TRADE ASSOCIATION EXPOSURES

Author Richard Solomon is a conflicts and crisis management lawyer with 50 years of experience in business development, antitrust and franchise law, management counseling and dispute resolution including trials and crisis management.

Trade associations abound because they are very worth while organizations. They execute group funded projects that enable more and higher quality information about their industries. They are the industry interface with legislative and regulatory authority, speaking for their industry as a whole. They are expense sharing facilities through which smaller member companies have a larger voice than they might otherwise be able to afford. They sponsor group research pertinent to their industries. There are many more reasons why they are worth the candle.

Within the ambit of all that goodness, however, lurk many opportunities for exposure, manipulation and abuse. The management of an association must by definition be politically correct and extremely tactful. Association management must deal with many potential prima donnas. Associations cannot really function as police or as disciplinarians. If the membership is not mature enough to collectively self regulate, sometimes bad things happen.

Association functions are often rather celebratory in nature, even if the purpose of the function is serious. It is generally in the mind of every industry representative that attends the functions that an opportunity to visit with friends and colleagues always has its happy side. I agree with that and would hate to see it lost because excessive conduct resulted in the

Some of the difficulties are the product of judgment impaired by celebration. The fact that association functions are more coed than they used to be has produced better behavior than was previously the case. Frat boy exuberance is now toned down a bit thanks to inclusion of women. That is good. We don’t have to be frat boys in our forties and fifties.
Other difficulties arise most frequently because association functions are the venue for cartel behavior.

The most obvious cartel practice is the price fixing conspiracy, the “gentleman’s agreement”, most notable – so the joke goes – for a shortage of gentlemen. Every antitrust prosecutor begins every grand jury investigation with subpoenas not only to the suspect companies, but also to the industry association and to the hotels in the cities of the suspect gatherings. Anyone who believes that having such arrangements take place at association functions is useful, convenient and camouflaged is someone who has never received a grand jury testimonial subpoena. Over the years I have heard some of the very best price fixing humor in the resulting testimony. As a former prosecutor, I was able to enjoy it not only from the enforcement perspective, but also as an industry lawyer representing companies and their management folks who were involved. It’s only funny to the lawyers.

Other than overt price fixing, standards setting, a classical association function, is sometimes allowed to become exclusionary. The industry leaders sometimes like to push for standards than only they can meet because they hold patent rights that would preclude others from complying with the standard. You should know that state bar association intellectual property section seminars always include a part of the program devoted to the antitrust implications of standards setting. It is a lucrative profit center for antitrust/IP types.

Standardization can also apply to business methods that in themselves tend to have a competition suppressing influence upon pricing. Illustratively, in one industry of my extensive experience, the adoption of a standard method of accounting almost eliminated the need to have price fixing meetings. Unfortunately, the need to reassure each other that there would be no rogue elements opportunistically quoting favorably to large accounts of other members produced the hard core conduct that eliminated the need to prove that the adoption of the common accounting methods alone could suffice to show the elements of a Sherman Act violation. In any industry that deals with a lot of commodities and that hedges its raw material purchases on commodity markets, standardized cost accounting practices can usually be found. What that does is make a lesser amount of actual conspiracy behavior suffice to show that it and the accounting practices have produced the prohibited pricing results.

These are just a few of the many trade association issues that enthuse antitrust lawyers. Space does not permit encyclopedic treatment.