What new standards development legislation means for associations.

On June 22, 2004, President Bush signed into law H.R. 1086, which includes the Standards Development Organization Advancement Act of 2004. The act amends the National Cooperative Research and Production Act of 1993, which granted antitrust protections to joint ventures engaged in research, development, and production. The amended NCRPA extends these same antitrust protections to certain organizations engaged in standards development, including associations. This column explains the act's benefits to associations involved with standards as well as the notification process required for associations to be covered by the legislation.

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By virtue of the Standards Development Organization Advancement Act of 2004, the antitrust protections of the National Cooperative Research and Production Act of 1993 (NCRPA) are now extended to standards development organizations, defined as "a domestic or international organization that plans, develops, establishes, or coordinates voluntary consensus standards using procedures that incorporate the attributes of openness, balance of interests, due process, an appeals process, and consensus in a manner consistent with the Office of Management and Budget (OMB) Circular Number A-119, as revised February 10, 1998." This rather broad definition includes associations.

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In addition, according to the circular, the term standard or technical standard, as cited in NCRPA, includes

* common and repeated use of rules, conditions, guidelines, or characteristics for products or related processes and production methods, and related management systems practices and

* the definition of terms; classification of components; delineation of procedures; specification of dimensions, materials, performance, designs, or operations; measurement of quality and quantity in describing materials, processes, products, systems, services, or practices; test methods and sampling procedures; or descriptions of fit and measurements of size or strength.

However, the OMB circular specifies that the term standard does not include 1) professional standards of personal conduct or 2) institutional codes of ethics.

Under the provisions of the new law, associations involved with standards may benefit from protections relating to actions under the antitrust laws, special rules for attorney's fees, and limitations on recovery. To be covered under the provisions of the act, a specified notification process must be followed.

Expanding the scope of NCRPA

Under the new law, standards development organizations may now benefit from several antitrust protections; including the following:

Application of the rule of reason. Some kinds of antitrust violations, especially price fixing, are considered so pernicious that the U.S. Supreme Court requires courts to apply the per se test to them, meaning that once the plaintiff shows that the prohibited conduct has occurred, the defendant has no opportunity to explain why the conduct was reasonable under the circumstances. In cases where the per se test does not apply, the rule of reason is used, allowing the defendant to explain how seemingly impermissible conduct actually promoted competition.

The new law automatically applies the rule of reason to organizations engaged in standards development. Hence, if an association were accused in a government or private antitrust lawsuit of effectively setting prices for a product by establishing standards for that product's performance, the association would have the right to show that its conduct was not necessarily anticompetitive under the circumstance. In short, NCRPA establishes that in any action under the antitrust laws, or similar state laws, the conduct of a standards development organization will be judged on a basis of its reasonableness in light of all relevant factors affecting competition in the relevant markets.

Rules for attorney's fees. While U.S. courts remain free to order that the losing party pay the attorneys' fees of the prevailing party, in antitrust cases it is virtually unheard of for a losing plaintiff to pay such attorneys' fees.

The new law changes this, establishing rules that 1) a plaintiff who wins an antitrust case will be awarded the cost of the suit including reasonable attorneys' fees and 2) a defendant who wins an antitrust case will be awarded the cost of the suit attributable to the claim, including reasonable attorneys' fees if the claim is frivolous, unreasonable, without foundation, or in bad faith.

In short, a defendant who wins an antitrust case will at least be able to require that the plaintiff pay the defendant's costs. And the defendant might even get reimbursed for its own attorneys' fees if the defendant can show that the suit was without proper basis in the first place.

Limitation on recovery. A government agency or private entity is also limited in the damages that it can win against a standards development organization. Recovery is limited to actual damages sustained by a claimant--with calculation beginning on the earliest date for which injury can be established and ending on the date of judgment. In the past, the winning party in many kinds of antitrust cases could potentially recover three times the actual demonstrated damages.

Notification process compliance To benefit from the expanded reach of NCRPA, associations involved in standards development must comply with two types of notification--given to both the Federal Trade Commission (FTC) and the Department of Justice.

1. Notification of the formation of a standards development organization. Proper notification must

* be filed no later than 90 days after the organization commences standards development activities;

* disclose the name and principle place of business of the organization;

* provide documents demonstrating the nature and scope of the standards development activity;

* include a draft notice for the Federal Register, identifying the standards development organization and generally describing of the standards development activities in which it is engaged;

* include an approval of notice publication by the notifying standards development organization, with the name and contact information of the person or persons authorized by the organization to approve the publication; and

* contain one copy of all documents submitted to the FTC and two copies of all documents submitted to the Department of Justice.

2. Notification of any changes in the activities of the standards development organization. Proper supplemental notification requires much the same process as original notification and must

* be filed within 90 days of the organization's change in activities;

* include information and documentation of the change for which supplemental notification is being made;

* include a draft Federal Register notice reflecting the changes;

* include an approval of notice publication by the notifying organization, with the name and contact information of the person authorized to approve the publication; and

* contain one copy of all documents submitted to the FTC and two copies of all documents submitted to the Department of Justice.

Relevant notices are published in the Federal Register within 30 days of receipt. The limitation of liability protections take effect upon publication.

Words of caution

First, the antitrust protections of the new law apply only to standards development organizations--not to other individuals or entities. Second, proper notifications are prerequisites to obtaining the antitrust protections. Finally, filing notice for publication in the Federal Register may eliminate the confidentiality of the standards development process. The decision to file should be made after balancing the likelihood of the association facing antitrust litigation against the degree of confidentially required.

Jerald A. Jacobs is a partner with Shaw Pittman, LLC, Washington, D.C., and head of its Nonprofit Organizations Practice. Jacobs is general counsel for ASAE.