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NAR, along with several other nonprofit professional associations, filed an amicus brief (friend of the court brief) with the U.S. Supreme Court in California Dental Association v. Federal Trade Commission. The outcome of this case should determine whether the FTC Act applies to nonprofit professional associations such as NAR and state and local REALTOR® associations.
This case involves ethical guidelines issued by the California Dental Association (the “CDA”) prohibiting “false or misleading” statements in advertising by CDA members. The maximum sanction for violating the ethical guidelines is exclusion from membership in the CDA, which is not a prerequisite to practicing dentistry in California.
The Federal Trade Commission (the “FTC”) claims that the CDA’s ethical guidelines unreasonably restrain competition in violation of section 1 of the Sherman Act and section 5 of the FTC Act. Unlike the Sherman Act antitrust law, which applies to all types of entities, the FTC Act does not apply to all entities, but only to corporations “organized to carry on business for [their] own profit or that of [their] members.” The CDA argues that the FTC does not have jurisdiction over it because it is a nonprofit professional association. The CDA also argues that its guidelines constitute legitimate self-regulatory activity that is in the public’s interest and does not restrain competition.
Reasoning that a variety of the CDA’s activities provide a pecuniary benefit to its members, the Administrative Law Judge (the “ALJ”) decided that the FTC had jurisdiction over the CDA. The ALJ also found the CDA guidelines were an unreasonable restraint of trade. The FTC affirmed the ALJ’s decision, and the U.S. Court of Appeals for the Ninth Circuit upheld the FTC decision, finding that “the CDA has sufficient market power to harm competition through issuance of guidelines and that the guidelines at issue restrict competition.”
In their amicus brief to the U.S. Supreme Court, NAR and the other amici argue that the CDA does not fall under FTC jurisdiction because it is not “organized to carry on business for its own profit or that of its members,” within the meaning of the FTC Act. Moreover, simply because some of the CDA’s activities confer some economic benefit on its members, that does not mean that it is organized for the purpose of providing profit to its members. The amici (all of which, like NAR, have promulgated codes of ethics and ethical guidelines), also argue that ethical rules such as the CDA’s, which prohibit inaccurate advertisements, actually serve various pro competitive purposes.
The decision in this case probably will definitively answer the question of whether the FTC has jurisdiction over nonprofit professional associations, such as NAR and state and local associations of REALTORS®. If the Supreme Court decides that the FTC Act does not apply, that would be good news to all such associations, since the FTC engages in substantial investigative efforts directed toward the activities of professional associations. To be sure, nonprofit professional associations still would be subject to federal antitrust laws (e.g. the Sherman and Clayton Acts) enforced in federal court by the Department of Justice, the states and private parties, but the burden of also being subject to FTC investigation and litigation would be eliminated.
California Dental Association v. Federal Trade Commission, 526 U.S. 756 (1999).