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FTC May Regulate Certain Non-Profit Trade Associations

Trade associations are not beyond the regulatory reach of the Federal Trade Commission. Association programs and policies in restraint of trade - - such as restrictions on members' advertising - - may be reviewed by the FTC.

FTC May Regulate Certain Non-Profit Trade Associations

The U.S. Supreme Court decision in California Dental Association v. FTC (No. 97-1625) addressed two important trade regulation issues: (1) whether the Federal Trade Commission has regulatory authority over non-profit trade and professional associations which provide substantial economic benefits to their for-profit members; and (2) whether the courts of appeals erred in approving the FTC's use of an abbreviated, or "quick-look," analysis to decide if the association's restrictions on advertising were an unlawful restraint on trade. The Court's ruling on the use of "quick-look" analysis is likely to have broad implications for the business community generally, as it may make proof of a violation by the FTC or a private party more difficult to achieve.

FTC Jurisdiction. The Justices unanimously agreed that the Commission has jurisdiction under the FTC Act to regulate a non-profit trade association and professional society which provides economic benefits to its for-profit members. In this case, the association - - through its for-profit service corporations - - provides its dentist members with insurance and financial services, engages in marketing, public relations and governmental advocacy for their benefit. The Court rejected the application of some threshold percentage measure of this activity or a softer measure calling for a "substantial part" of an association's total activities to be aimed at its members' economic benefit. However, a non-profit organization devoted solely to professional education may lie outside the FTC Act's jurisdiction, according to the decision.

"Quick-Look" Analysis of Restraints. The Justices split 5-4 in holding that the court of appeals erred in using a quick-look analysis to conclude that the association's advertising restrictions violated antitrust laws. These restrictions, part of the association's code of ethics, banned false or misleading advertising by dentists for professional services. The Supreme Court ruled that the quick-look test, which requires only a cursory examination of a restraint's anticompetitive effects, does not apply to such restraints which are not "obviously anticompetitive." This truncated rule-of-reason analysis is only applicable to restraints whose anticompetitive effects are apparent to a person with a rudimentary understanding of economics - - such as, an absolute ban on competitive bidding, an agreement to limit production levels or an agreement to withhold particular services from customers.

The case was sent back to the court of appeals for a more comprehensive examination as to whether the advertising restraints have the necessary anticompetitive effect to violate the antitrust laws.

 

Keeley, Kuenn & Reid, a Chicago based law firm with government relations affiliates in Washington, D.C., is engaged in the practice of business law, commercial litigation, employment law, taxation, antitrust, product liability, estate planning and legislative matters. Through its affiliates, the firm also meets its clients' needs in protecting intellectual property rights and international commercial law matters.

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