FTC Requires Modifications to Trade Associations’ Ethical Rules To Comply With the Antitrust Laws

On December 13, 2013, the FTC announced that both the Music Teacher’s National Association, Inc. (“MNTA”) and the California Association of Legal Support Professionals (“CALSPro”) agreed to eliminate provisions in their codes of ethics that limited competition among their members, in order to settle potential litigation brought by the FTC.

Background

According to the FTC, MNTA and CALSPro both had provisions in their codes of ethics that restricted competition.  The FTC conducted an investigated and reviewed the codes of ethics of both organizations.  After the review, the FTC decided to take action against the music teacher cartel.  While the action sounds silly, the FTC’s action is sound because these provisions in the organizations’ codes contained language that restrains competition.

Consent Agreement

The FTC required MNTA to remove provisions in its code of ethics that required each teacher to “respect the integrity of other teacher’s studios and… not actively recruit students from another studio.”  This provision obviously violates the antitrust laws as it restricts competition.  CALSPro was also required to remove provisions in its code of ethics which stated, “it is unethical to cut the rates [a member] normally charge when soliciting business from a member firm’s client;” “it is not ethical to… speak disparagingly of another member;” and “it is unethical to contact an employee of another member firm to offer him employment with your firm without first advising the member of your intent.”  Again, this clause can be interpreted to limit competition.  In addition, the consent order also prohibits MNTA from accepting affiliate organizations who engage in anti-competitive activities, such as restrictions on solicitations and advertisements.  Finally, both groups are required to implement anti-compliance programs, including in-person annual antitrust training for officers and employees, and antitrust compliance presentations at annual association meetings.

Lessons Learned

The FTC’s enforcement action is noteworthy for several reasons.  First, the FTC is sending a message to all trade associations to make sure that they are complying with the antitrust laws.  Therefore, trade associations should read their Code of Ethics to determine if there is any language limiting the rights of members to compete for customers or limiting individual pricing or other terms.  Second, trade associations must make sure that they have strong antitrust and competition compliance policies.  A trade association without a strong antitrust policy and compliance program is putting all of its members at risk of both government enforcement and civil actions.  Indeed, most lawsuits alleging horizontal conspiracies to fix prices usually allege that competitors use their trade association as a way to meet and complete their anticompetitive schemes.  Third, there is nothing illegal about participating in a trade association as it may provide members with numerous procompetitive benefits.  That being said, the FTC’s enforcement action reminds trade associations that the FTC views these organizations as tools that may be used to disguise anticompetitive restraints.  Fourth, this enforcement action demonstrates that the FTC may take action if a trade association’s codes and guidelines cause “unreasonable restraints of trade” without a “legitimate business rationale,” especially if the codes implicate more traditional “hard core” violations of the antitrust laws, such as price fixing, bid rigging, and the division of geographic or product markets.  Therefore, professional trade associations should be mindful to avoid including anti-competitive provisions into their organizations’ charters and codes of conduct and when appropriate seek legal advice from an experienced antitrust lawyer.

Andre Barlow
202-589-1838
abarlow@dbmlawgroup.com

Mark Ye
202-589-1834
mye@dbmlawgroup.com