Associations Settle Antitrust Charges Stemming From Ethics Codes
Facing complaints from the Federal Trade Commission, two professional associations agreed to eliminate provisions from their codes of ethics that the commission alleged were anticompetitive.
In an agreement with the U.S. Federal Trade Commission, two professional associations will amend their ethics codes to eliminate provisions that limited competition among their members, the commission announced this week.
“Because trade organizations are by their nature collaborations among competitors, the commission and courts have long been concerned with anticompetitive restraints imposed by such organizations under the guise of codes of ethical conduct,” the FTC wrote in a statement [PDF]. “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.”
In its complaint against the Music Teachers National Association, Inc., the FTC alleged that the association restricted competition through an ethics code provision that prohibited its member teachers from soliciting clients from other members.
In the second case, the commission alleged that the California Association of Legal Support Professionals violated antitrust law by adopting an ethics code provisions that restricted members from engaging in price competition, disparaging one another in advertising, or recruiting other members’ employees for hiring purposes.
“Neither association advanced a legitimate business rationale for its restrictions,” the FTC said.
Associations have traditionally faced close antitrust scrutiny, said Rob Portman, a principal in the Washington, DC, law firm Powers Pyles Sutter and Verville PC.
“Technically, they’re a combination of their members,” Portman said. “And whether they’re trade associations with corporate members or professional societies with individual members, the members have the ability to communicate or act in a concerted way that might restrain trade.”
If an association decides to adopt a code of ethics, it should have the provisions reviewed by legal counsel familiar with antitrust law, Portman said.
“Second, they should adopt an antitrust compliance policy and generally become aware of how those antitrust policies affect their activities,” he said. “Third, they should be very careful not to adopt provisions that are more restrictive than what the law requires in areas with competitive significance.”
For example, an ethics code should not restrict truthful advertising, only false or misleading advertising. And associations should take care not to restrict areas of practice that would limit members’ ability to earn a living.
“You should be very careful not to restrict people from competing against each other or competing for business,” Portman said. “Your ethics code should really focus on the areas that are more traditional in terms of conduct that is honorable and ethical and honest, and not so much getting into areas of competition.”
Portman said he’s a fan of voluntary ethics codes that provide aspirational guidelines and don’t require enforcement.
“That’s a huge issue,” he said. “Once you start enforcing ethics codes and taking disciplinary actions that follow, it can become a huge suck on your resources and time—whereas if you have a voluntary standard that people should but are not required to follow and you encourage them to follow, then you minimize your antitrust risk and cost.”