Trade associations provide significant benefits to their members, such as industry collaboration and policy advocacy. However, as the Federal Trade Commission (FTC) has highlighted, they also create opportunities for competitors to engage in anticompetitive behavior, potentially violating U.S. and state antitrust laws:
"[M]ost trade associations are procompetitive or benign. But sometimes, trade association rules, codes, or bylaws cross the line into forbidden antitrust territory. When such conduct or rules regulate or restrict the activities of members, it pays to remember that they will be viewed by antitrust enforcers and courts as joint decision-making by otherwise independent competitors."
When this happens, trade associations, their members, and their executives and staff can become subject to antitrust scrutiny by the FTC or the US Department of Justice, possibly resulting in severe penalties, including criminal and civil enforcement, fines of up to $100 million for corporations and $1 million for individuals, and up to 10 years in prison. Additionally, private lawsuits under antitrust laws can result in triple damage awards. State antitrust laws also may provide similar penalties, both criminal and civil.
Common Antitrust Risks for Trade Associations
Regardless of industry sector or membership size, trade associations can face several critical antitrust risks, including:
1. Price Fixing
Price fixing occurs when competitors agree—explicitly or implicitly—to set, raise, lower, or stabilize prices or price ranges or use common terms of sales (e.g., credits, discounts, promotions). Such agreements (written, oral or even circumstantial based on conduct) are "per se" illegal, meaning they are automatically deemed anticompetitive, regardless of intent or market impact, because of their detrimental impact on competition and consumers.
2. Market Allocation & Customer Division
Agreements among competitors to divide customer bases, geographic territories, or market segments are also strictly prohibited. Like price-fixing, these arrangements are also per se violations of antitrust law. Similarly, agreements not to compete for certain customers (called "group boycotts") are also "per se" illegal.
3. Denials of Membership
Denying trade association membership to a specific company or group of companies can also raise antitrust concerns if doing so restricts market access or eliminates competition, thereby harming competition. The FTC requires that trade association membership criteria be neutral and consistently applied.
4. Standards Development
A common activity of trade associations is the development of technical or performance standards for an industry. While such standards can promote efficiency, if they are not carefully structured and implemented, they can lead to collusion among competitors that results in excluding a company or group of companies. This may be considered an antitrust violation, even if the standard development process itself is legal.
5. Industry Self-Regulation
Trade associations often establish self-regulation programs to set industry best practices for companies operating in a business sector. These programs can serve to forestall government enforcement or regulatory efforts. However, the FTC requires their enforcement by the trade association to be fair and non-discriminatory; selective enforcement could raise antitrust concerns.
Establishing an Effective Antitrust Compliance Program
Given these risks, antitrust compliance deserves to be taken seriously ¾ not a box to be checked and forgotten but an on-going responsibility. To ensure adherence to legal standards and reduce liability exposure, adoption of a structured antitrust compliance program is recommended, including the following key elements:
1. Develop a Formal Antitrust Policy and an Antitrust Statement
A written, public-facing antitrust policy that applies to members, as well as association executives and staff and their activities involving the association is a key component of antitrust compliance. For example, the policy may describe the antitrust risks faced by trade associations, what is prohibited anticompetitive conduct (e.g., "Do Not ....") and controls to prevent potential anticompetitive behavior (e.g., "Shall report potential antitrust violations to....).
Also preparing an antitrust advisory statement that reflects the antitrust policy and reading it out loud at the start of every association meeting, event, or function – whether in person or virtual – can demonstrate compliance in the event of an investigation, enforcement action or private litigation.
2. Implement a Membership Agreement and Code of Ethics to Support Enforcement
Once an antitrust policy is in place, trade associations can require members to sign a formal membership agreement upon joining to help enforce the policy. Membership agreements will generally provide that:
- Members must comply with the association's mission statement, bylaws, and policies, including the antitrust policy
- Anticompetitive behavior is explicitly prohibited
- Violations may result in loss of membership and other enforcement action
Additionally, adopting a code of ethics or set of business practices for members, either as part of or separate from a membership agreement, can also help to reenforce the association's antitrust policy.
3. Establish Ongoing Compliance Training & Communication
Consistent and regular communication about the association's antitrust policy and its compliance obligations is essential, including regular training on antitrust risks for all members and association executives and staff.
4. Strengthen Standards Development Procedures
If a trade association develops industry standards, additional antitrust protections targeting the standards-development process can be adopted, such as:
- Consensus-based decision-making
- A transparent and inclusive process open to all interested members
- Objective technical criteria and other factors are used to develop and approve standards
- Any decision by a member to market a product using a standard is voluntary
5. Address Intellectual Property (IP) Risks in Standards
If an association's standards require the use of specific technologies whose IP rights are held by a member, this requirement can create IP-based monopolies, whereby the member may impose "monopoly rents" for use of the IP in the standard, raising costs and limiting the likelihood of adherence to the antitrust standards.
Trade associations can minimize these potential antitrust issues by:
- Requiring IP disclosures by members before adopting standards
- Ensuring IP licensing terms are fair, reasonable, and non-discriminatory (FRAND)
In sum, trade associations of all sizes can proactively address antitrust risks by implementing clear policies, agreements, and training programs to help ensure members and association executives and staff do not engage in anticompetitive behavior. Antitrust compliance is an ongoing responsibility—not a one-time task. By developing and enforcing a robust antitrust compliance program, associations can foster collaboration among their members while minimizing legal risks and potential violations of antitrust laws.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
