Federal Trade Commission Cracking Down on Professional Associations That Inhibit Competition
Take-away: While it is tempting for a professional association to tell its members not to “poach” each others' customers, doing so violates federal antitrust law.
The National Association of Residential Property Managers, Inc. (NARPM) and the National Association of Teachers of Singing, Inc. (NATS) have agreed to eliminate provisions in their respective codes of ethics that limit competition among their members, according to a Federal Trade Commission (FTC) press release dated August 22, 2014. These settlements are the latest FTC enforcement actions challenging restraints on competition that are incorporated into the ethics codes of professional associations. The consent agreements were unanimously approved by the FTC's five Commissioners. Each violation of an FTC Consent Order may result in a civil penalty of up to $16,000 per day.
The FTC's complaint against NARPM, which represents more than 4,000 real estate managers, brokers, and agents, alleges that NARPM and its members restrained competition in violation of the FTC Act through provisions in its code of ethics that restrict comparative advertising and solicitation of competitor's clients. The provisions read, “The Property Manager shall not knowingly solicit competitors' clients,” and “NARPM Professional Members shall refrain from criticizing other property managers or their business practices.”
The consent order settling the FTC's charges requires NARPM to stop restraining its members from soliciting property management work, and from making statements that are not false or deceptive about a competitor's products, services, or business or commercial practices. However, NARPM is allowed to adopt and enforce “reasonable principles, rules, guidelines, or policies governing the conduct of its Members with respect to representations that its Board reasonably believes would be false or deceptive” if made to its members' prospective clients.
In a separate complaint, the FTC charged that NATS, which represents more than 7,300 vocal arts teachers in the United States, restrained competition in violation of the FTC Act through a code of ethics provision that prohibits members from soliciting students from other members. The provision reads, “members will not, either by inducements, innuendos, or other acts, proselytize students of other teachers.”
The consent order settling the FTC's complaint against NATS requires that it stop restraining members from seeking teaching work, and stop telling its members that soliciting students is unethical. Among other things, the order also requires NATS to obtain a certification from each of its chapters that the chapter is not restricting solicitation, advertising, or price-related competition by its members, and to sever its ties with any chapter that NATS learns is restraining solicitation, advertising, or price-related competition by its members.
NATS is allowed to enforce and maintain affiliate relationships with chapters that enforce rules to prevent false and deceptive practices, or that govern “the conduct of judges during singing competitions sponsored or held by NATS or any Chapter.” In other words, judges can be restrained from seeking to “poach” other members' competing students at the competition; however, otherwise neither NATS nor any of its Chapters can be involved in restricting honest competition among members.
Among other restrictions, both trade associations must implement an antitrust compliance program. What that means is that the association must:
A. Appoint and retain an Antitrust Compliance Officer to supervise its compliance with antitrust laws. For the first three years, the Antitrust Compliance Officer shall be the President Elect of the association, after which the Antitrust Compliance Officer may be the association's attorney, a member of the Board of Directors, or an executive employee. This obligation continues for 20 years.
B. For a period of five years, provide in-person annual training to its board of directors, officers, and employees concerning the association's obligations under the FTC Consent Order and an overview of the Antitrust Laws as they apply to the association's activities, behavior, and conduct.
C. No later than 60 days after the date the Order is issued, implement policies and procedures to:
- Enable persons (including, but not limited to, its board of directors, officers, employees, Members, and agents) to ask questions about, and report violations of, this Order and the Antitrust Laws, confidentially and without fear of retaliation of any kind; and
- Discipline its board of directors, officers, employees, Members, and agents for failure to comply fully with this Order.
D. For a period of five years, conduct a presentation at (1) each of its annual convention and regional conferences, and (2) each code of ethics training session, that summarizes the association's obligations under the Order and provides context-appropriate guidance on compliance with the Antitrust Laws.
Conclusion: For a professional association, both its written “codes of ethics” or “codes of conduct” and its actions toward members or chapter affiliates matter, in terms of complying with antitrust law. Association executives and board members should scrutinize their member-facing documents to eliminate provisions that restrain competition, and in particular situations should consult with antitrust counsel to avoid practices that may attract the wrath of the FTC.