This article was originally published in Venable's All About Advertising Law blog on December 19, 2013.
What do music teachers, process servers, dentists, store planners, arbitrators, engineers, social workers and psychologists have in common? Answer: at one time or another each of these groups have gotten together in trade or professional associations and set up rules limiting the ability of members of the association to advertise or engage in competitive solicitation for customers. And also: in each case, the FTC has taken the association to court over those restrictions. The FTC’s recent announcement of settlements with a pair of relatively small associations, the Music Teachers National Association and the California Association of Legal Support Professionals serves as a reminder of this agenda, and that the agency is still watching the rules and regulations set up by associations (or really any group of competitors, including state regulatory boards and standard-setting organizations) to ensure that they don’t limit the ability of their members to compete against each other for business.
The cases, announced together by the Commission on December 16, illustrate the sorts of ethical rules that the Commission has found problematic over the years. In the music teachers case, the national board had an ethical rule prohibiting teachers from “actively recruiting students” from other studios and some local chapters had rules that restricted members from advertising prices or other terms of teaching services, and from competing on price-related terms (for good measure, some of the local associations also had rules prohibiting music teachers from poaching students). Regarding the legal professionals, the FTC’s CALSPro complaint alleges that association had a code of ethics that prohibited its members from “offering discounted rates to rivals’ clients, engaging in certain comparative advertising, and recruiting employees of competitors without first notifying the competitor.”
Association rules restricting advertising have been a particular bugbear of the Commission over the years, but as the recent cases show, that restriction is really only exemplary of what the Commission is worried about. In cases like these, the Commission looks out for rules of associations—particularly “ethical rules”—that limit the ability of one member of the association to compete against others by limiting the ability of members to reduce prices (including components of pricing like credit terms), increase or improve output, engage in truthful competitive advertising, or recruit employees of rivals (the US Department of Justice has also been very active in the last category). The Commission focuses on ethics restrictions because those restrictions are far easier for an association to enforce informally. As the Commission noted in its decision in MTNA and CALSPro, no one wants to “discredit themselves by departing from professional norms.”
If the group (trade association, professional association standard setting organization, state board or other organization of competitors) decides it really (REALLY) needs to restrain advertising or some other aspect of competition in order to protect customers then it had better consult its antitrust lawyer. It is possible to set up such a rule and not violate the antitrust laws under a very narrow set of circumstances (the California Dental Association did it back in the 1990s). But it is likely that, at least as far as the Commission is concerned, any group trying to do this is going to be on the hook to show that the restraint actually will help consumers and not just the members of the group.