Section Library
Antitrust Laws
Antitrust Laws and Their Implications for AWWA Sections
Antitrust laws have been enacted primarily for the purpose of maintaining a competitive and fair market place. Although, at first glance, associations may seem to exist on the periphery of the market place, they, in fact, may be more vulnerable to antitrust lawsuits than for-profit companies in some instances.
Four federal laws comprise the main body of law governing antitrust in the United States. They are the Sherman Act, the Robinson-Patman Act, the Clayton Act, and the FTC Act. The federal agencies charged with enforcement of these laws are the Justice Department (DOJ) and the Federal Trade Commission (FTC). Enforcement can be in the form of governmental proceedings including fines and even imprisonment, lawsuits by private parties, or both.
The Sherman Act
Far and away the most important of these to associations is the Sherman Act. The Sherman Act, passed in 1890, has two main provisions. The first is a prohibition against restraint of trade by any "combination" or group or by way of any contract. The second is a prohibition of any monopolistic activities by anyone, whether a group or individual. The intent of the law is to prevent the market place from becoming uncompetitive or monopolized by a group or individual.
Section 1 of the Act, which deals with restraint of trade, is the more relevant of the two sections where associations are concerned. For a violation of the Act to occur, two conditions must be met. They are that a conspiracy exists (that the entity restraining trade be a "combination") and that interstate commerce is restrained. Because an association is already a consortium of individuals and organizations with common interests, almost by definition, all associations meet the first requirement. In other words, associations can, regardless of behavior or purpose, be considered "combinations." Though there may appear to be some coverage in the requirement that interstate commerce be affected, this is really not the case. The courts have defined "interstate commerce" to mean any impacted part of the system of continuous commerce among the states. Furthermore, most states have their own laws regulating these activities at the state level.
The Robinson-Patman Act
The Robinson-Patman Act is primarily concerned with discriminatory pricing. Although this Act has much less relevance for associations, care should be given when pricing any service or item. The standard that applies is that any business should be charged the same price given the same circumstances. This is particularly true for those who buy for resale or for use in their products or services. The underlying principle here is that a market advantage could accrue to one buyer of an association's products if that buyer gets a better price than a competitor. This would contribute to the creation of an unfair market place.
The Clayton Act
The Clayton Act addresses a variety of activities centered on growth and distribution activities. Among these are exclusive dealing and requirement contracts and price discrimination. Additionally, mergers, acquisitions, and joint ventures are addressed. Although mergers and other forms of organizational relationships are not prohibited, they may be found to be in violation of the Clayton Act if they have the effect of reducing competition or creating a monopoly. Although these provisions of the Act are unlikely to affect our sections directly, one added feature of the Act may.
The Clayton Act also provides for private lawsuits as an enforcement method for antitrust violations. These lawsuits allow the recovery of damages. Moreover, the plaintiff can recover treble damages in such cases. In cases brought by private parties, they must prove that they have sustained actual measurable damages as opposed to potential or prospective damages and must prove that the damage is the result of a violation of one of the existing antitrust laws.
The FTC Act
The FTC Act, among other things, created the Federal Trade Commission which is responsible (along with the Justice Department in the case of Sherman Act violations) for the enforcement of antitrade laws. The FTC Act also included language which makes activities that constitute unfair competition by individuals illegal (remember that the Sherman Act only addressed such activities by groups). The FTC Act has additional provisions that relate to consumer protection.
State Law
As was already mentioned, the Sherman Act requires an effect on interstate commerce, though this requirement has been very broadly interpreted by the courts, and thus, has lowered the burden of proof required to substantiate an effect on interstate commerce. More important, though, is the trend of the states to institute their own set of statutes that in most cases have a strong relationship to the federal legislation. What is important to know here is that there may be governmental enforcement and private remedies for antitrust violations at the state level additionally. Moreover, although these laws generally grew out of trends in the regulation of commerce at the federal level, important differences likely exist. By using the laws described above and the proscribed activities as a guide, you can determine when you need to investigate both state and federal antitrust laws in greater detail.
What to watch out for
Some programs are of more concern to the international association because it is more involved in the specific activity. For example, AWWA's standards program could generate antitrust allegations if it were to produce a standard that clearly excluded a particular manufacturer without reasonable technical or scientific justification.
Both sections and the international association should be concerned about other activities. These include:
Certification or professional credentialing programs
Because certification or other credentialing processes can affect the marketability of an individual or business, care must be given in the design of the program. The key considerations are:
- Are the criteria used to determine who will be certified equally applied to all?
- Is the program designed in a way that it could limit competition?
- Are the tests used designed so that they accurately test the relevant skills rather than reading ability or other unrelated abilities and has the test been validated? Because test development is a science, requiring attention to many design elements that are not related strictly to content, you may want to consider the use of tests developed and validated by a testing service or other organization which has experience in test development.
- Does the program have a fair appeals process?
Endorsements
Endorsements should always be based on clear criteria for the selection of entities to be endorsed. Additionally, a study should be conducted of the service, product, or organization being endorsed to confirm that it meets the criteria.
You should also be prepared to offer an endorsement for all service, products, or organizations which meet these criteria and otherwise meet the requirements of the endorsement program, e.g., application process, payment for related services, etc. Arbitrarily excluding a group that does meet these criteria can lead to allegations of restraint of trade.
Data Collection and Reporting
In some cases, the collection and dissemination of data or statistics that are not collected, analyzed, or reported correctly might raise antitrust issues, depending on how the information is used (whether or not its use affects competition in the market). Excluding non-members or requiring member participation in the data collection process might also be of concern.
Availability of Services to Non-Members
For the purposes of antitrust analysis, associations are seen as serving an industry or profession rather than members. For this reason, you must be careful not to exclude non-members from services, which, it could be argued, are important or necessary to conduct business. However, you can charge them a different rate for these services.
Canadian Antitrust Law
The Competition Act is the Canadian law, which covers all aspects of antitrust. Generally, this law is less prescriptive and involved than U.S. antitrust law.
The law covers a wide range of prohibited or regulated activities. They are divided into two classes of violations; criminal and non-criminal. Criminal violations include: conspiracy, misleading advertising, and discriminatory pricing. Criminal violations are prosecuted by the Attorney General of Canada after referral by the Bureau of Competition Policy, which has statutory responsibility for the Act.
Non-criminal violations, also called "reviewable practices," include mergers, refusal to deal, abuse of dominant position, and exclusive dealing. These violations are referred to the Competition Tribunal for corrective action.
Private remedies are also available, but are much more restricted than they are in the U.S. Private remedies can only be sought in cases of criminal violation or when a Tribunal or court order has not been complied with. Damages are also limited to actual losses rather than the treble damages that are available in the U.S.
The purpose of the Act is principally the same as that in U.S. law -- to insure a competitive market place. For that reason, Canadian sections should take care to examine the programs they operate, and to become familiar with the general provisions of the law. However, because Canadian law is generally more liberal and because civil law suits are much more limited, Canadian sections probably have less exposure in this area than their U. S. counterparts.
For more information on Canadian antitrust law, contact the Bureau of Competition Policy, Compliance and Enforcement Branch at 613/953-7942.
Conclusions
In general, you should be cognizant of the principals of antitrust laws. In the process of reviewing a section program, consider whether it is likely to affect the market in such a way that it affects free, unhindered competition. If you have any concerns at all, follow up with legal counsel or contact your section services representative. Remember, even if you win an antitrust lawsuit, the legal fees themselves can cost hundreds of thousands of dollars. It is cheaper to make sure that the program is on very firm ground before beginning operation.