Canadian COMPETITION LAW

January 12, 2013

A recent settlement between the U.S. Department of Justice (DoJ) and an Oklahoma chiropractors association (the Oklahoma State Chiropractic Independent Physicians Association) shows the potential risk of association collective bargaining in the absence of competition law immunities/exceptions.

On January 10^th, the DoJ announced that it had reached a settlement with this chiropractors association that will require the association to stop jointly determining prices and negotiating contracts with insurers on behalf of competing chiropractors in Oklahoma.  According to the DoJ, the association, representing approximately 45% of the state market, and its executive director negotiated at least seven contracts between chiropractors and insurers that set prices for chiropractic services, with the effect of consumers having to paying higher fees in Oklahoma.  The DoJ also took issue with collective steps by the association’s chiropractors to suspend pre-existing contracts with insurers and stop offering insurers incentives or rebates.  In making the announcement, the DoJ said:

“By jointly negotiating fees on behalf of competing chiropractors, the association and its executive director increased the prices that consumers paid for chiropractic services in Oklahoma. … Today’s settlement promotes competition among Oklahoma chiropractors and prevents the association and its executive director from engaging in illegal conduct that caused consumers to pay more for their health care.”

Some of the specific allegations made by the DoJ in its civil section 1 Sherman Act complaint related to a membership requirement for association members to authorize the association to contract with 3^rd party insurers, terminate existing contracts with insurers, stipulate a minimum reimbursement floor for chiropractors and agree not to pay incentives or rebates (e.g., waive deductibles or co-pays).  For example, the association’s website stated: “[the association] concentrates the power of [its] state chiropractic physicians into one group.  Through [the association], a chiropractor can maintain an individual practice while associating with other chiropractors to increase contract-negotiating power”.  The DoJ also took the position that the defendants’ joint negotiation activities in this case were not ancillary to any pro-competitive purpose or reasonably necessary to achieve any efficiencies.

While joint negotiations may appear to be a natural role for trade or professional associations, i.e., a form of “collective bargaining”, in Canada collective negotiations by trade associations and their members can raise concerns, among other things, under the criminal price-fixing or output restriction agreement offences of the federal Competition Act (section 45) and has been the subject of criminal prosecution in a number of cases over the past 30-40 years (as well as a number of advisory opinions issued by the Bureau, including in relation to several lawyer associations).

For example, in R. v. Nova Scotia Pharmaceutical Society, two Nova Scotia pharmacy associations were prosecuted for attempting to negotiate a maximum fee tariff on behalf of their member pharmacists and pharmacy operators with third party insurers, through powers of attorney giving the associations the authority to act on behalf of members.  While the accused were acquitted, the favorable outcome for the association was based on a failure by the Crown to meet an element that has now been repealed from Canada’s conspiracy offences.  In other cases, involving professional associations and their members, associations have also attempted to collectively negotiate fees on behalf of their members, which has on occasion also been accompanied by collective refusals to supply during negotiations (which can raise collective boycott concerns).

The Bureau has also recently taken a renewed interest in challenging association activities over the past few years, which has included abuse of dominance challenges of The Canadian Real Estate Association and The Toronto Real Estate Board and advertising challenge of the Canadian Wireless Telecommunications Association (together with Canada’s three leading telecom providers).

Also, in recent remarks, the Interim Commissioner of Competition highlighted three types of association conduct that the Bureau would likely take an interest in, including fee schedules: (i) restrictions on the types of professional service practice offerings; (ii) limiting the number or range of members or the ability of members to compete (e.g., through mandatory or suggested fee schedules or product quality standards that give some members an advantage over others); and (iii) conduct that reduces incentives to vigorously compete.

While the Canadian Competition Act does contain exceptions for certain types of collective bargaining activities, these are limited to certain union and employer association activities (i.e., apply to unions and employer associations not trade or professional associations generally).  As such, unless trade or professional associations can point to other safe harbors for collective negotiations, such as legislative authority to collectively negotiate price or other competitively sensitive terms, associations and their members can be exposed to potential criminal liability for such “collective bargaining” type activities.

Having said that, the Bureau has over the years indicated that some collective bargaining activities by associations may be permissible – for example, where an association does not have any power to bind its members, there are no enforcement efforts being carried out by an association and members are clearly told that any fees or tariff is merely suggested and not required to be followed.  Several of these risk mitigating factors did not appear to be present in this Oklahoma case in which, for example, the association was given express power through membership agreements to negotiate on behalf of (and bind) its members.

Some other international antitrust agencies, for example the Irish Competition Authority, have specifically set out models through which associations can remain to some extent involved in negotiations for members, while reducing the potential competition law risk.  In addition, in many cases efforts by associations to formulate or “negotiate” standard agreements on behalf of members are unlikely to raise significant competition/antitrust issues – for example, where an association may be involved in preparing standard form agreements, but does not mandate (or recommend) terms relating to price, markets or output (and are voluntary and may be amended or individually negotiated by members).

The treatment of joint negotiations involving trade and professional associations in Canada is, however, still very much a developing area, which means that any joint activities that may touch on competitively sensitive topics – e.g., price, markets, customers and other competitively sensitive aspects – should be approached with caution by associations and advice sought.

For a copy of the DoJ’s news release see: Justice Department Challenges Joint Contracting on Behalf of Oklahoma Chiropractors: Settlement Bars Chiropractor Association and its Executive Director From Conspiring to Raise Fees.

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