No. 97-1625
In the Supreme Court of the United States
OCTOBER TERM, 1998
CALIFORNIA DENTAL ASSOCIATION, PETITIONER
v.
FEDERAL TRADE COMMISSION
ON WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
BRIEF FOR THE RESPONDENT
DEBRA A. VALENTINE
General Counsel
JOHN F. DALY
Assistant General Counsel
JOANNE L. LEVINE
ELIZABETH R. HILDER
Attorneys
Federal Trade Commission
Washington, D.C. 20580
SETH P. WAXMAN
Solicitor General
Counsel of Record
JOEL I. KLEIN
Assistant Attorney General
LAWRENCE G. WALLACE
Deputy Solicitor General
PAUL R.Q. WOLFSON
Assistant to the Solicitor
General
Department of Justice
Washington, D.C. 20530-0001
(202) 514-2217
QUESTIONS PRESENTED
1. Whether petitioner is subject to the jurisdiction of the Federal Trade
Commission as an association "organized to carry on business for *
* * [the] profit * * * of its members," within the meaning of Section
4 of the Federal Trade Commission Act, 15 U.S.C. 44.
2. Whether the Federal Trade Commission conducted a sufficient analysis
to determine, under the antitrust rule of reason, that petitioner's restrictions
on its members' advertising of prices, discounts, and quality violated Section
5 of the FTC Act, 15 U.S.C. 45.
In the Supreme Court of the United States
OCTOBER TERM, 1998
No. 97-1625
CALIFORNIA DENTAL ASSOCIATION, PETITIONER
v.
FEDERAL TRADE COMMISSION
ON WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
BRIEF FOR THE RESPONDENT
STATEMENT
1. This case involves advertising restrictions imposed as a condition of
membership by petitioner California Dental Association (CDA). Petitioner's
members include 75% of the dentists actively practicing in California. Pet.
App. 161a-162a. Petitioner has 32 local component dental societies, and
membership in a local association is mandatory for membership in petitioner.
Id. at 162a. In addition, membership in petitioner is mandatory for California
dentists who wish to be members of the American Dental Association. Id.
at 46a. Although membership in petitioner is legally voluntary and is not
required for a license to practice dentistry, membership is highly valued
by California dentists for its "real economic benefit," and "no
one gives up membership" in petitioner to avoid its restrictions on
advertising. Id. at 84a; see also id. at 232a-234a (detailing importance
of CDA membership to dentists).
Petitioner is organized under California law as a nonprofit corporation.
Pet. App. 161a. It is exempt from federal income tax under 26 U.S.C. 501(c)(6),
the tax category for "[b]usiness leagues, chambers of commerce, real-estate
boards, boards of trade, [and] professional football leagues." It does
not qualify for exemption as a charitable institution under Section 501(c)(3).
See Pet. App. 50a-51a, 174a.
Although petitioner's stated purposes include improvement of public health,
it also describes itself as "represent[ing] dentists in all matters
that affect the profession" and "offer[ing] far more services
to its members than any other state [dental] association." Pet. App.
51a.1 Petitioner offers broad assistance to its members to increase their
revenues and decrease their costs. As its promotional literature describes
(J.A. 20-23), petitioner provides its members with services such as job
placement, recruitment of dental assistants, review of proposed contracts
with third-party payers (vaunted as affording a substantial savings over
hiring a private attorney), and financial planning seminars. Pet. App. 51a-52a,
172a-188a. Through a for-profit subsidiary, petitioner offers low-cost malpractice
insurance, which saves members at least $1,000 annually over other insurance
plans; this insurance is available in California only to CDA members. Id.
at 166a, 173a, 184a-185a. Other for-profit subsidiaries offer, exclusively
to members, financing for dental equipment, financing assistance for patients,
and a home mortgage program. Id. at 166a-168a, 185a-186a; see also id. at
181a-183a (seminars, training sessions, and publications offered to members
at steeply discounted rates).
Petitioner engages in lobbying and litigation concerning laws and regulations
that affect dentists' businesses; its lobbying successes "mean money"
to members, or so it claims, and have saved members thousands of dollars
each year. Pet. App. 176a, 177a-179a; see J.A. 20.2 Petitioner also conducts
marketing and public relations initiatives to enhance the image of its members;
these activities have brought members, on average, an additional $6,000
of annual income from new patients, equaling a "20-to-1 return on investment."
Pet. App. 179a-180a. In sum, petitioner estimates that the potential value
to members who take advantage of a selection of its services is $22,000
to $65,000, and that the value to members of its benefits far exceeds their
membership dues. Id. at 175a.
2. Section 10 of petitioner's Code of Ethics, on its face, prohibits advertising
that is "false or misleading in any material respect." Pet. App.
9a; J.A. 33. The record in this case demonstrates, however, that petitioner
has broadly interpreted and enforced that prohibition in a way that effectively
prohibits (a) most advertising about relative prices, (b) all advertising
of across-the-board price discounts, and (c) virtually all advertising claims,
whether relative or absolute, about the quality of a member's dentistry
or service. Pet. App. 55a. These prohibitions cover even advertising claims
that "are not false or misleading in a material respect." Id.
at 260a; see id. at 56a-57a n.6.
Thus, petitioner has prohibited its members from using terms such as "low,"
"reasonable," or "affordable" in their advertising,
whether or not they truthfully describe the dentist's fees, Pet. App. 65a-66a,
198a-199a, under the reasoning that members' statements about their fees
must be "exact" and must "fully and specifically disclos[e]
all variables and other relevant factors" to avoid being branded misleading,
id. at 9a-10a, 64a; J.A. 34-35. Under similar reasoning, petitioner has
disallowed such phrases as "affordable, quality dental care,"
"making teeth cleaning * * * inexpensive," Pet. App. 65a, "affordable
family dentistry," id. at 199a, "reasonable fees quoted in advance,"
id. at 227a, and "Fees that Fit a Family Budget," id. at 237a.
As for advertising about discounted fees, petitioner has required that such
advertising contain at least five disclosures: (1) the dollar amount of
the nondiscounted fee; (2) either the dollar amount of the discounted fee
or the percentage of the discount for the specific service; (3) the length
of time that the discount will be offered; (4) a list of verifiable fees;
and (5) specific groups qualifying for the discount and any other terms
or conditions for the discount. Pet. App. 64a-65a, 200a. The practical effect
of those requirements is "nearly prohibitive" of advertising of
any broadly applicable discounts. Id. at 201a.3 Indeed, petitioner has disapproved
a broad array of discounting offers because they were not accompanied by
the required disclosures.4
Finally, petitioner has made clear that virtually all advertising about
quality of services (including the word "quality" itself) is deemed
"likely to be false or misleading" because it is not "susceptible
to measurement or verification." Pet. App. 74a-75a, 202a-203a; see
J.A. 35. Petitioner has also disapproved any advertising that, in its view,
implies that a dentist is superior to other dentists. Pet. App. 206a. Such
quality claims have been prohibited without regard to whether they are in
fact false or misleading. Id. at 203a-204a, 207a, 209a. Petitioner and its
components have therefore required that members and would-be members eliminate
any advertising phrases that refer to the quality of dental care that patients
will receive, or indeed to the quality of service ancillary to the actual
dentistry, such as punctuality.5
Petitioner enforces its advertising restrictions by requiring applicants
for membership to submit copies of all of their own advertising, plus advertisements
by their employers and referral services, to the ethics committee of their
local dental society. Pet. App. 193a, 237a-239a. Petitioner's local components
also publish notices in their newsletters soliciting members to report possible
Ethics Code violations by the applicant. Id. at 194a. Applicants are denied
membership in petitioner if they do not agree to withdraw or revise advertisements
that petitioner deems objectionable. Id. at 195a-198a. Petitioner also urges
its local components to review local Yellow Pages directories for nonconforming
advertisements by current members. Id. at 194a, 234a-235a. Members who do
not agree to revise offending advertisements may be subject to a hearing
before petitioner's Judicial Council, and thereafter to censure, suspension,
or expulsion. Id. at 11a; see id. at 56a n.6.
The record in this case compiles actions taken by petitioner and its local
societies against nearly 400 dentists, in which petitioner or a component
disapproved particular advertising claims by members and applicants for
membership, without regard to the truth of such claims. Pet. App. 56a-57a
n.6, 89a-90a n.25, 199a-212a, 214a-218a, 235a.6 Petitioner's efforts to
suppress the prohibited advertising have been successful; when forced to
choose between a challenged advertisement and membership in petitioner,
dentists almost always give up the advertisement. Id. at 80a, 235a-237a.
Petitioner's restrictions have also had a substantial deterrent effect.
Some local societies reported that 90-100% of their members' advertisements
complied with petitioner's restraints. Id. at 234a-235a.
3. a. On July 9, 1993, the Federal Trade Commission (FTC or Commission)
issued an administrative complaint (J.A. 5-16) charging that petitioner
had restrained competition among dentists in California by restricting truthful,
nondeceptive advertising regarding price and quality of dental services.
The complaint alleged that these restraints were "unfair methods of
competition" in violation of Section 5 of the Federal Trade Commission
Act (FTC Act or Act), 15 U.S.C. 45. After discovery and trial, an Administrative
Law Judge (ALJ) concluded that the Commission had jurisdiction over petitioner's
activities, and that petitioner had violated Section 5. Pet. App. 159a-265a.7
The ALJ determined, upon extensive factual findings (Pet. App. 161a-247a),
that petitioner had "successfully withheld from the public information
about prices, discounts, quality, superiority of service, guarantees, and
the use of procedures to allay patient anxiety." Id. at 259a-260a (record
citations omitted). He also found that petitioner's "illegal[] conspir[acy]"
had "injured those consumers who rely on advertising to choose dentists."
Id. at 261a-263a.8 The ALJ did rule that petitioner lacked "market
power," id. at 261a, but that conclusion was based on the legal premise
(later rejected by the Commission, id. at 83a) that such power exists only
in the presence of "insurmountable" barriers to entry, id. at
262a. And the ALJ rejected petitioner's arguments of "procompetitive"
effects flowing from its restrictions. He found that petitioner's ethics
code, as actually enforced, "unjustifiably banned whole categories
of advertisements which are not false or misleading in a material respect,"
and reflected "a hostility toward advertising by its members even if
it is truthful and nondeceptive." Id. at 259a-260a.
b. On plenary review of the ALJ's initial decision (see 16 C.F.R. 3.54(a)-(b)),
the Commission affirmed the ALJ's finding of a violation of Section 5. Pet.
App. 43a-158a. The Commission first found (id. at 47a-52a) that petitioner
was subject to the FTC Act as a corporation "organized to carry on
business for its own profit or that of its members," within the meaning
of Section 4 of the Act, 15 U.S.C. 44. Noting that it had previously rejected
the argument that the term "profit" in this context should be
limited to "direct gains distributed to * * * members," the Commission
held that it had jurisdiction in this case because a substantial portion
of petitioner's activities consists of practice management, marketing, public
relations, lobbying, and other business-related services that confer "pecuniary
benefits" on its members. Id. at 49a, 51a-52a.
On the merits, the Commission concluded that petitioner's advertising restrictions,
both price-related and quality-related, constituted unlawful restraints
of trade. Pet. App. 58a-92a. The Commission found, upon its review of the
record, that "advertising is important to consumers of dental services
and plays a significant role in the market for dental services." Id.
at 60a; see id. at 76a-77a. As for the price advertising restrictions specifically,
the Commission upheld the ALJ's findings that petitioner had barred its
members from advertising "low" or "reasonable" fees,
and had effectively precluded truthful across-the-board discount offers.
Id. at 63a-67a. The Commission also found that these restrictions on price
advertising "constitute[d] a naked attempt to eliminate price competition,"
accomplished through the "indirect means of suppressing advertising"
about prices. Ibid. Based on those findings, the Commission held that petitioner's
price-related restraints were unlawful per se. Ibid.; see id. at 60a-63a,
67a-73a.
The Commission also applied the antitrust rule of reason to all the advertising
restrictions at issue in this case. Pet. App. 73a-92a. After observing that
this Court "has made clear that the rule of reason contemplates a flexible
enquiry, examining a challenged restraint in the detail necessary to understand
its competitive effect," id. at 74a (citing NCAA v. Board of Regents,
468 U.S. 85, 103-110 (1984)), the Commission found (ibid.) that application
in this case of the rule of reason could be "simple and short,"
because "[t]he anticompetitive effects of [petitioner's] advertising
restrictions are sufficiently clear, and the claimed efficiencies sufficiently
tenuous, that a detailed analysis of market power is unnecessary to reaching
a sound conclusion." But, the Commission added (ibid.), "in any
event, [petitioner] clearly had sufficient power to inflict competitive
harm."
The Commission began its rule of reason analysis by assessing the anticompetitive
effects of the restrictions. Pet. App. 74a-78a. Supplementing its earlier
findings (under the per se rule analysis) of the effects of petitioner's
restrictions on price advertising, id. at 73a-74a, the Commission found
that petitioner had also proscribed a "vast" range of nonprice
advertising, barring virtually all claims regarding quality, regardless
of the truthfulness of such claims. Id. at 74a-76a. It found "substantial
evidence" that the challenged advertising restraints "prevented
the dissemination of information important to consumers," regarding
both price and nonprice aspects of the dental services offered. Id. at 76a-77a.
And it found that the restraints "hamper dentists in their ability
to attract patients," particularly dentists new to an area. Id. at
78a. The Commission therefore concluded that, because of the importance
of advertising to consumers in choosing dentists (id. at 60a, 77a), petitioner's
broad bans would "deprive consumers of information they value and of
healthy competition for their patronage." Id. at 78a. Although it did
not "quantify[] the increase in price or reduction in output occasioned
by these restraints," the Commission found their "anticompetitive
nature" to be "plain." Ibid.
The Commission also found that petitioner had the "power to cause harm
to consumers" by inducing its members to withhold information. Pet.
App. 80a. It had "little doubt" that petitioner had "the
ability to police, and entice its members to adhere to, the restrictions
on advertising." Ibid. Moreover, it found that "the services offered
by licensed dentists have few close substitutes," that "the market
for such services is a local one," and that petitioner's members command
"more than a substantial share of these markets" -75% of practicing
dentists statewide, and more than 90% in one region. Id. at 82a. Contrary
to the ALJ's conclusion (id. at 261a), the Commission found that there are
"significant barriers to entry" into those markets, id. at 82a-84a,
even if they are not "insurmountable," id. at 83a. Accordingly,
the Commission found that petitioner "possesses the necessary market
power to impose the costs of its anticompetitive restrictions on California
consumers of dental services." Id. at 84a.
Like the ALJ, the Commission rejected petitioner's contention that its restraints
were either harmless or pro- competitive. Pet. App. 84a-89a. The Commission
acknowledged that the prevention of false and misleading advertising is
a "laudable purpose," but it concluded that "the record will
not support the claim that [petitioner's] actions [were] limited to advancing
that goal." Id. at 84a. It found, rather, that petitioner's "broad
categorical prohibitions" (id. at 87a) were enforced "without
any enquiry as to how [prohibited claims] might be construed by consumers
and whether, as construed, they are true of the particular practitioner
making the claim" (id. at 86a). And it perceived "no convincing
argument, let alone evidence" that "consumers of dental services
have been, or are likely to be, harmed by the broad categories of advertising"
that petitioner restricts. Id. at 89a.
The Commission therefore held that petitioner's advertising restrictions
violated Section 5 of the FTC Act. Pet. App. 90a-91a. The Commission's cease-and-desist
order prohibits those restrictions (id. at 27a-31a), but expressly provides
that petitioner may "adopt[] * * * and enforc[e] reasonable ethical
guidelines governing the conduct of its members with respect to representations
that [petitioner] reasonably believes would be false or deceptive within
the meaning of Section 5 of the Federal Trade Commission Act." Id.
at 30a.
4. The court of appeals affirmed. Pet. App. 1a-24a. As to jurisdiction,
the court agreed with the FTC and with other courts that Congress "did
not intend to provide a blanket exclusion for nonprofit corporations"
from the reach of the FTC Act, and it approved the Commission's approach
of "looking at whether the organization provides tangible, pecuniary
benefits to its members" in order to determine whether it is a "corporation"
subject to the Commission's jurisdiction. Id. at 15a-16a. Under that standard,
the court was "confident that the facts of this case support the FTC's
jurisdiction." Id. at 16a.
As to the merits, although the court acknowledged "some support"
in case law for the FTC's per se analysis of petitioner's restrictions on
price advertising, it concluded that a rule of reason analysis is more appropriate
for all aspects of petitioner's advertising restraints. Pet. App. 17a-18a.
It then observed approvingly that the FTC had applied "an abbreviated,
or 'quick look' rule of reason analysis" in this case because petitioner's
restraints "are sufficiently anticompetitive on their face that they
do not require a full-blown rule of reason inquiry." Id. at 18a (citing
NCAA, supra).
The court first noted that "[r]estrictions on the ability to advertise
prices normally make it more difficult for consumers to find a lower price
and for dentists to compete on the basis of price." Pet. App. 19a.
On the other hand, the court found no reason to give petitioner's proffered
justifications for its disclosures more than a "quick look," because,
"[i]n practice," under petitioner's disclosure requirements, it
was "simply infeasible to disclose all of the information that is required,"
and there was "no evidence that [petitioner's] rule has in fact led
to increased disclosure and transparency of dental pricing." Ibid.
Second, the court concluded that petitioner's restrictions on non-price
advertising restricted the supply of information available to consumers,
thereby "prevent[ing] dentists from fully describing the package of
services they offer, and thus limit[ing] their ability to compete."
Pet. App. 19a-20a. The court further suggested that the restrictions "are
in effect a form of output limitation, as they restrict the supply of information
about individual dentists' services." Ibid. It rejected petitioner's
contention that its restrictions were justified because of the potential
for deception, for even that potential "does not justify banning all
quality claims without regard to whether they are, in fact, false or misleading."
Id. at 20a.
Finally, the court rejected petitioner's contentions that the FTC's findings
were not supported by substantial evidence. Pet. App. 20a-24a. In particular,
the court ruled that substantial evidence supports the FTC's finding that
petitioner had banned categories of advertising without regard to whether
they were false or deceptive. Id. at 21a-23a. It also upheld the FTC's finding
that petitioner "possesses enough market power to harm competition"
through its restraints on advertising. Id. at 24a. The court accordingly
affirmed the Commission's opinion and enforced its order that petitioner
cease and desist from restricting "truthful and non-deceptive advertisements."
Ibid.
SUMMARY OF ARGUMENT
I. A. The Federal Trade Commission properly exercised jurisdiction over
petitioner, even though it is formally a nonprofit corporation, because
a substantial portion of its activities engenders economic benefits for
its profit-seeking members. Section 4 of the Federal Trade Commission Act,
15 U.S.C. 44, which sets forth the entities subject to the Commission's
jurisdiction, reaches not only conventional business enterprises but also
any association "organized to carry on business for its own profit
or that of its members." The FTC has consistently interpreted that
statute, adhering to ordinary definitions of the term "profit,"
to reach trade associations that engage in activities for the economic benefit
of their profit-making members, even where the association itself is organized
as a nonprofit entity and the benefits to members take forms other than
cash disbursements. The legislative history of the FTC Act evinces Congress's
intent to authorize FTC jurisdiction over such associations, and the FTC
and the courts have long acted on the understanding that the Act does in
fact reach such associations.
B. There is no basis in the statute for an implied, blanket exemption of
associations representing profit-making professionals. Petitioner's arguments
based on Congress's ostensible lack of attention to professionals when it
enacted the FTC Act fail for the same reasons that the Court rejected an
implied exemption of professionals from the antitrust laws in Goldfarb v.
Virginia State Bar, 421 U.S. 773 (1975). Since that ruling, the FTC has
enforced the Act to protect the public from anticompetitive and deceptive
practices in which professional associations have engaged.
C. The FTC's interpretation of the statute's reach- which is based on the
provision of substantial economic benefits to an association's profit-seeking
members-is reasonable and merits judicial deference. The record amply supports
the FTC's application of that standard to petitioner, which generates significant
economic benefits for its members through its provision of services to its
members and its lobbying, public relations, and marketing activities designed
to increase their profitability.
II. A. The FTC and the court of appeals engaged in a proper and sufficient
analysis of petitioner's advertising restraints under the antitrust rule
of reason. This Court has repeatedly emphasized the flexibility of the rule
of reason; it has instructed that the rule's application may be tailored
to the circumstances of particular cases, and that elaborate industry analysis
is not necessary in all cases to condemn a restraint of trade as unreasonable.
The Commission carefully considered here all relevant aspects of a rule
of reason analysis and concluded, based on a substantial record, that petitioner's
advertising restrictions harmed consumers.
B. The Commission found, based on a substantial evidentiary record, that
petitioner's advertising restrictions, as enforced, proscribe a vast range
of truthful advertising claims regarding price and quality. The Commission's
findings regarding the actual effects of the restrictions belie petitioner's
assertion that its disclosure requirements would prompt dentists to provide
more information to consumers. Recognizing the indispensable role of advertising
in a free enterprise system, the Commission found that the price and quality
advertising suppressed by petitioner would be important to consumers in
choosing dental services, and that its absence deprives consumers of information
they value and of healthy competition for their patronage. Although petitioner
disparages the value of the information at issue, this Court made clear
in FTC v. Indiana Federation of Dentists, 476 U.S. 447 (1986), that competitors
are not entitled to preempt the working of the market by deciding in concert
what information will be made available to consumers, and that the concerted
withholding of information valued by consumers may be condemned even absent
proof that it resulted in higher prices.
C. The Commission carefully considered petitioner's proffered "procompetitive"
justifications for its restrictions, and properly found them lacking. The
Commission found that petitioner's disclosure requirements do not, in fact,
result in more information to consumers, and found no basis for petitioner's
contention that a ban on quality claims was necessary to avoid deception.
Unlike the carefully tailored state restrictions that this Court has accepted
in the context of First Amendment challenges, petitioner banned broad categories
of advertising without regard to whether the banned claims were truthful
or nondeceptive. The Commission properly rejected such a blanket restriction
on information that consumers desire as an unreasonable restraint of trade.
D. Given the Commission's findings concerning the actual anticompetitive
effects of petitioner's restraint, it was not required to engage in a further
analysis of market power. It nevertheless did so, concluding first that
petitioner has the ability to require members to adhere to its advertising
restrictions (due to the high value placed on membership), and second that
petitioner has the power to inflict the anticompetitive effects of those
restrictions on California consumers. It also pointed to the substantial
percentage of California dentists who comply with petitioner's restrictions,
as well as substantial barriers to sufficient entry of new dentists. Those
findings were sufficient for this case; the Commission was not required
to engage in elaborate industry analysis that may be required in other contexts,
such as merger cases.
ARGUMENT
I. THE COMMISSION PROPERLY EXERCISED JURISDICTION OVER PETITIONER BECAUSE
ITS ACTIVITIES, IN SUBSTANTIAL PART, PROVIDE PECUNIARY BENEFITS FOR ITS
MEMBERS
Congress has empowered the FTC to prevent "persons, partnerships, or
corporations" from engaging in unfair methods of competition and unfair
or deceptive acts and practices in or affecting commerce. 15 U.S.C. 45(a)(2).
The FTC Act defines "corporation" broadly, in Section 4, to include
not only companies with capital stock, but also "any company, trust,
so-called Massachusetts trust, or association, incorporated or unincorporated,
without shares of capital or capital stock or certificates of interest,
* * * which is organized to carry on business for its own profit or that
of its members." 15 U.S.C. 44. In this case, the FTC, applying its
longstanding administrative interpretation of Section 4, properly concluded
that petitioner is subject to the FTC Act's reach as an association "organized
to carry on business for [the] profit * * * of its members" because
a substantial part of its activities engenders a pecuniary benefit for its
profit-seeking members. Pet. App. 49a, 51a-52a.
A. The Text, Legislative History, and Enforcement History of the FTC Act
Support the Commission's Exercise of Jurisdiction Over Nonprofit Associations
That Engender Pecuniary Benefits For Their Members
The text of the FTC Act shows a congressional purpose to grant the FTC broad
authority over companies and associations. The language of Section 4 is
expansive. Section 4 extends the ordinary meaning of "corporation"
to include "any" association "organized to carry on business
for its own profit or that of its members," even if unincorporated
and lacking such hallmarks of a profit-making enterprise as "shares
of capital or capital stock or certificates of interest." As long as
the association carries on business "for [the] profit * * * of its
members," it is subject to the Act's prohibitions against unfair methods
of competition and deceptive Acts and practices. 15 U.S.C. 44.
The pivotal question in this case is whether an association may be said
to work for the "profit" of its members, even if it does not distribute
earnings to them. Petitioner argues (Br. 19-21) that Section 4 uses the
term "profit" in the limited sense of the "excess of revenues
over investment or expenses." Thus, it contends, to be within the reach
of the FTC Act, an association must itself earn and pay such "profits"
(i.e., the excess of its own revenues over expenses) to its members.
Even if the Act did use the term "profit" in the limited sense
of the excess of revenues over expenses, that would not advance petitioner's
jurisdictional argument. Petitioner's activities are intended to, and do,
increase the revenues and decrease the expenses of its members, who are
"independent competing entrepreneurs" (Arizona v. Maricopa County
Med. Soc'y, 457 U.S. 332, 357 (1982)). Petitioner's activities help its
members achieve profitability. Thus, petitioner carries on business for
its members' "profit," even if it does not distribute its own
earnings to them. Nothing in logic or the text of Section 4 suggests that
the only way an organization may carry on business to help its members achieve
profits is to distribute its own earnings to the members.
Moreover, "profit" is, and long has been, commonly used to refer
more broadly to economic benefit. When the FTC Act was passed in 1914, a
standard dictionary defined "profit" to include "[a]ccession
of good; valuable results; useful consequences; benefit; avail; gain; as,
an office of profit." Webster's International Dictionary 1713 (def.
2) (1913); see also 2 S. Rapalje & R. Lawrence, A Dictionary of American
and English Law 1020 (1883) ("In its primary sense, profit signifies
advantage or gain in money or in money's worth."). Modern definitions
are similar. See Webster's Third New International Dictionary 1811 (def.
2) (1986). And Congress has frequently used "profit" and "for
profit" in statutes to refer to pecuniary benefit generally, rather
than in the limited sense of the excess of earnings over expenses and investment.9
The language of Section 4 thus comfortably reaches associations that work
for their profit-seeking members' economic benefit, even if they do not
distribute earnings to the members.
Petitioner submits (Br. 21 n.5) that any "genuine nonprofit entity"
should be outside the reach of the Act. A "genuine nonprofit entity,"
however, may well conduct activities that are intended to be, and are, for
the economic benefit of its members. Trade associations, for example, frequently
work to advance their members' economic interests and provide them with
benefits of substantial value, even though such associations are genuinely
nonprofit in that their revenues are not distributed to their members, and
even though such entities (like petitioner) may be entitled to exemption
from federal income tax under 26 U.S.C. 501(c)(6).10
The legislative history of the FTC Act demonstrates, moreover, that Congress
considered the coverage of nonprofit associations (especially, nonprofit
associations of entrepreneurs) and decided to include such entities within
the Act's reach. When Congress was considering legislation to replace the
Bureau of Corporations with the Federal Trade Commission, both the House
and the Senate initially passed bills that would have defined "corporation"
to refer only to incorporated, joint-stock, and share-capital companies
organized to carry on business for profit. See H.R. Conf. Rep. No. 1142,
63d Cong., 2d Sess. 11, 14 (1914). Two days after the Senate passed its
version of the legislation, Bureau of Corporations Commissioner Davies wrote
to Senator Newlands, the bill's sponsor and a member of the Conference Committee,
expressing concern about its definition of "corporation." Davies
explained that the bill would prevent the new Commission from acting against
trade associations that "purport to be organized not for profit,"
and that, although "[a]s to some of the things done by these associations,
no question as to their propriety can be raised," such associations
nonetheless "furnish convenient vehicles for common understandings
looking to the limitation of output and the fixing of prices contrary to
the law."11 The Conference Committee subsequently revised the definition
of "corporation" in Section 4 specifically to include associations
lacking capital stock that are organized to carry on business for their
own profit or that of their members. Id. at 3. That alteration of the statutory
text shows that Congress intended the Act to reach nonprofit entities, including
trade associations, if they work to advance their members' economic interests.
The FTC and the courts have consistently read the FTC Act in conformity
with Congress's intent to cover trade associations advancing the economic
interests of their members. From its earliest days, the FTC has exercised
its jurisdiction over anticompetitive practices by nonprofit associations
whose activities provided substantial economic benefits to their for-profit
members' businesses, even though the associations did not themselves engage
in manufacturing or retailing, and did not distribute earnings to members.12
The courts soon confirmed that "[t]he language of the act affords no
support for the thought that individuals, partnerships, and corporations
can escape restraint, under the act, from combining in the use of unfair
methods of competition, merely because they employ as a medium therefor
an unincorporated voluntary association, without capital and not itself
engaged in commercial business." National Harness Mfrs. Ass'n v. FTC,
268 F. 705, 709 (6th Cir. 1920); see also Chamber of Commerce v. FTC, 13
F.2d 673, 684 (8th Cir. 1926). Following these decisive early rulings, the
FTC and reviewing courts (including this Court) have consistently acted
on the understanding that nonprofit trade associations are within the FTC's
jurisdiction.13 More recently, when the FTC took action against a nonprofit
association for misrepresenting that no scientific evidence linked cholesterol
in eggs to increased risk of cardiovascular disease, the Seventh Circuit
held that the group, which was "formed to promote the general interests
of the egg industry," came within the definition of "corporation"
in Section 4 because it "was organized for the profit of the egg industry,
even though it pursues that profit indirectly." FTC v. National Comm'n
on Egg Nutrition, 517 F.2d 485, 487-488 (1975) (internal quotation marks
omitted), cert. denied, 426 U.S. 919 (1976).14
Despite that lengthy history of FTC enforcement actions (upheld by the courts)
against nonprofit organizations, petitioner argues (Br. 24-25) that Congress's
failure to act on a proposed amendment to the FTC Act in 1977 demonstrates
that Congress did not intend, in 1914, to bring such organizations within
the reach of the Act. This Court has frequently characterized such reliance
on congressional inaction as "a particularly dangerous ground on which
to rest an interpretation of a prior statute." Central Bank v. First
Interstate Bank, 511 U.S. 164, 187 (1994); see FTC v. Dean Foods Co., 384
U.S. 597, 608-611 (1966). Congress's failure to take action on the 1977
proposal in fact reveals little about the matter at hand, because that proposal
would have given the FTC jurisdiction even over wholly charitable institutions;
the Act, as amended, would not have been limited to nonprofit institutions
that advance their members' pecuniary interests.15 Congress may have declined
to amend the Act because it was satisfied with the existing state of the
case law, which (then as now) allowed the FTC to exercise jurisdiction over
nonprofit associations such as petitioner that advance their members' pecuniary
interests (even if they do not distribute earnings to members), but not
over wholly charitable institutions.16 Accordingly, no reliable guidance
can be gleaned from Congress's failure to enact legislation in 1977. Cf.
Consumer Prod. Safety Comm'n v. GTE Sylvania Inc., 447 U.S. 102, 116-120
(1980); United States v. Southwestern Cable Co., 392 U.S. 157, 170 (1968).
B. There Is No Basis In The Statute For A "Professional Association"
Exemption
Petitioner argues (Br. 16) that, even if some nonprofit entities advancing
members' economic interests (such as associations of automobile dealers
or retail grocers) fall within the reach of the FTC Act, professional associations
like itself nonetheless do not. The text of the statute, however, will not
support any implied, blanket "professional association" exception.
A voluntary nonprofit association of professionals may be organized (and
legitimately so) to advance its members' economic interests even if it also
engages in public service activities and monitoring of its members' ethics.
Many associations of professionals (as well as other entrepreneurs) engage
in both kinds of activities. See, e.g., National Soc'y of Prof. Eng'rs v.
United States, 435 U.S. 679, 682 (1978). As the Court explained in Goldfarb
v. Virginia State Bar, 421 U.S. 773, 788 (1975), it is "no disparagement
of * * * a profession to acknowledge that it has [a] business aspect."
Dentists no less than industrialists may come together in a voluntary nonprofit
association to advance their economic interests as a group. It is also difficult
to see how any clear line could be drawn between classes of "professionals"
and "non-professionals" for the purpose of defining the FTC's
jurisdiction.
Petitioner suggests (Br. 24) that Congress must have intended to exclude
professional associations from the FTC Act's reach because the professions
were not regarded as subject to the antitrust laws when the Act was passed.
This Court in Goldfarb rejected the similar argument that the business activities
of "learned professions" were beyond the Sherman Act's reach because
such professions were not regarded as "trade or commerce" when
that Act was enacted. 421 U.S. at 787-788. Given the broad language of coverage
used in Section 4 of the FTC Act, its reach cannot be frozen by assumptions
in 1914 any more than the Sherman Act has been confined by assumptions extant
in 1890. And whether or not Congress contemplated at its enactment that
the FTC Act (or the Sherman Act) would be used against organizations of
professionals such as dentists and lawyers, this Court "frequently
has observed that a statute is not to be confined to the particular applications
contemplated by the legislators." Diamond v. Chakrabarty, 447 U.S.
303, 315 (1980) (internal quotation marks, brackets, and ellipsis omitted).
Since this Court made clear in Goldfarb that combinations of professionals
in restraint of trade are indeed subject to the antitrust laws, the FTC
has consistently acted to protect the public from anticompetitive practices
of professional associations. It has brought enforcement actions against
organizations that were fixing or stabilizing prices,17 thwarting cost containment
programs,18 and blocking the development of health maintenance organizations.19
It has also acted against deceptive advertising and promotion by professional
associations, such as misrepresentation of their members' expertise.20 Petitioner's
submission that such organizations are exempt from the FTC Act would deprive
the public of the important consumer protection provided by Section 5 against
such unfair competition and deceptive practices.21
C. The Commission's Construction Of Its Jurisdiction Under The FTC Act Is
Entitled To Deference, And Its Application Of That Construction In This
Case Was Proper
For the reasons we have stated, the text of the FTC Act does not support
a construction exempting all nonprofit (or professional) associations. At
a minimum, the text does not compel such a construction. Since the word
"profit" is capable of the construction that the FTC has placed
on it- encompassing the situation in which a nonprofit organization works
to advance its members' economic interests, even if it does not distribute
earnings to them-that construction is entitled to deference. Chevron U.S.A.
Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-844 (1984);
Mississippi Power & Light Co. v. Mississippi ex rel. Moore, 487 U.S.
354, 380-382 (1988) (Scalia, J., concurring) (Chevron deference applicable
to agency's interpretation of its own statutory authority or jurisdiction);
see, e.g., NLRB v. Town & Country Elec., Inc., 516 U.S. 85, 89 (1995)
(deferring to NLRB's interpretation of who is an "employee" covered
by National Labor Relations Act). Deference is particularly appropriate
because the FTC has consistently acted on the view that Section 5 reaches
such nonprofit associations since shortly after the FTC Act was passed.
See p. 20, supra; Zenith Radio Corp. v. United States, 437 U.S. 443, 457-458
(1978).
It bears emphasis that the Commission does not read the FTC Act as reaching
all nonprofit associations but (consistent with the Act's requirement of
"profit") only those organizations "whose activities engender
a pecuniary benefit to [their] members if [those] activit[ies are] a substantial
part of the total activities of the organization, rather than merely incidental
to some non-commercial activity." Pet. App. 49a (quoting American Med.
Ass'n, 94 F.T.C. 701, 983 (1979), aff'd, 638 F.2d 443 (2d Cir. 1980), aff'd
by an equally divided Court, 455 U.S. 676 (1982) (AMA));22 see also College
Football Ass'n, 117 F.T.C. 971, 1000-1008 (1994) (FTC's determination that
it lacked jurisdiction over nonprofit organization engaged in commercial
activity for its members' benefit because its members were not profit-seeking).
There is no basis, therefore, for the suggestion that the FTC's reading
of the Act will expand its jurisdiction beyond its proper reach, to the
realm of purely eleemosynary institutions.23 Rather, the Commission has
sensibly read the Act as permitting it to intervene when a nonprofit entity
advances its members' economic interests in the commercial world.
Petitioner's argument (Br. 19) that it falls outside the statute's reach
because its "main purpose" is to promote dental health lacks textual
support. The statute applies by its terms to entities that conduct business
for the profit of their members, and makes no exception for ones that also
conduct activities for the benefit of the public. Furthermore, drawing a
jurisdictional line based on an association's "primary" purpose
would create serious difficulties as to the proper classification of an
organization's activities (particularly those with both public and private
benefits) as well as the weights to be assigned to them (e.g., weighing
by amount of expenditure or by degree of pecuniary benefit conferred). Such
a line could also encourage associations to attempt to evade jurisdiction
through creative accounting classifications of their expenditures. The FTC
was therefore justified in construing the Act's reach to turn on the existence
of a substantial pecuniary benefit to an organization's members, rather
than on the nature of its primary activities.
The record also amply supports the FTC's application of that standard in
this case. Given petitioner's emphasis on the economic benefits that it
provides to its members (see pp. 2-3, supra), the services that it offers
in competition with for-profit businesses (including training programs,
job placement, legal services, and low-cost insurance through its for-profit
subsidiaries) (see p. 2, supra; J.A. 20-23), and its lobbying on behalf
of its members' pocketbook issues (ibid.), there is substantial evidence
to support the FTC's conclusion that petitioner provides its members with
"substantial pecuniary benefits." Accordingly, the FTC properly
concluded that petitioner is subject to the Act.
II. THE COMMISSION CORRECTLY CONCLUDED THAT PETITIONER'S ADVERTISING RESTRICTIONS
CONSTITUTE AN UNREASONABLE RESTRAINT OF TRADE
Section 1 of the Sherman Act, 15 U.S.C. 1, prohibits unreasonable restraints
of trade. See Standard Oil Co. v. United States, 221 U.S. 1, 65 (1911).
Restraints that "always or almost always tend to restrict competition
and decrease output" are deemed unreasonable per se. Northwest Wholesale
Stationers, Inc. v. Pacific Stationery & Printing Co., 472 U.S. 284,
289-290 (1985); see Northern Pacific v. United States, 356 U.S. 1, 5 (1958).
Other restraints are subject to the "rule of reason," which seeks
to distinguish between a restraint that "merely regulates and perhaps
thereby promotes competition" and one that "may suppress or even
destroy competition." Continental T.V., Inc. v. GTE Sylvania Inc.,
433 U.S. 36, 49 n.15 (1977) (internal quotation marks omitted). In all cases,
however, the purpose of the antitrust inquiry is "to form a judgment
about the competitive significance of the restraint. " NCAA v. Board
of Regents, 468 U.S. 85, 103 (1984) (internal quotation marks omitted).
Agreements among members of a professional association that govern the way
in which members compete with one another are horizontal restraints of trade.
National Soc'y of Prof. Eng'rs v. United States, 435 U.S. 679, 692 (1978).
In this case, the Commission carefully examined petitioner's restraints
in light of their surrounding circumstances and an extensive factual record
that had been compiled about their actual effect. Pet. App. 73a-92a. It
found that petitioner applied its advertising rules to ban systematically
a "vast" range of advertising valued by consumers, depriving them
of truthful, nondeceptive information about the price and quality of dental
services. Id. at 74a. It also concluded that the restraints significantly
interfered with the proper functioning of the market and were therefore
anticompetitive. Id. at 78a. Although the Commission found it unnecessary
to quantify the precise consumer injury caused by these restrictions, it
sufficiently considered pertinent factors under the rule of reason, including
market impact and the ostensibly procompetitive justifications proffered
by petitioner. Id. at 78a-92a; see id. at 20a-24a (consideration of same
factors by court of appeals).24
Petitioner's primary complaint (Br. 38, 42) is that the Commission failed
to make a detailed inquiry into market structure and into its market power.
In fact, the Commission (and the court of appeals) did examine market power,
and found that petitioner had the ability to withhold from consumers the
valuable information that they seek about dentists' prices and services.
See Pet. App. 23a-24a, 79a. The Commission's analysis in this case (and
the court of appeals') followed the Court's teachings that the rule of reason
may properly be tailored to the circumstances of each case, and does not
necessarily require a "detailed market analysis" in every instance.
See FTC v. Indiana Fed'n of Dentists, 476 U.S. 447, 460 (1986) (IFD). By
insisting on what it terms a "full rule of reason" analysis in
cases such as the present one-including the detailed analysis of matters
such as the structure of local geographic markets-petitioner would interpose
unjustified barriers to the adjudication of antitrust claims by the Commission
and the federal courts. Although an informed judgment about an arrangement's
likely competitive effects may in some cases require elaborate efforts to
delineate market boundaries, no such detail was needed here to find a substantial
restraint on competition. Petitioner's other objections to the FTC's analysis
are all attacks on the Commission's factual determinations, which (as the
court of appeals ruled, Pet. App. 20a-24a) are amply supported by the record.
A. The Commission's Analysis In This Case Was Consistent With This Court's
Decisions Holding That The Rule Of Reason Requires A Careful Yet Flexible
Inquiry Into Competitive Effects, Tailored To The Circumstances Of Each
Case
Antitrust tribunals apply the rule of reason to evaluate the competitive
significance of a wide variety of business and trade association practices,
which can vary greatly in their complexity, purpose, and effect. For this
reason-and in keeping with its common law origins-the rule of reason is
"used to give the [antitrust laws] both flexibility and definition."
Prof. Eng'rs, 435 U.S. at 688.25 The Court has emphasized the flexibility
of the rule of reason on several occasions, and has instructed that the
requirements of analysis under the rule vary according to the circumstances
presented. For example, in NCAA, supra, the Court declined to apply the
per se rule, but invalidated without detailed market analysis the NCAA's
restrictions on televising football games under the rule of reason. The
Court rejected on both legal and factual grounds the NCAA's argument that
its television plan could not be condemned under the rule of reason because
it lacked market power:
As a matter of law, the absence of proof of market power does not justify
a naked restriction on price or output. To the contrary, when there is an
agreement not to compete in terms of price or output, "no elaborate
industry analysis is required to demonstrate the anticompetitive character
of such an agreement."
468 U.S. at 109 (quoting Prof. Eng'rs, 435 U.S. at 692).
The Court took a similar approach to rule of reason analysis in IFD, supra,
a case quite similar to the present one. There, a state association of dentists
had agreed not to provide copies of dental x-rays to insurers, who sought
to use them to assess the propriety of the dentists' services and charges.
See 476 U.S. at 448-450. The Court rejected arguments in support of the
agreement similar to the ones petitioner advances here-namely, "that
the Commission's findings were inadequate because of its failure both to
offer a precise definition of the market in which the Federation was alleged
to have restrained competition and to establish that the Federation had
the power to restrain competition in that market." Id. at 453. Although
the Court held that the refusal to provide x-rays did not amount to a per
se illegal boycott, it nevertheless ruled that "[a]pplication of the
Rule of Reason to these facts is not a matter of any great difficulty,"
in light of the nature of the restraint and the Commission's finding of
actual effects on competition. Id. at 459.
In so ruling, the Court made two points about the role of market power evidence
in rule of reason cases. First, some restraints are unlawful under the rule
of reason without any proof of market power at all: "absence of proof
of market power does not justify a naked restriction on price or output."
IFD, 476 U.S. at 460 (quoting NCAA, 468 U.S. at 109). Second, other restraints
may be shown to be unlawful without extensive market power analysis. As
the Court explained, "even if the restriction imposed by the Federation
[was] not sufficiently 'naked' to call this principle [condemnation without
proof of market power] into play, the Commission's failure to engage in
detailed market analysis [was] not fatal to its finding of a violation of
the Rule of Reason." Ibid. The Court reasoned that "Federation
dentists constituted heavy majorities of the practicing dentists" and
that insurers were actually unable to obtain x-rays, ibid., and, therefore,
that the restraint had "adverse effects on competition," id. at
461. The Court further reasoned that, even though the purpose of obtaining
x-rays was to minimize costs, the restraint was "likely enough to disrupt
the proper functioning of the price-setting mechanism of the market that
it may be condemned even absent proof that it resulted in higher prices."
Id. at 461-462.
In the present case, the Commission hewed closely to this analysis and to
the Court's teachings "that the rule of reason contemplates a flexible
enquiry, examining a challenged restraint in the detail necessary to understand
its competitive effect." Pet. App. 74a (citing NCAA, 468 U.S. at 103-110)
(emphasis added). The Commission referred to its rule of reason analysis
as "simple and short" (ibid.), which it was, in comparison to
the lengthier analysis that may be needed in (for example) a merger case,
where it may be necessary to delineate numerous geographic markets. But
the Commission-which has extensive experience with the effect of advertising
restrictions-reached its finding of a violation of Section 5 only after
a careful assessment of the record regarding the actual and likely effects
of petitioner's highly restrictive advertising rules on consumers of dental
services in California. See id. at 74a-84a. Based on its finding that "the
general proposition regarding the importance of advertising to competition
carries over to the instant situation," id. at 60a., the Commission
reasonably concluded that petitioner's restrictions on advertising had adverse
effects on competition, for an agreement that "limit[s] consumer choice
by impeding the 'ordinary give and take of the marketplace' cannot be sustained
under the Rule of Reason." IFD, 476 U.S. at 459 (quoting Prof. Eng'rs,
435 U.S. at 692).26
Petitioner (Br. 27, 45-46) and amicus NCAA (Br. 11-12) go far afield in
urging the Court to establish the contours of the analysis required under
the rule of reason for all possible cases. All that is at issue here is
whether the restraints on advertising in this case required a more extensive
analysis than the Commission afforded them. In asserting the need for a
"full rule of reason analysis," petitioner would have the Court
require an exhaustive market analysis whenever an antitrust tribunal applies
the rule of reason (outside some ill-defined class of restraints in which
it concedes that a "quick look" is sufficient, Br. 31). Such a
rigid requirement is not required by this Court's precedents, however, and
can stand only as an unnecessary roadblock to a measured and sensible application
of the antitrust laws, especially in contexts like the present case, involving
extensive suppression of information that consumers find highly useful.27
B. The Commission Properly Found, Based On Substantial Evidence, That Petitioner's
Advertising Restrictions Had Anticompetitive Effects.
The Commission engaged in an extensive analysis of the effects of petitioner's
advertising restrictions, and concluded that they harmed competition by
"depriv[ing] consumers of information they value and of healthy competition
for their patronage." Pet. App. 78a; see also id. at 55a-60a, 63a-67a,
74-77a. That conclusion was based on two intermediate findings. First, the
Commission found that the actual effect of petitioner's restrictions was
to suppress a vast range of truthful and nondeceptive advertising. Second,
it found that the restraints were harmful to consumers of dental services,
because the advertising that was suppressed would have been useful to them
in making choices about dental services. Those conclusions are fully supported
by the record.
1. As detailed above (pp. 9-10, supra), the Commission amassed an extensive
record of the ways in which petitioner foreclosed its members from providing
useful information about price and quality to consumers. Based on that record,
the Commission concluded that petitioner had "effectively preclude[d]
its members from making low fee or across-the-board discount claims."
Pet. App. 63a. It also found that "[t]he nonprice advertising CDA proscribed
is vast," and that petitioner had, in practice, "prohibit[ed]
all quality claims." Id. at 74a-75a.
These well-supported factual findings refute any notion that petitioner's
onerous disclosure requirements, in particular, could have had the effect
of "giv[ing] consumers more information, not less" (Pet. Br. 34).
Although petitioner's policy concerning the advertising of discounts is
superficially couched in terms of disclosure requirements, the Commission
found that the actual effect of those requirements was "prohibitive"
of across-the-board discount advertising. Pet. App. 66a-67a, 85a-86a. In
reaching that factual finding, the Commission employed its expertise-developed
in its dual function of protecting consumers against deceptive practices
and preventing anticompetitive acts-in evaluating the practical effect of
disclosure requirements. As petitioner points out (Br. 34-35), there are
circumstances in which disclosure requirements are highly beneficial to
consumers, and the FTC does in some cases mandate disclosures to prevent
consumer deception. But the FTC is aware (as is this Court, see Morales
v. Trans World Airlines, 504 U.S. 374, 389-390 (1992)), that excessively
burdensome disclosure requirements can have the "paradoxical effect"
of stifling information that might benefit consumers. See Pet. App. 66a.
The FTC is often called upon to make practical judgments about the actual
or likely effects of disclosure requirements, and it properly concluded
in this case that petitioner's requirements were so onerous that they operated
in actual effect as a "broad ban" on discount advertising. Id.
at 67a. Indeed, petitioner appears to concede (Br. 36) the unreasonableness
of its requirement that across-the-board discounts on all dental procedures
be accompanied by the full litany of mandated disclosures.28
2. The Commission also addressed at length the significance to consumers
of petitioner's restraints. It was not just the fact that dissemination
of truthful information was forbidden, but particularly the kind of advertising
banned- relating to the price and quality of service offered-that concerned
the Commission. As the Court has emphasized, advertising "performs
an indispensable role in the allocation of resources in a free enterprise
system." Bates v. State Bar of Arizona, 433 U.S. 350, 364 (1977); see
also Virginia State Bd. of Pharmacy v. Virginia Citizens Consumer Council,
Inc., 425 U.S. 748, 765 (1976); AMA, 94 F.T.C. at 1004; Massachusetts Bd.
of Registration in Optometry, 110 F.T.C. 549 (1988); American Dental Ass'n,
94 F.T.C. 403, 405-406 (1979), modified, 100 F.T.C. 448 (1982).
On the facts of this case, the Commission found fully applicable the well-established
importance of price and quality advertising to consumers. Advertising, it
found, "is important to consumers of dental services and plays a significant
role in the market for dental services." Pet. App. 60a; see id. at
78a. Those findings by the Commission echo those of the ALJ, who concluded
that petitioner's "conspiracy has injured those consumers who rely
on advertising to choose dentists." Id. at 261a. The record showed
that advertisements highlighting low or discount prices, comfort and gentleness
in the provision of dental services, or both were effective in attracting
consumers (and much more effective than "generic advertising without
comparative quality or price claims"), demonstrating the importance
of such information to consumers. Id. at 77a.29 Accordingly, the Commission
properly found that information about price as well as "quality and
sensitivity to fears is important to consumers and determines, in part,
a patient's selection of a particular dentist." Id. at 76a-77a.
Petitioner attempts to minimize the competitive significance of some of
the banned ads. It argues, for example (Br. 36-37), that discount advertising
conveys "negligible informational content." The short answer to
such contentions is that, in a free-market economy, it is generally up to
consumers to decide what information is useful and what is not. See generally
N. Averitt & R. Lande, Consumer Sovereignty: A Unified Theory of Antitrust
and Consumer Protection Law, 65 Antitrust L.J. 713 (1997). The advertising
of discounted prices and references to "affordable fees" can signal
to the consumer the potential availability of cost savings, which can then
be investigated further.30 Similarly, claims about quality of service, although
dismissed by petitioner as "subjective" (Br. 40), may convey useful
information concerning the attitudes and approach of the dentist- such as
commitment to punctuality, to understanding the patient's anxieties, or
simply to providing high-quality care. As this Court has recognized, advertising
can benefit consumers even if it requires further inquiry. See Morales,
504 U.S. at 388-389 (noting utility of advertisements for discounted air
fares); Prof. Eng'rs, 435 U.S. at 692-693 (rejecting argument that "inherently
imprecise" pricing information was of no value to consumers). Petitioner
"is not entitled to pre-empt the working of the market by deciding
for itself that its [members' patients] do not need that which they demand."
IFD, 476 U.S. at 462.
3. The Commission's conclusions in this case are consistent with long-observed
effects of advertising restrictions: they "increase the difficulty
of discovering the lowest cost seller of acceptable ability[, and] * * *
[reduce] the incentive to price competitively." Bates, 433 U.S. at
377. As the Commission also noted, the importance of advertising "attaches
not only to price information, but to all material aspects of the transaction,"
including quality. Pet. App. 59a. Although the Commission found it unnecessary
to "quantify[] the increase in price or reduction in output occasioned
by [petitioner's] restraints" (id. at 78a), its conclusion that such
results would ensue is supported by both the record and by "common
sense and economic theory, upon both of which the FTC may reasonably rely."
IFD, 476 U.S. at 456. Moreover, as this Court stressed in IFD, the market
may be deemed harmed by concerted, artificial suppression of information
even without direct proof of effects on prices:
A concerted and effective effort to withhold (or make more costly) information
desired by consumers for the purpose of determining whether a particular
purchase is cost justified is likely enough to disrupt the proper functioning
of the price-setting mechanism of the market that it may be condemned even
absent proof that it resulted in higher prices.
Id. at 461-462.31 Accordingly, the FTC's conclusion that petitioner's advertising
restraints had anticompetitive effects is fully consistent with this Court's
decisions and supported by the record.
C. The Commission Properly Found That the Restraints Lack Any Plausible
Procompetitive Justification
Contrary to petitioner's contention, the FTC did not end its rule of reason
inquiry once it determined that petitioner's restraints on truthful, nondeceptive
advertisements had an anticompetitive effect. Rather, consistent with this
Court's instructions about rule of reason analysis (IFD, 476 U.S. at 459;
Prof. Eng'rs, 435 U.S. at 693-695), the FTC carefully considered petitioner's
contentions that its advertising restrictions have procompetitive effects.
See Pet. App. 84a-90a. The FTC fully recognizes that self-regulation by
professional organizations "may serve to regulate and promote * * *
competition" by preventing deceptive practices. See Prof. Eng'rs, 435
U.S. at 696. It also acknowledged in this case that "the prevention
of false and misleading advertising is indeed a laudable purpose."
Pet. App. 84a. It found, however, that petitioner's advertising bans were
not tailored to that purpose, but instead "swept aside" price
and quality advertising with "broad strokes," without regard to
its potential for deception. Id. at 89a.
Before this Court, petitioner makes two principal arguments, neither of
which has merit. With respect to price advertising, the sole procompetitive
theory petitioner advances is that its disclosure requirements for advertising
discounts will increase the amount of information provided to consumers.
(Petitioner appears to make no argument in defense of its prohibition against
comparative advertising claims such as "low fees" and "reasonable
fees.") Because of that supposed potential for increased information,
petitioner maintains (Br. 34-36) that a more detailed analysis of its restrictions
was required. Whatever might be the merits of such a contention where disclosure
requirements really do have a procompetitive potential, it cannot be sustained
in this case, where (as we have explained) the FTC, employing its expertise
in such matters, found that the actual effect of petitioner's onerous disclosure
requirements, as they have been interpreted and enforced, is to suppress
all across-the-board discounting claims. See p. 9, supra. The FTC therefore
rejected petitioner's asserted procompetitive justification for its restraint
only after finding it factually unsupportable.32
With respect to its restrictions on quality claims, petitioner submits (Br.
38-39) that it may ban all such claims because they are "potentially
misleading." This Court has suggested that some quality claims by professionals
about performance may well be misleading and may therefore be restricted.
See Bates, 433 U.S. at 366, 383-384. The Court has not held, however, that
all quality claims by professionals-even claims that do not relate directly
to the quality of performance, such as promises of punctuality and offers
of a comfortable environment, designed to dispel anxiety about visiting
the dentist (p. 5, n.5, supra)-are necessarily misleading. Indeed, Bates
warned of the potential of overbroad advertising restrictions used to "perpetuate
the market position of established [market participants]." Id. at 377-378.
The Court has also admonished, with respect to state regulation of marketing
by professionals, that "the free flow of commercial information is
valuable enough to justify imposing on would-be regulators the costs of
distinguishing the truthful from the false, the helpful from the misleading,
and the harmless from the harmful." Shapero v. Kentucky Bar Ass'n,
486 U.S. 466, 478 (1988) (internal quotation marks omitted). That admonition
is even more apt in the context of industry self-regulation, where the body
imposing restrictions lacks full public accountability and may be subject
to incentives to adopt approaches that restrict competition.
In the present case, drawing distinctions between deceptive and nondeceptive
advertising is precisely what petitioner did not do. Instead, it imposed
blanket bans on useful advertising claims without regard to whether they
were truthful or deceptive. Furthermore, although it had every opportunity
to do so, petitioner made no effort to show any basis on which a prophylactic
restraint might be justified, such as a history of abuse, or false and deceptive
advertisements that could not be prevented effectively by a more narrowly
tailored rule. Cf. Florida Bar v. Went For It, Inc., 515 U.S. 618, 626-628
(1995). The Commission also expressly allowed petitioner to enforce "reasonable
ethical guidelines * * * with respect to representations that [petitioner]
reasonably believes would be false or deceptive." Pet. App. 30a. Generalized
arguments about the procompetitive benefits of suppressing false and deceptive
advertising therefore cannot sustain petitioner's overbroad restrictions.
D. The Commission's Market Power Analysis Of Petitioner's Restraints Was
Appropriate
In light of the Commission's conclusions regarding the anticompetitive effects
of petitioner's advertising restrictions, it did not find it necessary to
perform an elaborate structural analysis of the markets in which petitioner's
members conduct business. Pet. App. 78a. As the Commission noted, this Court
"has indicated that when a court finds actual anticompetitive effects,
no detailed examination is necessary to judge the practice unlawful."
Ibid. n.19 (citing NCAA and IFD). Nevertheless, the Commission did examine
market power, and it had an ample basis on which to conclude that petitioner
had the ability "to impose the costs of its anticompetitive restrictions
on California consumers of dental services," id. at 84a, which was
the relevant determination.
The facts supporting that determination are straightforward. Fully 75% of
California's practicing dentists (and 90% in one region) are members of
petitioner.33 Pet. App. 82a. The Commission found substantial barriers to
entry and few close substitutes for the services offered by petitioner's
members. Id. at 82a-83a.34 It also found that petitioner had the power to
require members and aspiring members to comply with the restrictions, because
of the importance placed on membership by California dentists. Id. at 80a-81a.
Given those findings (which the court of appeals upheld and which petitioner
does not challenge here), the Commission properly concluded that conspiring
members of petitioner had the power to impose their will on the market as
a whole. See id. at 84a.
The FTC was not required to approach the issue of market power as if this
were a merger case. Market power analysis is not an end in itself; it is
a tool to help determine whether the challenged conduct is anticompetitive.
See IFD, 476 U.S. at 460. Because the anticompetitive potential of different
types of conduct varies, the appropriate market power analysis varies as
well. See, e.g., NCAA, 468 U.S. at 109-110; IFD, 476 U.S. at 460. Certain
kinds of agreements challenged under the antitrust laws require an extensive
structural analysis because it is not possible to reach a reasoned conclusion
about the competitive effects of such agreements without an understanding
of the market context. See Northwest Wholesale Stationers, 472 U.S. at 296
(buyer cooperatives); Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320,
334 (1961) (exclusive dealing arrangements). Similarly, in merger cases,
the antitrust tribunal must predict the competitive effect of structural
changes to the market, and so the inquiry ordinarily focuses on structural
issues. See Brown Shoe Co. v. United States, 370 U.S. 294, 335 (1962). By
contrast, in cases involving conduct deemed unlawful per se, there is generally
no need for market analysis because the conduct is conclusively presumed
to be anticompetitive.
Other cases fall between these two poles. NCAA, for example, involved a
restraint that the Court characterized as a naked restraint on output, which
could be condemned without an "elaborate industry analysis." 468
U.S. at 109. In IFD, the Court suggested that the agreement was sufficiently
anticompetitive on its face to fall within the NCAA analysis. 476 U.S. at
460. It also made clear, however, that even if that were not the case, a
full structural analysis of the market was not required. Ibid.
In this case, the Commission and court of appeals properly relied on this
Court's teaching in IFD that "the finding of actual, sustained adverse
effects on competition in those areas where [petitioner's] dentists predominated,
viewed in light of the reality that markets for dental services tend to
be relatively localized, is legally sufficient to support a finding that
the challenged restraint was unreasonable even in the absence of elaborate
market analysis." 476 U.S. at 461; see also Pet. App. 24a (court of
appeals noting that advertising restrictions imposed by such "large
scale professional organizations" have substantial anticompetitive
effects that can properly be condemned "without careful market definition")
(quoting 7 P. Areeda, Antitrust Law ¶ 1503, at 377 (1986)). The advertising
that petitioner bans informs consumers so that they may compare competing
market participants. If, as the Commission found, a combination comprising
three-quarters of the practicing dentists in the State adheres to strict
policies banning such advertising, then consumers will lack the information
they desire, regardless of the actions of other market participants. Accordingly,
once the Commission found that the restraint had anticompetitive effects
and that petitioner could inflict those effects on the market as a whole,
it was amply justified in concluding that petitioner "possesses the
necessary market power to impose the costs of its anticompetitive restrictions
on California consumers of dental services." Pet. App. 84a.
CONCLUSION
The judgment of the court of appeals should be affirmed.
Respectfully submitted.
DEBRA A. VALENTINE
General Counsel
JOHN F. DALY
Assistant General Counsel
JOANNE L. LEVINE
ELIZABETH R. HILDER
Attorneys
Federal Trade Commission
SETH P. WAXMAN
Solicitor General
JOEL I. KLEIN
Assistant Attorney General
LAWRENCE G. WALLACE
Deputy Solicitor General
PAUL R.Q. WOLFSON
Assistant to the Solicitor
General
DECEMBER 1998
1 In the last year that petitioner explicitly reported its public service
expenditures, they accounted for 7% of its annual budget. J.A. 19; Pet.
App. 52a. In the same year, expenses for "direct member services"
were 65% of petitioner's budget, and administration and indirect member
services accounted for an additional 20 percent. Ibid.
2 Although some of petitioner's lobbying has advocated measures to promote
public health, much of its lobbying has been directed at protecting members'
profitability. Thus, petitioner has opposed legislation regarding mandatory
health insurance coverage for part-time employees and treatment of infectious
and hazardous waste, and it has supported malpractice-liability and workers'
compensation reforms. Pet. App. 177a-179a.
3 One dentist testified that, to advertise an across-the-board discount,
a member would have to list his regular fees for 100-300 procedures. Pet.
App. 201a. A member of petitioner's Judicial Council (which is responsible
for enforcing its Code of Ethics, see id. at 9a) acknowledged that to advertise
an across-the-board discount in compliance with these requirements "would
probably take two pages in the telephone book," and that "[n]obody
is going to really advertise in that fashion." Id. at 66a.
4 For example, petitioner disapproved advertisements that offer "20%
off new patients with this ad"; "25% discount for new patients
on exam x-ray & cleaning/ 1 coupon per patient/ offer expires 1-30-94";
"20% senior citizen discount; 20% military discount"; and "Complete
Consultation, Exam and X-rays (if needed) * * * [for only] a $1.00 charge
to you and your entire family with this coupon" before a certain date.
Id. at 66a-67a, 90a n.25, 200a-202a. Dentists new to an area who sought
to attract patients by advertising a "Grand Opening Special $5 exam
x-ray, $15 polishing and 40% off dental treatment," or a "get
acquainted offer" that "an initial consultation, complete exam,
any x-rays and tooth cleaning will be done for only $5 (applies to all members
of your family)" also encountered petitioner's disapproval. Id. at
77a n.18.
5 Thus, petitioner has disapproved such phrases as "personal quality
dental care"; "we cater to those people that demand quality, personal
attention, and punctuality" (Pet. App. 204a); "you shouldn't have
to wait hours or days for dental care" (id. at 205a); "my number
one concern is your care and comfort"; "You'll appreciate our
warm personal attention"; "State of the art dental services"
(id. at 208a); "dedicated to quality dental care at low cost";
"comfortable and personalized"; "latest equipment and gentle,
caring, techniques" (id. at 214a); "fully modern . . . luxurious
atmosphere" (id. at 236a); "all of our handpieces (drills) are
individually autoclaved for each and every patient"; and "highest
standards in sterilization" (id. at 75a). For several years, petitioner
disallowed advertising that a dentist offers "gentle" care or
"special care for cowards," and many local components continue
to proscribe such claims. Id. at 76a, 211a-212a.
6 The excerpts of the record filed by the FTC in the court of appeals include
an extensive summary of petitioner's disciplinary actions as well as a long
list of the words and phrases that petitioner and its components have proscribed.
See FTC Supp. E.R., Vol. I, Tab 2, and Vol. II.
7 Although the present case arises under Section 5 of the FTC Act, 15 U.S.C.
45, practices that violate Section 1 of the Sherman Antitrust Act, 15 U.S.C.
1, are necessarily "unfair methods of competition" under Section
5, and the Commission relied on Sherman Act principles in addressing the
merits of this case. See Pet. App. 53a n.5; FTC v. Indiana Fed'n of Dentists,
476 U.S. 447, 454-455 (1986).
8 Petitioner maintains that the ALJ found that its advertising restrictions
had "no impact on competition." See Pet. Br. 2, 6-7, 13, 15, 27,
41-42; Pet. App. 246a. In context, however, it appears that the ALJ was
quoting the testimony of petitioner's own expert witness, and was not adopting
that testimony as his own factual finding. See ibid. Indeed, the ALJ noted
that this witness "has no expertise in, nor has he made any study of,
the economic aspects of the dental market or dental advertising." Id.
at 244a. Even if the ALJ did credit that witness's testimony on the impact
of competition (see id. at 83a n.22), the Commission rejected such a conclusion
and found that competition was harmed by petitioner's restrictions, ibid.;
see pp. 10-11, infra, and the court of appeals upheld the Commission's finding
as supported by substantial evidence, see pp. 12-13, infra; Pet. App. 23a-24a.
9 See, e.g., 7 U.S.C. 1a(5)(A)(i) (defining "commodity trading advisor"
as one who, "for compensation or profit," advises others on commodity
trading); 7 U.S.C. 2132(f) (defining animal "dealer" as one who
"for compensation or profit" delivers animals for sale); 8 U.S.C.
1375(e)(1)(A) (Supp. II 1996) (defining "international matchmaking
organization" as one that offers matrimonial services "for profit");
18 U.S.C. 1170(a) (punishing one who "uses for profit" any Native
American human remains without the right of possession); 42 U.S.C. 3604(e)
(punishing one who, "[f]or profit," induces another to sell or
rent a dwelling based on changes in racial composition of neighborhood);
see also 12 U.S.C. 2802(4); 18 U.S.C. 31; 18 U.S.C. 921(a)(21); 18 U.S.C.
1466(b); 42 U.S.C. 2205(b); 50 U.S.C. 217.
10 Petitioner (Br. 20 n.4) and amici (ASAE Br. 10, ADA Br. 15) argue that,
to qualify as tax-exempt under Section 501(c)(6), they had to satisfy that
Section's requirement that "no part of [their] net earnings * * * inure[]
to the benefit of any private shareholder or individual," which (they
contend) necessarily means that they do not operate for the profit of their
members. Under Section 501(c)(6), however, it is generally permissible for
a trade association's activities to "improve[] the business conditions"
of the industry as a whole, including its members, as long as such benefits
are not confined to the association's members. See National Muffler Dealers
Ass'n v. United States, 440 U.S. 472, 482-484 (1979); MIB, Inc. v. Commissioner,
734 F.2d 71, 76 & n.3 (1st Cir. 1984); 26 C.F.R. 1.501(c)(6)-1. Indeed,
as Section 501(c)(6) is confined to entities with common business interests
(as opposed to charities, which are covered elsewhere), that Section presupposes
the promotion of an industry's economic interests. Furthermore, there are
significant differences between the purposes and operation of the revenue
laws and the FTC Act. Cf. FTC v. Bunte Bros., 312 U.S. 349, 353 (1941) ("Translation
of an implication drawn from the special aspects of one statute to a totally
different statute is treacherous business."). The fact that an entity
might be considered nonprofit for tax purposes does not necessarily mean
that it is outside the broad enforcement reach of the FTC Act.
11 Trade Commission Bill: Letter from the Commissioner of Corporations to
the Chairman of the Senate Comm. on Interstate Commerce, Transmitting Certain
Suggestions Relative to the Bill (H.R. 15613) to Create a Federal Trade
Commission, 63d Cong., 2d Sess. 3 (1914).
12 See, e.g., FTC v. Association of Flag Mfrs., 1 F.T.C. 55 (1918); FTC
v. United States Gold Leaf Mfrs. Ass'n, 1 F.T.C. 173 (1918); FTC v. Bureau
of Statistics of the Book Paper Mfrs., 1 F.T.C. 38 (1917).
13 See, e.g., FTC v. Cement Inst., 333 U.S. 683 (1948); Millinery Creator's
Guild, Inc. v. FTC, 312 U.S. 469 (1941); Fashion Originators' Guild v. FTC,
312 U.S. 457 (1941); FTC v. Pacific States Paper Trade Ass'n, 273 U.S. 52
(1927); Standard Container Mfrs. Ass'n v. FTC, 119 F.2d 262 (5th Cir. 1941);
California Lumbermen's Council v. FTC, 115 F.2d 178 (9th Cir. 1940), cert.
denied, 312 U.S. 709 (1941).
14 Petitioner relies heavily (Br. 16-19) on the Eighth Circuit's decision
in Community Blood Bank v. FTC, 405 F.2d 1011 (1969), which, it contends,
supports its narrow reading of the term "profit." That decision,
however, is consistent with the approach to Section 4 explained above. There
the court of appeals rejected the theory that a community blood bank-which
it found to be organized for "only charitable purposes"- could
be said to earn "profit" by virtue of its retention of earnings
"for its own self-perpetuation or expansion." Id. at 1016, 1022.
Nonetheless, the court recognized that Section 4 does not "provide
a blanket exclusion of all nonprofit" entities. Id. at 1017. It acknowledged
Congress's intent to confer on the Commission jurisdiction over "trade
associations," and emphasized the need for an "ad hoc" inquiry
focusing on the facts of the particular organization. Id. at 1017-1019.
Most significantly, it had no occasion to address the status of an entity,
like the present petitioner, that is organized as a nonprofit corporation
but whose activities provide pecuniary benefits to profit-seeking members.
See also FTC v. Freeman Hosp., 69 F.3d 260, 266 (8th Cir. 1995) (reading
Community Blood Bank as holding that only genuine charitable organizations
are outside Section 4).
15 The proposal would have amended the definition of "person, partnership,
or corporation" in Section 4 "to include any individual, partnership,
corporation, or other organization or legal entity." See H.R. 3816,
95th Cong. (1977), reprinted in Federal Trade Commission Amendments of 1977
and Oversight: Hearings Before the Subcomm. on Consumer Protection and Finance
of the House Comm. on Interstate and Foreign Commerce, 95th Cong., 1st Sess.
4, 27-28 (1977) (1977 House Hearing). The proposal therefore would have
overruled the Eighth Circuit's decision in Community Blood Bank, supra.
16 Compare Community Blood Bank, supra, with National Comm'n on Egg Nutrition,
supra; see also 1977 House Hearing, supra, at 82 (testimony by FTC Chairman
Collier that Community Blood Bank decision "affirmed the Commission's
jurisdiction over nonprofit corporations whose activities redound to the
economic benefit of their shareholders or members").
We also note that, in 1982, Congress failed to pass an amendment reported
out of a Senate committee that would have terminated the FTC's jurisdiction
over all state-licensed professionals and their associations. See S. Rep.
No. 451, 97th Cong., 2d Sess. 5-7, 34-35 (1982). Under petitioner's logic,
that refusal to take action could be taken as evidence that Congress approved
of the FTC's actions in this area, especially since the minority on the
committee observed that "the long list of FTC actions in this area
is clearly pro-consumer and pro-competition." Id. at 49.
17 See, e.g., FTC v. Superior Court Trial Lawyers Ass'n, 493 U.S. 411 (1990);
Empire State Pharm. Soc'y, 114 F.T.C. 152 (1991) (boycotts against third-party
payers that attempted to obtain lower prices for prescriptions).
18 See, e.g., FTC v. Indiana Fed'n of Dentists, 476 U.S. 447 (1986); Michigan
State Med. Soc'y, 101 F.T.C. 191 (1983); Indiana Dental Ass'n, 93 F.T.C.
392 (1979).
19 See, e.g., Forbes Health Sys. Med. Staff, 94 F.T.C. 1042 (1979); Medical
Serv. Corp., 88 F.T.C. 906 (1976).
20 See, e.g., FTC v. National Energy Specialist Ass'n, No. 92-4210, 1993
WL 183542 (D. Kan. Apr. 29, 1993).
21 Petitioner points out that, even if it is exempt from the FTC Act, it
will still be subject to antitrust scrutiny by the Department of Justice
under the Sherman and Clayton Acts. The same cannot be said, however, of
the FTC's authority under Section 5 to prevent deceptive practices, for
which there is no analogue in the antitrust laws. Petitioner's argument
would leave the FTC without authority to proceed against nonprofit trade
and professional associations that disseminate false information about their
members' services or products. Cf. National Comm'n on Egg Nutrition, supra
(FTC Act used to prevent dissemination of false information about health
effects of cholesterol in eggs); American Dairy Ass'n, 83 F.T.C. 518 (1973)
(consent order against misrepresenting fat content or caloric value of milk).
22 With respect to the Court's affirmance in the AMA case, we note that,
when it reached this Court, that case presented not only the jurisdictional
question, but also the propriety of the FTC's entry of a prospective cease-and-desist
order in light of ethical-rule changes adopted by the AMA after the filing
of the administrative complaint. See 80-1690 FTC Br. I, 46-59.
23 Amicus American College for Advancement in Medicine (ACAM) cites the
FTC's investigation into its activities as evidence that the FTC has wrongly
asserted jurisdiction over a purely eleemosynary medical society (Br. 1,
3). (The IRS master list of exempt organizations reveals that ACAM is a
Section 501(c)(6) business league, not a Section 501(c)(3) charity.) On
December 8, 1998, ACAM agreed to settle the FTC's charges that it made false
and unsubstantiated advertising claims regarding EDTA chelation therapy
for treating coronary artery disease; ACAM has agreed not to make any representation
about the efficacy of such chelation therapy unless supported by competent
and reliable evidence. See FTC, Current News Releases (Dec. 8, 1998) http://www.ftc.gov
(copies of complaint and proposed settlement); see also Quackery: A $10
Billion Scandal: Hearing Before the Subcomm. on Health and Long-Term Care
of the House Select Comm. on Aging, 98th Cong., 2d Sess. 96-98 (1984); United
States v. Evers, 643 F.2d 1043, 1045-1046 (5th Cir. 1981).
24 As we have noted (pp. 8-9, supra), the Commission concluded that petitioner's
bans on price advertising were unlawful per se. The Commission pointed (Pet.
App. 67a-69a) to substantial support in the case law for such per se treatment
of advertising restrictions. Although we submit the Commission's use of
the per se rule was appropriate, especially given its accumulation of experience
with advertising restrictions (see id. at 71a-72a) , the Court need not
reach that issue if it agrees with our submission that the Commission's
analysis under the rule of reason was sufficient.
25 This Court's decision in Professional Engineers itself displayed the
flexibility of the rule of reason. The Court held that the Society's ban
on competitive bidding, while not "price fixing as such," "impede[d]
the ordinary give and take of the market place," and "deprive[d]
the customer of the ability to utilize and compare prices in selecting engineering
services." 435 U.S. at 692-693 (internal quotation marks omitted).
Under those circumstances, the Court ruled that "no elaborate industry
analysis is required" to condemn the bidding ban under the rule of
reason. Id. at 692. Moreover, the Court did so without a finding of market
power. See id. at 681-682 (Society had membership of 69,000 of 325,000 registered
professional engineers).
26 Arguments advanced by petitioner (Br. 27, 31) regarding the supposed
need to confine "quick look" analysis to a "limited class
of cases" are therefore based on a misconception of the Commission's
ruling. In giving what it called a "quick look" to petitioner's
restraints, the FTC did not engage in a separate category of antitrust analysis.
Rather, it applied the rule of reason in the particular context of advertising
restrictions, in which it has considerable expertise. That context permitted
it to take into account the well-established, fundamental role of advertising
in the proper functioning of a free-market economy. See pp. 36-38, infra.
Furthermore, consistent with the requirements of rule of reason analysis,
the Commission considered the procompetitive justifications offered by petitioner
in support of its restraints. See pp. 40-43, infra.
27 Petitioner and amicus NCAA elsewhere appear to suggest that virtually
any proffer of an ostensibly procompetitive effect has the effect of necessitating
a "full rule of reason analysis." Pet. Br. 37-38; NCAA Br. 16-17.
The cases on which they rely, however, dealt with restrictions quite unlike
those in the present case, which involves the well-understood effects of
a suppression of advertising of discounts and comparative price and quality
claims. In United States v. Brown University, 5 F.3d 658 (3d Cir. 1993),
the court was presented with novel arguments about the distribution of financial
aid to students based on need, and concluded that such arguments required
more extensive analysis. See id. at 669, 678-679. Vogel v. American Society
of Appraisers, 744 F.2d 598 (7th Cir. 1984), was an antitrust challenge
to an ethical rule against a percentage-based pricing system for appraisals.
The court emphasized that the ethical rule appeared to promote, rather than
restrict, competition, because "[t]he apparent tendency" of the
outlawed pricing system was "to raise, not lower, the absolute level
of appraisal fees." Id. at 602. Neither case suggests that an exhaustive
market analysis is required whenever a defendant asserts a procompetitive
theory.
28 Petitioner nonetheless speculates (Br. 36) that its member dentists,
even if effectively (and unreasonably) precluded from advertising across-the-board
discounts by its restrictions, should be able to comply with a requirement
that advertised discounts on individual services be accompanied by a litany
of disclosures. The Commission found, however, that "the truthful offer
of a discount from the price ordinarily charged by a dentist for services
is not deceptive." Pet. App. 85a. It also noted that petitioner's restrictions
went far beyond any restriction that would be necessary to prevent dentists
from engaging in "chicanery" such as selectively inflating the
price from which the discount is computed. Ibid.
29 Studies show that anxiety about discomfort in dental procedures is one
of the principal reasons that consumers do not obtain needed dental services.
See J. Elter, et al., Assessing Dental Anxiety, Dental Care Use and Oral
Status in Older Adults, 128 J. Amer. Dent. Ass'n 591 (May 1997); N. Corah,
et al., The Dentist-Patient Relationship: Perceived Dentist Behaviors That
Reduce Patient Anxiety and Increase Satisfaction, 116 J. Amer. Dent. Ass'n
73 (Jan. 1988); N. Corah, et al., Dentists' Management of Patients' Fear
and Anxiety, 110 J. Amer. Dent. Ass'n 734 (May 1985). Along with allaying
concerns about pain, lower fees and a "friendlier and more caring"
dentist are three of the four top factors that adults reported would make
them more likely to visit a dentist. See Influences on Dental Visits, 29
ADA News 4 (Nov. 2, 1998) (citing ADA Survey Center, 1997 Survey of Consumer
Attitudes and Behaviors Regarding Dental Issues).
30 Petitioner's citation to an article written by FTC Chairman Pitofsky
two decades ago does not advance its argument. That article emphasized the
risk to consumers and the competitive process from overregulation of discount
price claims "because of the special proconsumer and procompetitive
effects of aggressive price competition." R. Pitofsky, Advertising
Regulation and the Consumer Movement, in Issues in Advertising: The Economics
of Persuasion 27, 42 (D. Tuerck ed., 1978). Thus, while Chairman Pitofsky
stated that a claim of "10 percent off" may be ambiguous and therefore
ignored by consumers, he also stressed that regulation of such claims "entails
considerable social and economic costs," id. at 39, a proposition entirely
consistent with this Court's cases on advertising restrictions.
31 Restraints on advertising, such as those in the present case, can increase
a consumer's search costs in finding a dentist. The FTC has observed that
agreements that increase consumer search costs are harmful to consumer welfare
and form a proper concern of the antitrust laws. See Detroit Auto Dealers
Ass'n, 111 F.T.C. 417, 495-496 (1989), aff'd in part and remanded, 955 F.2d
457 (6th Cir.), cert. denied, 506 U.S. 973 (1992). Furthermore, as the court
of appeals recognized (Pet. App. 19a-20a), the concerted withholding of
information that is of value to consumers may be viewed as a form of restriction
on output. While the advertising information at issue here is not the principal
output of dentists, neither were the x-rays at issue in IFD. In both cases,
the information could be used, and was desired, by consumers (or insurers
acting on their behalf) to make assessments regarding the purchase of dental
services. Cf. IFD, 476 U.S. at 461-462.
32 Petitioner maintains (Br. 30-31, 33) that its disclosure requirements
require more extensive analysis because they are not "facially"
anticompetitive (emphasizing that the literal terms of its Code of Ethics
prohibit only false and deceptive advertising). The FTC, however, did not
base its analysis on the language of Section 10 of petitioner's Code of
Ethics, but rather on the actual enforcement of the advertising restrictions.
As Professor Areeda noted, the phrase "facially unreasonable"
as used in antitrust cases is "reminiscent of facially unconstitutional
statutes" and thus "may seem to focus attention on the words on
the face of an agreement." 7 P. Areeda, Antitrust Law ¶ 1508,
at 405 (1986). In fact, as he pointed out, the phrase properly refers to
a restraint about which a judgment can be made based on plausible arguments
about anticompetitive effects without detailed proof. Ibid. Thus, the court
of appeals correctly ruled that petitioner's advertising restrictions were
"facially anticompetitive" (Pet. App. 24a), even though its understanding
of the nature of petitioner's restraints required an examination of its
conduct in enforcing those restraints, and not merely the language of its
Code of Ethics.
33 Compare IFD, where the Court affirmed the FTC's finding of an unlawful
restraint of trade where 67% of the dentists in one area participated in
the restraint. 476 U.S. at 451. The 75% figure in this case may actually
understate petitioner's influence because its advertising strictures apply
as well to affiliated employers, employees, and referral services. Pet.
App. 81a.
34 The ALJ found otherwise, Pet. App. 262a, but the Commission rejected
that finding as predicated on an error of law, see id. at 83a. Contrary
to the view of the ALJ, market power does not require a showing of "insurmountable"
barriers to entry. Cf. U.S. Dep't of Justice & FTC, Horizontal Merger
Guidelines §§ 3.1-3.4, 4 Trade Reg. Rep. (CCH) ¶ 13,104 (1997).
Furthermore, although petitioner relies heavily on the rejected findings
of the ALJ, the courts review the findings of the Commission, not the ALJ,
and sustain the Commission's findings if they are supported by substantial
evidence. See Southwest Sunsites, Inc. v. FTC, 785 F.2d 1431, 1437 (9th
Cir.), cert. denied, 479 U.S. 828 (1986); see generally FCC v. Allentown
Broadcasting Corp., 349 U.S. 358, 364 (1955); Universal Camera Corp. v.
NLRB, 340 U.S. 474, 493 (1951).