Recent events have highlighted the need for trade associations such as IDEA to be aware of - and take proactive steps to comply with - antitrust laws. In May 2009, the Obama administration made its position known on antitrust enforcement: Speaking to the U.S. Chamber of Commerce, Assistant Attorney General Christine A. Varney of the Justice Department's antitrust division remarked that the relaxation of antitrust enforcement at the outset of the Great Depression was a mistake and that vigorous enforcement must accompany efforts to revive the distressed economy. Earlier, in March, the Federal Trade Commission (FTC) required the National Association of Music Merchants (NAMM), a trade association of musical instrument sellers, to enter a consent decree that tightly restricted the organization's activities for years. This ruling was considered a wakeup call to all trade associations.
IDEA's leadership has historically remained sensitive to antitrust concerns and has steered the organization and its members clear of unlawful conduct. But given a renewed focus on antitrust enforcement generally and the role of trade associations in particular, this is a good time to review how and why IDEA conducts its meetings and guides members toward compliance.
Overview of Antitrust
Antitrust law aims to maintain competitive markets in the face of business conduct that might seek to increase profits by eliminating competition. For simplicity, let's consider there to be two main categories of antitrust laws: those regulating the activities of a single dominant firm or monopoly, generally addressed by Section 2 of the Sherman Act, and those regulating joint action among competitors, addressed by Section 1 of the Sherman Act.
Another area of antitrust law pertains to challenged conduct. The antitrust laws only forbid restraints of trade that are considered "unreasonable." Courts and agencies therefore apply a so-called Rule of Reason, examining the nature of the conduct, the market in which it occurs and the positive and negative impacts it may have on competition in the relevant market. This is a complicated, economics-driven inquiry with general rules but few concrete guideposts.
By contrast, certain marketplace conduct is considered anticompetitive (and illegal) per se, having no redeeming positive effects on competition. Agreements to fix prices, rig bids, divide territories or allocate customers or market segments fall into this category of business activity. Even if the argument can be made that this conduct benefits consumers, it is prohibited. Many times this conduct will bring harsh criminal penalties as well as civil suits.
Trade Association Activities
Activities of trade associations have been suspect since before the founding of this nation. Writing in 1776, Adam Smith warned, "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices." (Wealth of Nations , Vol. I, Ch. 10, pt. 2.) On the other hand, cooperation, education and information exchanges through trade associations most frequently generate improved efficiencies, technological advances and better value for consumers, so nobody opposes the ongoing existence of the organizations. Antitrust regulators try to keep the balance tipped toward the benefit side.
The most common dangers posed by trade associations are (1) anticompetitive conduct by the association itself and (2) association provision of resources and facilities to abet member collusion. In the first category are exclusionary actions such as membership rejections or expulsions for anticompetitive reasons (e.g., price discounters); denying non-member access to commercially crucial association services or trade show participation; discriminatory standard setting; codes of ethics that restrict advertising, business relationships, pricing, competitive bidding or services offered; and collection and dissemination of non-public price-signaling information. The IDEA board, professional staff and counsel must remain knowledgeable about the rules and nuances surrounding these activities and assure that a proper balance is struck. To date, they have been quite successful in carrying out these responsibilities.
The second category involves joint action by members to enhance profitability by constraining the marketplace. IDEA is different from many other trade associations in that the nature of the district energy industry offers scant incentive for members to conspire against the public. District energy system operators generally do not compete against each other; nor do they generally sell their heating/cooling/energy output in a consumer market. So there is no incentive for them to conspire to keep output low, prices high or the number of competitors small. IDEA members who are service providers, vendors or suppliers to the district energy industry have little incentive to collaborate to stabilize prices or markets, as this could directly harm the owner/operator members. Therefore IDEA is an unlikely forum for such endeavors.
Even though anticompetitive conduct is unlikely, IDEA should remain vigilant in overseeing the discussion agenda at membership gatherings because the consequences of faltering can be severe:
- A violation of the antitrust laws carries potential penalties that include criminal prosecution with fines of up to $1 million per violation for individuals and $100 million for corporations and/or jail sentences of not more than 10 years and civil remedies of treble damages, attorney's fees and injunctive relief.
- Trade associations can be found liable for the antitrust violations of their agents acting within the scope of their apparent authority - i.e., the agent appears to be acting in the ordinary course of the association's business. Associations generally are liable for actions of member volunteers (including board members and commission/committee members) taken under the auspices of the association, even if the specific actions were not authorized by the association. No ratification by the trade association of the agent's conduct is required for a finding of liability.
- Membership in a trade association that has been found to have engaged in unlawful behavior may be used as a basis to infer complicity in anticompetitive behavior. If a court finds that a member had knowledge of unlawful behavior, the court may infer participation. Thus, if a member knows or should have known that the association was involved in unlawful behavior, that member may be deemed to be a co-conspirator.
Given the risks, it follows that IDEA should be sensitive to antitrust concerns as it plans and conducts its affairs. IDEA, like any trade association, should take affirmative steps to ensure that none of its public pronouncements or other activities could be misconstrued as facilitating, condoning or calling for any concerted action that violates the antitrust laws. These include control over meeting agendas and requiring adherence to the agenda. IDEA's Antitrust Policy Statement (see sidebar), read at the outset of formal gatherings, is designed to educate members about significant prohibited conduct and to attempt to protect the membership in the event that someone does not take it seriously.
Lessons from NAMM
In the recent consent enforcement action noted above, the FTC charged that NAMM, the association of musical instrument manufacturers and sellers, enabled and encouraged the exchange of competitively sensitive pricing information among its members, primarily by sponsoring discussions of minimum advertised pricing (MAP) policies. (It is noteworthy that MAP policies are legal, though complicated to implement properly, and advising members about the rules seems reasonable; but conducting meetings tending to help many musical instrument sellers adopt MAP policies stepped over the line.)
The consent decree (see sidebar for highlights) requires appointment of an antitrust compliance officer (who for the first three years must be antitrust counsel) to approve agendas, prepared remarks and materials for all association events and board meetings and personally attend the functions. It also mandates annual antitrust training for staff and board members, implementation of mechanisms for reporting violations of antitrust laws and discipline of violators, reading of an antitrust compliance statement at the beginning of meetings and recording of each panel discussion and presentation at association events. The compliance officer must submit annual written reports to the FTC confirming compliance for 10 years, and the order remains in effect for 20 years. (For details on the NAMM case, including complaint, decision and order, consent agreement and related documents, go to www.ftc.gov; look for In the Matter of National Association of Music Merchants, Inc., Docket No. C-4255, [March 4, 2009]).
Of course, the NAMM is a qualitatively different organization from IDEA. It is made up of companies that compete directly with each other for sales of musical instruments to the public. Discussions of MAP policies also involved sharing of price, cost and profit margin information among competitors, which the authorities consider unlawful even if no price-fixing agreement was ever reached. IDEA's members would be unlikely to benefit from this kind of collaboration. Regardless of these differences, however, the case is very instructive. Antitrust practitioners have generally agreed that, with the possible exception of recording every event, the NAMM order should be considered a ‘best practices guide' for all trade associations. Happily, the IDEA leadership already has in place procedures and an Antitrust Compliance Manual implementing these best practices. (Members may download and read the manual in the Members Section on the association's Web site: www.districtenergy.org.) Members should refer periodically to that manual for general guidance and should have antitrust counsel available for the times when detailed analysis is needed.