long been the subject of antitrust enforcement, such as group boycotts, advertising restrictions, information exchange, and exclusive membership benefits.