Can Being “Ethical” Land You in Hot Water With The Federal Trade Commission?

By Jared Klaus posted 08-25-2014 16:17

  

A pair of settlements obtained by the FTC last Friday (available here) show that acting “ethically” might not always be a good thing when it comes to the antitrust laws.  The National Association of Residential Property Managers (NARPM) and the National Association of Teachers of Singing (NATS) learned this lesson the hard way when the FTC brought administrative actions against the groups alleging that certain provisions of their respective codes of ethics were nothing but dressed-up restraints on competition.

It is not hard to see why the FTC found the pertinent “ethical” guidelines problematic, as each clearly sought to soften competition among association members.  The challenged provisions of NARPM’s guidelines, for instance, state that “[t]he Property Manager shall not knowingly solicit competitor’s clients” and “shall refrain from criticizing other property managers or their business practices.”  And NATS’s guidelines state that “members will not, either by inducements, innuendos, or other acts, proselytize students of other teachers.” 

The proposed consent decrees embodied in each settlement require the organizations to, among other things, eliminate the problematic provisions from their respective codes of ethics and to implement antitrust compliance programs.  The FTC voted 5-0 to accept each settlement, which means that the proposed settlements will now be subject to public comment for 30 days, after which the FTC will decide whether to make the proposed consent decrees final. 

The NARPM and NATS settlements are not the first time that the FTC has cracked down on professional associations for restraining competition under the guise of enforcing “ethics.”  In a 2003 action, for example, the FTC challenged the ethical code of the Institute of Store Planners, which sought to prevent members from offering free or discounted design or planning services.  Like NARPM and NATS, the Institute of Store Planners settled with the FTC, agreeing to remove the challenged provision.

The take-away here is, of course, not to abandon ethical guidelines altogether, but rather to simply use common sense.  The antitrust laws do not prohibit professional associations from adopting reasonable ethical codes, which in most cases actually benefit consumers by deterring unsavory business practices intended to harm them.  When ethical rules restrict the way in which members may act toward one another, on the other hand, the ice underfoot becomes much thinner, and great care must be taken to ensure that the rules do not have the effect of restraining competition.

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