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February 1999
TRADE ASSOCIATIONS
U.S. ANTITRUST GUIDELINES
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Enforcement
The FTC and the DOJ have spoken out on their enforcement policies with
respect to trade associations, indicating that associations will be a major
target of antitrust enforcement activity.
The FTC has announced that it will focus on the manner in which trade
associations gather, share and disseminate information. The manner of
information handling is one criteria used to distinguish legitimate joint
conduct from a cover for anticompetitive conduct.
a. The FTC
Recent enforcement efforts of the FTC fall generally into two broad
categories: agreements that restrain price competition and agreements that
restrain advertising.
Price-Related Agreements
Agreements that restrain price competition are a core concern of the
antitrust laws. Enforcement action by the antitrust agencies and self-scrutiny
by the trade associations generally have helped to curtail the most egregious
forms of price fixing. Nevertheless, the FTC continues to find instances of
actions by trade associations which prevent consumers from receiving the
benefits of a competitive marketplace. For example, the FTC recently settled
charges with two professional associations of interpreters that they conspired
to fix the fees their members could charge for their services. The final consent
order prohibited the American Society of Interpreters and the American
Association of Language Specialists from engaging in several specified
practices, including creating, distributing or endorsing any list of fees for
interpretation, translation or other language services; and recommending or
encouraging interpreters, translators, or other language specialists to charge
certain fees.
With respect to price-related agreements, the FTC and the DOJ have indicated
a change in their policy regarding the antitrust treatment of maximum resale
price agreements. Neither group will support application of the per se
rule with respect to vertical restrictions on the maximum price downstream
sellers may charge as they no longer believe that these arrangements have an
anticompetitive effect. Instead, the agencies endorse a "rule of
reason" analysis for these type of agreements.
This position follows State Oil Co. v. Khan, 118 S. Ct. 275 (1997),
where the FTC and the DOJ filed an amici curiae brief, supporting reversal of
the Seventh Circuit's finding that State Oil Co. committed a per se
violation of § 1 of the Sherman Act, 15 U.S.C.A. § 1, through its maximum
price-fixing for gasoline. On remand to the Seventh Circuit, Judge Posner
ordered a judgment for State Oil. See Khan v. State Oil Co., 143 F.3d
362 (1998). Although as a result of this decision maximum price-fix agreements
will no longer constitute per se violations of the Sherman Act, a
plaintiff can still argue that the agreement violates the Sherman Act under the
rule of reason standard. In State Oil, however, the plaintiff did not
raise the issue in its appellate brief, hence the Seventh Circuit considered the
issue waived. See id. at 363.
Restraints on Advertising
Typically, the key question in FTC advertising-restraint cases has been
whether the advertising restrictions are so broad that they unnecessarily
restrict the provision of truthful information to consumers. Recently, with
respect to three separate trade associations, the FTC charged that the
associations had gone far beyond protecting against falsehoods and omissions
and, sometimes in the name of protecting consumers from deception, had also
"protected" them from informative claims that could enhance
competition.
With respect to restraints on advertising, a recent Ninth
Circuit decision upheld the FTC's order enjoining a dental association from
restricting certain types of advertising by its members. See California
Dental Association, 128 F.3d 720 (9th Cir. 1997). Circuit Judge Holcomb
Hall found that "limiting advertisements about quality, safety and other
non-price aspects of service prevents dentists from fully describing the package
of services they offer, and thus limits their ability to compete." Id.
at 728. The FTC reached its decision on the injunction by applying a "quick
look rule of reason" analysis, which the Ninth Circuit deemed appropriate
considering the facially anticompetitive nature of the advertising restrictions.
See id. at 730.
b. The DOJ
The DOJ's increased criminal enforcement activities affect trade associations
in three ways:
- The association and the members can be prosecuted either as a participant
or as "an aider and abetter" in an anticompetitive conspiracy. The
result in terms of jail sentences and fines, however, is the same whether
prosecuted as a participant or aider/abetter.
- A trade association may be called to testify or provide records. An
association that fails to comply risks an indictment for obstruction of
justice and perjury.
- Sentencing guidelines provide for increased mandatory jail terms ranging
from 6 to 30 months, depending on the amount of commerce involved. The
Antitrust Amendments Act of 1990 increased the maximum fines for an
antitrust violation from $100,000 to $350,000 for an individual and from $1
million to $10 million for a corporation.
These recent developments require corporations participating in trade
associations to review, update and revitalize their antitrust compliance
programs.
The Act's Effect on Existing Law Regarding Antitrust
Liability
The protection to joint ventures the Act primarily affords is, as discussed
above, a limitation on damages where violation of Section 4 of the Clayton
Act is proven, provided the venture has been noticed in the Federal Register.
In contrast, the codification of rule-of-reason analysis applies under all
antitrust statutes to production as well as R&D joint ventures, even when
the notification protections have not been sought. "Reasonableness"
under the Act, however, differs from the definition established under the prior
case law.
Before the Act became effective, courts limited their reasonableness inquiry
to the balancing of competitive benefits conferred by the contested activity
against the anticompetitive effects caused in the relevant product market. The
Act now mandates that courts also consider competitive effects of the venture on
the relevant research, development, product, process, and service markets. As
previously stated, this expansive and fluctuating standard permits courts to be
sensitive to often rapid advances in technology, as well as changing global and
domestic economic climates.
Although the Act's reasonableness standard creates some tension with prior
case law, no cases have yet arisen before the courts regarding this section of
the statute. Consequently, joint ventures are afforded little in the way of
judicial guidance in reviewing, updating and revitalizing their antitrust
compliance programs.
Applicability of the 1980 Guide to Joint R&D
Activity(2)
Whether or not the participants in an R&D joint venture wish to apply for
the Act's protections, the 1980 Guide remains a useful analytical tool when
considering the legality of intended activity.
The analytical section of the Guide covers three principal areas: (1) the
effect on competition of elements of cooperative research, (2) collateral
restraints put in place by the venturers, and (3) access to results of the
venture by participants and nonparticipants. A common thread running throughout
the Guide is the concept of "research competition" and the
principle that the legality of an R&D joint venture often will depend
on whether it or individual efforts will better result in innovation and
invention.
The Guide also shows great concern for the pace of research and cautions
repeatedly that the preferable alternative is the one that speeds research
activity and removes the ability to control or deter research from the hands of
a few dominant forces in the market. Finally, the Guide shows a healthy
understanding for the realities of forming industry groups to engage in
expensive and often risky research activities. The Guide recognizes, for
example, that in appropriate cases preferential disclosure of results is
permissible as an incentive to membership.
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