Antitrust and Trade Regulation Alert
August 26, 2014

A Reminder to Trade Association Members: "No-Poaching" Codes of Ethics Can Cause Antitrust Problems

By: Steven J. Cernak

Trade associations are a collection of competitors and, as such, can raise potential antitrust risks. In particular, an association's code of ethics might effectively be an agreement between members not to compete among themselves. Recent Federal Trade Commission (FTC) enforcement actions serve as reminders to associations and their members that antitrust authorities take seriously any such antitrust violations.

On August 22, 2014, the FTC accepted for public comment separate consent orders with the National Association of Residential Property Managers (NARPM) and the National Association of Teachers of Singing (NATS). Each association supports its thousands of members and their customers in numerous legitimate ways. Unfortunately, each association also had a code of ethics that contained provisions the FTC considered agreements not to compete. NARPM's code made it unethical for a property manager to "knowingly solicit competitor's clients." NATS's offending provision read, "members will not, either by inducements, innuendos, or other acts, proselytize students of other teachers." Both associations had various methods to enforce those codes.

While the consent orders do not require any direct payments by either association, they are not without cost. Each association must delete the problematic language, inform its chapters and members of the change, and promise to refrain from similar provisions for the 20-year life of the order. Also, each association must institute regular compliance programs and designate an antitrust compliance officer. Finally, each must provide regular reports of its compliance efforts to the FTC and be prepared to pay large fines for any future order violations.

Earlier in 2014, the FTC finalized similar consent orders with other professional associations, including the Music Teachers National Association (MTNA). When proposed, those consent orders generated a column in The Wall Street Journal that derided the action against the MTNA and its members as an example of government overreach. As a result of that column, perhaps, the FTC received more than 200 comments on the proposed consent order with the MTNA. The FTC finalized the order without making changes. It responded to the comments by, among other points, summarizing decades-worth of similar FTC and court actions against associations of other professionals, like lawyers and doctors.

An association can provide useful services to its members and their customers, and can advance the legitimate goals of the profession — even the FTC is careful to make such statements in all of these consent orders. But, such benefits of the association cannot excuse agreements among its members to refrain from honest competition, even in the form of codes of ethical conduct.

Association leaders and members should scour the codes, bylaws, and other association documents and procedures to ensure they are in compliance with basic antitrust principles. A simple review of such documents and practices now can save the costs of investigations and forced compliance later.

Steve Cernak, Greg Curtner, Bill Hannay and other attorneys in Schiff Hardin’s Antitrust and Trade Regulation Group stand ready to assist in all antitrust aspects of trade association membership.

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