Venable LLP (Jeffrey S. Tenenbaum and Andrew E. Bigart) have published an interesting new trade association and antitrust law related article entitled “Knockin’ on Your Association’s Door: What You Need to Know About Membership Restrictions and the Antirust Laws”, which discusses the application of antitrust laws to some types of association activities including membership restrictions, membership qualifications, codes of ethics, access restrictions to association services and, interestingly, restrictions on access to association trade shows.
Abstract:
“Groucho Marx famously said, “I don’t care to belong to any club that will have me as a member.” Associations frequently take this sentiment to heart by establishing membership restrictions and other limits on access to association services or events. These restrictions come in many shapes and sizes – limiting membership to a specific trade, profession, or market function; imposing geographic limitations; or requiring professional certification, state or federal licensure, or adherence to a code of ethics, to name just a few.
These restrictions often serve a legitimate purpose by helping the association function effectively and focusing its efforts on benefiting an industry or profession with common interests. At the same time, however, these restrictions potentially limit competition by excluding others from participating in association activities. Although courts usually are reluctant to interfere with internal association rules and decisions, an association’s establishment of membership restrictions or qualifications may raise legal concern under the antitrust laws.
This article provides a brief overview of the antitrust laws as they apply to membership restrictions, along with some suggested practices for minimizing potential liability.”
For a copy of this rather good article see:
Association Membership Restrictions in Canada
Association membership restrictions can raise competition law concerns in Canada as well. While in many instances legitimate, objective and non-discriminatory membership criteria are unlikely to raise concerns, issues can arise if associations attempt to exploit their membership criteria to restrict competition.
Membership criteria can be used to limit or restrict competition in several ways, such as if they are designed (or applied) to artificially restrict entry into an industry or profession, refuse a competitor access to competitively significant resources owned or operated by the association (sometimes referred to as “essential facilities”) or to limit or restrict members’ business structures or scope of practice (which can sometimes arise from standard-setting efforts by associations).
Competition law concerns can also sometimes arise when disciplinary measures, such as termination of association membership, are used by an association to discourage or punish departures from association policies that may themselves be anti-competitive, such as fee tariffs, advertising or marketing restrictions or output or supply restrictions.
Some practical steps that trade and professional associations can take to reduce the potential competition law risk related to membership restrictions include:
1. Membership criteria should be well-defined, objective and transparent.
2. Membership criteria should relate to a legitimate and pro-competitive purpose or objective of the association and should constitute the minimum requirements necessary to achieve these legitimate ends (and should not be used to create artificial barriers to entry or as a way to limit competition).
3. Membership criteria should not be arbitrary or discriminatory (e.g., used to favour or constrain the ability of a particular market participant to compete).
4. A member or select group of members should not be given a veto over the admission of new members of the association.
5. Membership criteria should be regularly reviewed to ensure that they remain appropriate as markets and technologies evolve.
6. Associations should be careful about seeking to limit or exclude competition from related service providers (which can in some instances raise price maintenance or collective boycott concerns).
7. No member of an association should be disciplined or expelled unless there is a breach of a clearly defined rule and unless for a legitimate purpose (e.g., to enforce safety standards). Members should not be disciplined with the objective of enforcing anti-competitive rules (e.g., fee tariffs or schedules, failure to adhere to output/supply restrictions or advertising restrictions, etc.).
8. Procedural safeguards should be provided to potential members who are denied membership and for existing members that are subject to discipline or exclusion (or denied access to significant association facilities). These protections can include notification of the reasons for denial of membership/discipline and review/appeal processes.
9. Associations must also be particularly careful when designing and enforcing membership rules if they or their members possess market power or control access to an “essential facility”.
(The above best practices are based on guidelines from my recent book, co-authored with Mark Katz, The Competition Law Guide for Trade Associations in Canada, Carswell, 2012)
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