3 Common Misunderstandings About Trade Membership

Does your team understand the potential risks of participating in a trade association? Vedder Price’s Brian McCalmon discusses how organizations can contribute to trade association research and action while protecting sensitive data and minimizing the risk of collusion.

Trade associations play a critical role in commerce. Despite the emphasis antitrust law places on remaining vigilantly independent in competitive activities and in guarding against the sharing of information with one’s competitors, membership in trade associations has long reduced the negative side effects of isolation from other market participants. Without trade associations, buyers of many homogeneous intermediate commodities would have no idea what a reasonable ballpark price may be for the inputs they need, many crises and needs specific to often-obscure industries would slip completely beneath the radar of busy federal and state lawmakers and regulators¹ and many products on which we have come to depend on would never have been born.

Imagine a world without Bluetooth, USB connections or Wi-Fi, all made possible through competitors sharing rights and information within the context of trade associations.

Because trade associations provide many opportunities for in-person and telephone meetings between competitors, they are also vehicles for conspiracy. Any grand jury subpoena or civil investigative demand issued by an antitrust enforcement authority contains a request for a list of all trade associations to which the investigation target belongs, as well as the dates of all the meetings of the associations. Notes from meetings, email correspondence and other records of association activities find their way into plaintiff exhibits in many antitrust cases.

Balancing productive participation in trade associations with the inevitable contact with competitors is a delicate balance. Compliance counsel should learn to recognize the pitfalls and opportunities trade membership present so the organization can react appropriately when they appear.

The following are a few common sources of risk and misunderstanding.

Noerr-Pennington is Useful But Sometimes Misunderstood

The Noerr-Pennington doctrine (named for the two cases that established it) is a judicial recognition that the First Amendment petition right trumps the antitrust laws. It shields from antitrust liability joint action (even by competitors) to influence government action, but only when the government action causes the “harm” complained of. The doctrine shields much trade association activity from antitrust liability. For example, if an association of milk distributors successfully petitions the state’s legislature to ban the use of pesticides in crops that can make their way into cows’ milk, the targeted pesticide manufacturers cannot sue them, and the government will not prosecute them.

Trade association member representatives, however, often believe that the doctrine is a blanket shield against antitrust liability for conversations and actions they take during trade association meetings to organize or plan for litigation or lobbying, and this is wrong. The doctrine does not shield participants in a trade association meeting from liability for any improper discussions they may have or agreements they may strike at the meeting that are unrelated to the exercise of First Amendment rights. In the example above, if in addition to petitioning for favorable government action, the milk distributors also agree at their working group meetings that none of them will buy milk from farmers who use those pesticides on their feedstock, they may well end up sued or under investigation because the harm they have caused would not spring from the government action they sought to obtain, but from the elimination of competition among them to purchase milk from specific suppliers.

State Action Immunity Can be Elusive; a State’s Request to Act as a Group Should Be Considered Skeptically and Reviewed Carefully for Antitrust Risk

Often, a local or state government will request that a group of competitors cooperate in achieving some governmental goal within the sphere of the group members’ operations. Alternatively, a private organization authorized to regulate a profession (e.g., dental boards) will issue rules or take other action to limit competition in some way. Private companies participating in such joint public/private efforts sometimes assume they will not run afoul of the antitrust laws because the government is asking them to act jointly or has authorized them to do so. The imprimatur of state authority that first appears to back such requests and actions often withers under the glare of antitrust courts and leaves participating members exposed to consumer and competitor lawsuits.

Under the doctrine of state action immunity set forth in Parker v. Brown and its progeny, competitors can act jointly to limit competition at the request of a state government or subdivision, but only if the state has clearly articulated a policy to limit competition and only if the actions of the private group carrying out that policy are closely supervised by the state itself. This last requirement can confuse trade association groups that assume they are in the clear after having been asked by a state or local government to work together. Similarly, quasi-governmental regulatory boards that act to limit competition from outside the group have been heavily investigated and penalized by federal antitrust agencies and courts. Corporate counsel must always ensure that every step of a client’s participation in such an effort satisfies every element of Parker immunity.

Trade Associations Make Markets More Efficient, but Supplying Data and Making Commitments to the Association Entail Risk

In today’s interconnected world, associations or other groups of competitors play a significant role in establishing standards and protocols that save time and pool knowledge through a broad range of jointly administered cooperative programs like patent pools, interoperability standards, certifications and seals of approval, price indices and consumer credit monitoring. Most of these efforts require sensitive competitive data to be submitted by the members to the association, and much of that data would not ordinarily be shared with competitors.

Participating members must guard vigilantly against the improper sharing of data and recognize that the interests of the association and the interests of the members may not always perfectly align. For example, to set a useful price index, an association would ideally like to have the most recent pricing data that it can obtain. Federal antitrust guidelines, however, place clear boundaries around the nature and recency of pricing data that can be shared without raising antitrust concerns.² Compliance counsel for member companies should never assume that the association is fully aware of or willing to comply with those guidelines. It is the responsibility of each compliance counsel to ensure that a company’s participation in joint association activities complies with the antitrust laws.

Conclusion

These are only a few of the issues that accompany trade association participation, but in most cases, the benefits of trade associations are worth the effort required to manage the risk carefully. Outside of those very rare situations where trade association representatives deliberately conspire with one another, most antitrust liability in the association context stems from simply not knowing the rules and from trusting too much in the ability of the association to steer the ship through the antitrust rapids.

Also from Brian McCalmon: Forming And Maintaining Legal Resale Price Control Policies; 3 Principles for Compliant Communications With Competitors

3 Principles for Compliant Communications With Competitors