New approaches to managing antitrust risk. (Legal).

It has been a long time since any major new developments in the antitrust area have affected trade associations, professional societies, or other nonprofit membership societies. Is antitrust still a risk? If so, are there new ways to manage the risk? This column argues, "Yes." There still is a serious threat for associations, and some new approaches are worth considering when it comes to reducing that risk.

When the Sherman Act was passed in 1890, it was aimed at inhibiting the large business trusts such as those in energy and transportation from getting together to fix prices, boycott other companies, or take other actions that inhibit competition. At the time the Senate passed the law, there was even floor colloquy suggesting that it would not apply to associations. But associations ultimately became prime targets for governmental and private antitrust enforcement for a number of reasons.

Traits that attract antitrust scrutiny

Associations exhibit characteristics that may raise a red flag for those looking for possible antitrust actions. Clearly, associations are created and operated to carry on joint action--a manifestation of the American barn-raising mentality. At times, such joint action can be seen by challengers as restraining competition. Since the first section of the Sherman Act prohibits two or more competitors from getting together to restrain competition, associations, which uniquely provide the getting together element, can be perceived as facilitating such restraint of trade.

Some specific activities of associations have been made the basis for antitrust claims.

1. Membership restrictions. Unreasonable limits on association membership or membership services have been found to be boycotts on the restricted firms or people.

2. Exchanges of information. Sharing of information among business association members, in some cases applauded by the courts, has at times been found to have the potential to restrain trade.

3. Advertising issues. Limitations on truthful advertising by professional association members, once thought immune from antitrust challenge, were found later to violate the law.

Changing times

Interpretation of the law by courts has evolved, and continues to evolve, in ways that change perceptions and risks regarding what is illegal in the association context.

Lawsuits are still filed routinely against associations for alleged antitrust violations. If those suits differ from ones filed in past decades, the differences tend to be in subtlety and complexity. Is it legal for an association to institute a new trade show when that show diminishes the success of an existing commercially owned show? How broad can an association's restrictions on false advertising be before they are seen as effectively prohibiting members' advertising? Can an association publish an evaluation of a vendor's product without being accused of boycotting the vendor? These kinds of claims--all of them decided in recent years--are qualitatively different from the kinds of claims made 50 years ago against associations. At that time it was common for associations to be accused of more blatantly anticompetitive programs or policies, such as using statistical information exchanges to signal when members should adjust pricing or production.

Nevertheless, associations will continue to be specially exposed to antitrust challenges because associations are groups of competitors united for joint action. Usually that joint action will be seen as neutral to competition or pro-competitive; sometimes it will be seen as anticompetitive.

Additional considerations

New forms of communication can create additional opportunities for associations to be seen as injuring competition. The Internet is the prime example. Chat rooms, distance education, and links to other sites all have the potential for misuse. Government antitrust authorities have emphasized that traditional antitrust analysis will be applied to potentially anticompetitive schemes advanced over the Internet. If two association members agree to boycott a vendor during a chat room exchange, the government regards that as no different than if those members reached their agreement in correspondence or via the phone. The challenge for associations is how to monitor and police the incredible proliferation of information exchange that the Internet facilitates.

Strategy for reducing risk

How should associations deal with antitrust risk in increasingly subtle contexts and increasingly expanded media? How can association leaders broadly communicate an association's antitrust compliance policy in ways that are fresh and relevant? And how can leaders effectively prevent intentional or inadvertent violations on the association's turf?

Certainly the best way is in the course of a comprehensive program that includes, but also extends beyond, an antitrust compliance policy. Here are some possible elements of a program:

* Demonstrate top-down commitment. First and most important, the association's volunteer and staff leadership must agree that legal compliance is important and convey to the membership their commitment to such compliance.

* Go beyond antitrust. There are myriad ways that associations can step into legal quicksand. Violations of the copyrights or trademarks of others in the course of Internet activities; allowing bias or commercial interest to affect decisions in self-regulation programs such as standards or certification; or failing to recognize the expanding legal rights of people with disabilities--these and others can be the subject of a comprehensive legal compliance program that includes, but is not restricted to, antitrust.

* Make it pertinent. Warning members to avoid agreements on fixing prices or fees, on dividing up customers or markets, or on refusing to deal with vendors or others is unlikely to stir the emotions. But using examples of real cases that arise in contexts that are familiar to members can help make antitrust or other legal threats seem important and worth avoiding.

* Use the media to enhance the message. Any legal compliance program must convey to members the association's message on avoidance of legal violations. And it must repeat and reinforce that message. Consider using a live presentation at an association meeting to update members on new legal developments affecting the association's field, and weaving into that presentation the basic legal compliance message. Or develop a section on the association's Web site to post new and interesting legal developments. One large professional society produced a videotape using professional actors to bring home the need for legal compliance by dramatizing how natural and easy it is for mistakes to be made.

* Refresh the program periodically. Any educational program becomes stale if repeated too many times. Build into a legal compliance program a schedule and budget for periodic updating. Demonstrate to members that the association is on top of the changes.

Any association that has endured a major antitrust investigation by the government or a major antitrust lawsuit by private plaintiffs will confirm that an ounce of prevention is worth a pound of cure. The success of a compliance program is measured by a negative: lack of antitrust trouble. But that should not diminish the need for a positive attitude and approach to association antitrust compliance.

Jerald A. Jacobs is a partner and head of the Nonprofit Organizations Practice at the law firm of Shaw Pittman, Washington, D.C. Jacobs is general counsel to ASAE and was recently named Outstanding Nonprofit Attorney by the American Bar Association's Business Law Section.