FOR IMMEDIATE RELEASE: June 21, 1988 FTC UPHOLDS CHARGES THAT MASSACHUSETTS BOARD ILLEGALLY BANNED TRUTHFUL ADVERTISING BY OPTOMETRISTS; ISSUES ORDER PROHIBITING CHALLENGED PRACTICES The Federal Trade Commission today announced it has ruled that the Massachusetts optometry board restrained competition by illegally restricting truthful advertising. The Commission issued an order requiring the board to allow truthful advertising by optometrists in the state. The vote to issue today's order was 4-0. Commissioner Andrew J. Strenio Jr. concurred in the order, but issued a separate opinion. The Commission decision, written by Commissioner Terry Calvani, upholds a 1985 FTC complaint charging that the Massachusetts Board of Registration in Optometry unreasonably restricted truthful advertising. According to the complaint, the Massachusetts optometry board unfairly and unlawfully conspired to prohibit optometrists from truthfully advertising discounts. The complaint also charged that the board prohibited optical and other commercial establishments from truthfully advertising the names of optometrists or the availability of their services, and prohibited the use of ads containing testimonials or ads that were "sensational" or "flamboyant." In 1986 Administrative Law Judge James P. Timony upheld the charges against the Massachusetts optometry board and issued an order requiring the Board to allow truthful advertising by optometrists in the state. Today's Commission decision upholds the judge's decision. Both the FTC staff and the Board appealed the ALJ's decision to the Commission. The ALJ had found that the Massachusetts optometry board, a state agency, was the sole licensing authority for almost 2,000 optometrists in the state in 1985. He also found that Massachusetts consumers spend more than $100 million each year on eye-care services. According to the Commission opinion, the Massachusetts optometry board engaged in unfair methods of competition. The Commission stated that, having found the Board violated federal antitrust laws, "we need not reach the question of whether respondent has committed an unfair act or practice," which the 1985 complaint also charged. The Commission concluded that in evaluating horizontal restraints, which are agreements between competitors that may restrain trade such as those alleged in the Massachusetts optometry board case, it is useful to apply a four-prong standard that has evolved from recent Supreme Court decisions. -- First, determine whether the restraint is "inherently suspect" by appearing to be likely to restrict competition and decrease output.(p12) (More) -- Second, if the restraint is inherently suspect, examine whether there is a "plausible efficiency justification" for the practice, including whether it is capable of creating or enhancing competition, such as by reducing production or marketing costs. -- Third, if there is a plausible efficiency justification for the action, conduct an "extensive factual inquiry" to determine whether the justification is actually valid. -- Finally, if the efficiency justification is valid, then employ a full "rule of reason" analysis to balance all factors. Applying this standard, the Commission held that "there is no legitimate justification for [the Massachusetts optometry board's] restraints on truthful advertising. Respondent's arguments are not cognizable as antitrust defenses because they are premised on the notion that competition itself is inappropriate in optometry. Accordingly, we concluded that respondent's plainly anticompetitive conduct is unlawful." The Commission opinion stated, "Restraints on truthful advertising for professional services are inherently likely to produce anticompetitive effects." The Commission also found that the Massachusetts optometry board "has imposed total bans on general categories of advertising." Specifically, the Commission determined that the Board's prohibitions on discount advertising, advertising of affiliations with retail optical stores, testimonials, and sensational or flamboyant advertising were anticompetitive. Under the Commission order, the Massachusetts optometry board may not: -- prohibit optometrists in the state from advertising or offering discounts or engaging in other price advertising; -- prohibit advertising that optometrists' services are available in optical and other commercial establishments; -- restrict advertising that uses testimonials or advertising that the board considers sensational or flamboyant; or -- help any person or organization take actions this order prohibits. In addition, the order requires the Massachusetts optometry board to repeal its current regulation banning advertising of affiliations between optometrists and optical retailers. The order does not affect the Massachusetts Board's authority to prohibit advertising that is fraudulent, deceptive, or misleading, in violation of Massachusetts law. The board must send a copy of the order to all optometrists currently licensed in Massachusetts and to all new applicants for five years. The Commission examined the effects of each of the Board's advertising bans. "By preventing optometrists from informing consumers that discounts are available, respondent eliminates a form of price competition." According to the opinion, "The restraint is inherently suspect and presents no plausible efficiency justification. Accordingly, it must be summarily condemned." (More) In addition, according to the Commission, the Massachusetts optometry board tried, through an advertising ban, to prevent retail optical stores from informing the public of lawful affiliations with optometrists. The Commission stated that prices are lower in states where such advertising is permitted, and concluded that this ban is "antitcompetitive because it makes entry by retail optical stores more difficult and raises prices for eye care." The Commission further concluded that the Massachusetts optometry board's ban on the use of testimonials and sensational or flamboyant advertising is also anticompetitive and injures consumers. The Commission determined, contrary to respondent's assertion, that the FTC does have jurisdiction over state boards such as the Massachusetts optometry board. The Commission opinion, moreover, cited Supreme Court decisions that state board members are capable of conspiring with each other, and that "it is precisely such combinations to suppress competition that are prohibited" by the Sherman Act. According to the opinion, under certain circumstances a state may insulate a regulatory board from federal antitrust scrutiny. However, because Massachusetts law specifically bans state boards from prohibiting truthful advertising, the Commission concluded that state action immunity did not apply to the Board. In a separate opinion, Commissioner Strenio said that he voted for the final order, but for different reasons. Commissioner Strenio concluded that the Massachusetts optometry board's prohibition on the dissemination of truthful and nondeceptive advertising constitutes an unfair act or practice. He stated that it therefore was unnecessary for him to address the question of whether the Board engaged in unfair methods of competition, which the 1985 complaint also charged. According to Commissioner Strenio, the Massachusetts optometry board's conduct meets all the requirements of the legal standard for invoking the Commission's unfairness authority. In his view, "the conduct has caused substantial consumer injury; the injury is not offset by corresponding consumer or competitive benefits; and the injury reasonably could not have been avoided by consumers." Commissioner Strenio concluded that, "At least where, as here, the Board operates in defiance of state legislation, ignores the criticism of two different state agencies, and causes substantial, unjustified and unavoidable interstate consumer injury, respondent's prohibition on the dissemination of truthful and nondeceptive advertising constitutes unfair acts or practices." Copies of the final order and the two opinions are available from the FTC's Public Reference Branch, Room 130, 6th St. and Pennsylvania Ave. N.W., Washington, D.C. 20580; 202-326-2222; TTY 202-326-2502. # # # MEDIA CONTACT: Dee Ellison, Office of Public Affairs, 202-326- 2177 [massboard3]