Trade Associations Settle with FTC, Agreeing to Adopt Compliance Programs

Wednesday, March 11, 2015 - 11:46

On March 3, 2015, the Federal Trade Commission (“FTC”) announced two separate final orders with trade associations, Professional Skaters Association, Inc. (“PSA”) and Professional Lighting and Sign Management Company of America, Inc. (“PLASMA”), to settle charges that the associations’ Code of Ethics and Bylaws restricted competition among their respective members. PSA and PLASMA each agreed to eliminate certain rules and to implement antitrust compliance programs.[1] These settlements reinforce the FTC’s consistent standards prohibiting trade association rules that restrict competition among members.

Background

Professional Skaters Association, Inc.
PSA is a nonprofit association of ice skating coaches. PSA membership is required for coaches who train competitive skaters as well as for access to certain skating rink facilities. PSA’s Code of Ethics prevented PSA members from soliciting students from another PSA member. Specifically, the Code of Ethics included provisions stating “no member shall in any case solicit pupils of another member, directly or indirectly, or through third parties” and requiring that “prior to acting as a coach, the member shall determine the nature and extent of any earlier teaching relationship with that skater and other members.[2] The FTC concluded that the purpose and effect of these provisions was to restrain competition unreasonably and injure consumers by discouraging and restricting competition among ice skating teachers and coaches.[3]

The FTC’s settlement with PSA prohibits the association from adopting any practice that would prevent members from soliciting coaching work from other members or competing on price with other members.[4] The Order also requires PSA to adopt an antitrust compliance program and appoint an Antitrust Compliance Officer.[5] The compliance program must include annual training for PSA’s board members, officers and employees concerning PSA’s obligations under the Order. The program also must include procedures to enable anyone to report violations of the Order or the antitrust laws without fear of retaliation and to discipline PSA’s members, board members, officers, and employees for violations.

Professional Lighting and Sign Management Company of America, Inc.
PLASMA is a nonprofit association of firms that specialize in commercial lighting and electrical sign installation and maintenance. PLASMA’s Bylaws and Standard Operating Procedures (“bylaws”) prevented members from competing in the territory of another member unless the other member first declined the work, provided a price schedule governing the price of any work performed in another member’s territory, and barred former members from soliciting a member’s customers.[6] The FTC concluded that the purpose and effect of these provisions was to restrain competition unreasonably and injure consumers by discouraging and restricting competition among licensed electricians.[7]

The Consent Order prohibits PLASMA from regulating or restricting services by members in any geographic area, members’ prices, or members’ solicitation of customers from other members.[8] The Order also requires PLASMA to adopt an antitrust compliance program and appoint an Antitrust Compliance Officer.[9] The compliance program must include an annual training program as well as procedures for reporting and punishing violations.

Analysis

Trade associations may serve many legitimate and important functions, including promoting the industry to consumers, lobbying the government, providing continuing education, establishing technology and interoperability standards, and conducting market research. However, trade associations risk antitrust enforcement when they serve functions such as preventing competition among members, fixing prices, facilitating the exchange of competitively sensitive information, allocating territories or otherwise restraining trade.

The PSA and PLASMA announcements follow four other 2014 consent agreements between the FTC and trade associations to settle charges that trade associations’ codes of ethics restrained competition. [10]  In each case, the FTC alleged that a trade association’s code of ethics or bylaws restrained competition by preventing members from soliciting work from other members.[11] Each consent agreement required the association to eliminate rules that restrict competition and to implement an antitrust compliance program. The FTC’s enforcement actions throughout 2014 highlight the agency’s consistent efforts to prohibit trade association rules that restrict competition among members.

Key Takeaways

Trade associations should (1) eliminate any provisions in bylaws or codes of ethics that restrict competition among members and (2) adopt and maintain antitrust compliance programs. In particular, trade associations should refrain from policies, whether written or unwritten, that do any of the following:[12]

  • Restrict members from soliciting work from other members’ customers;
  • Divide territories or prevent members from doing business in an area allocated to another member;
  • Restrict members from making statements about other members if the statements are neither false nor deceptive;
  • Restrict members from competing on price;
  • Restrict members from soliciting employees from other members;
  • Fix prices; or
  • Restrain competition.

Antitrust compliance programs should ensure that the trade association does not violate the antitrust laws. Key provisions a trade association may incorporate in its compliance program include:

  • Appoint an antitrust compliance officer whose duties include reviewing the association’s written materials and policies, attending meetings and events, and otherwise monitoring the association’s activities;
  • Appoint antitrust counsel;
  • Create an agenda for each association meeting or event, and require the antitrust compliance officer or antitrust counsel to approve the agenda;
  • Require recitation of a statement at the commencement of board meetings and association events that provides guidance on compliance with antitrust laws;
  • Implement an annual antitrust compliance training program for members, board members, and employees;
  • Implement a mechanism that allows anyone to report violations of the antitrust compliance program or the antitrust laws; and
  • Implement policies and procedures for disciplining members, board members, or employees who fail to comply with the antitrust compliance program or the antitrust laws.

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This article is the third and final one in a series of antitrust alerts authored by attorneys from Weil’s Antitrust team, published in the Metropolitan Corporate Counsel. For continuous updates, please visit Weil’s Antitrust/Competition Perspectives.


[1] FTC Press Release, FTC Approves Final Orders Requiring Trade Associations to Eliminate Rules that Restrict Competition, Mar. 3, 2015, available at http://www.ftc.gov/news-events/press-releases/2015/03/ftc-approves-final-orders-requiring-trade-associations-eliminate.

[2] FTC Analysis to Aid Public Comment in PSA matter at 2, available at http://www.ftc.gov/system/files/documents/cases/141223proskatersanalysis.pdf.

[3] FTC Complaint in PSA matter at ¶ 28, available at http://www.ftc.gov/system/files/documents/cases/141223proskaterscmpt.pdf.

[4] FTC Decision and Order in PSA matter at ¶ II.A, available at http://www.ftc.gov/system/files/documents/cases/1503psassdo.pdf.

[5] FTC Decision and Order in PSA matter at ¶ IV.

[6] FTC Analysis to Aid Public Comment in PLASMA matter at 2, available at http://www.ftc.gov/system/files/documents/cases/141223prolightinganalysis.pdf.

[7] FTC Complaint in PLASMA matter at ¶ 8, available at http://www.ftc.gov/system/files/documents/cases/141223prolightingcmpt.pdf.

[8] FTC Decision and Order in PLASMA matter at ¶ II, available at http://www.ftc.gov/system/files/documents/cases/1503plasmado.pdf.

[9] FTC Decision and Order in PLASMA matter at ¶ IV.

[10] National Association of Residential Property Managers, Inc., FTC Press Release, FTC Approves Final Orders Requiring Two Professional Associations to Eliminate Rules that Restrict Competition among Their Members, Oct. 10, 2014, available at http://www.ftc.gov/news-events/press-releases/2014/10/ftc-approves-final-orders-requiring-two-professional-associations; National Association of Teachers of Singing, Inc., FTC Press Release, FTC Approves Final Orders Requiring Two Professional Associations to Eliminate Rules that Restrict Competition among Their Members, Oct. 10, 2014, available at http://www.ftc.gov/news-events/press-releases/2014/10/ftc-approves-final-orders-requiring-two-professional-associations; Music Teachers National Association, Inc., FTC Press Release, FTC Approves Final Orders Settling Charges that Two Professional Associations Restrained Competition Among Members through their Codes of Ethics, Apr. 4, 2014, available at http://www.ftc.gov/news-events/press-releases/2014/04/ftc-approves-final-orders-settling-charges-two-professional; and California Association of Legal Support Professionals, FTC Press Release, FTC Approves Final Orders Settling Charges that Two Professional Associations Restrained Competition Among Members through their Codes of Ethics, Apr. 4, 2014, available at http://www.ftc.gov/news-events/press-releases/2014/04/ftc-approves-final-orders-settling-charges-two-professional.

[11] In National Association of Residential Property Managers, Inc., the following provisions restricted competition: “NARPM Professional Members shall refrain from criticizing other property managers or their business practices” and “The Property Manager shall not knowingly solicit competitor’s clients.” In National Association of Teachers of Singing, Inc., the following provision restricted competition: “Members will not, either by inducements, innuendos, or other acts, proselytize students of other teachers.” In Music Teachers National Association, Inc., the following provision restricted competition: “The teacher shall respect the integrity of other teachers' studios and shall not actively recruit students from another studio.” In California Association of Legal Support Professionals, the following provisions restricted competition: “It is not ethical to cut the rates you normally and customarily charge when soliciting business from a member firm's client,” “It is not ethical to … speak disparagingly of another member,” “Never discuss the bad points of your competitor,” 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.”

[12] The Order in the Matter of National Association of Music Merchants (April 2009) provides guidance for developing an acceptable antitrust compliance program. FTC Decision and Order in National Association of Music Merchants matter at ¶ II.B.1, available at http://www.ftc.gov/sites/default/files/documents/cases/2009/04/090410nammdo.pdf.

 

Kristin Sanford is part of the Antitrust/Competition practice at Weil, Gotshal & Manges LLP. Ms. Sanford is not yet admitted to practice in the District of Columbia. 

Please email the author at kristin.sanford@weil.com with questions about this article.