American Medical Assn. v. FTC – Oral Argument – January 11, 1982

Media for American Medical Assn. v. FTC

Audio Transcription for Opinion Announcement – March 23, 1982 in American Medical Assn. v. FTC


Warren E. Burger:

We’ll hear arguments next in the American Medical Association against the Federal Trade Commission.

I think you may proceed whenever you’re ready, Mr. Minow.

Newton N. Minow:

Mr. Chief Justice, and may it please the Court:

This is a case where the FTC has been obsessed with the past, unconcerned with the present, and blind to the future.

This Court decided the important Goldfarb case in June of 1975.

The American Medical Association immediately recognized the profound implications of Goldfarb for the medical profession and promptly undertook a major revision of its ethical standards and policies in light of Goldfarb.

Without any investigation of any kind to learn the AMA’s position, the FTC filed this complaint in the dark.

We first heard of it when the FTC had a press conference in Washington and a reporter called the AMA’s office in Chicago to inquire about the AMA’s position.

Once it had been filed, the FTC gave its attention only to the past.

Five years later Judge Mansfield observed the Commission

“was still pressing for its pound of flesh. “

He said the FTC’s action

“has been unjustified, unnecessary, a waste of administrative and judicial resources, and in my view the FTC. “

he said,

“is engaged in the futile business of beating a dead horse. “


How did such a thing happen?

Ethical principles in the medical profession are nothing new.

They go back thousands of years before the time of Hippocrates.

In 1975 when this case began most states throughout the United States had laws that prohibited professional advertising.

In the light of Goldfarb, however, we recognized there was a need for change.

So in the spring of 1976 the AMA published a new statement on advertising and solicitation.

Well, does Goldfarb deal with advertising or solicitation?

Newton N. Minow:

No, Mr. Chief Justice, but it did deal with the fact that the learned professions were subject–

Were not exempt.

Newton N. Minow:

–Were not exempt from the antitrust laws.

And we knew, I must say as well, we knew Bates was pending in the lower courts on its way up here, so we were aware of the change, the fundamental change that was evolving in the law with its relationship to professions and with its relationship to the First Amendment in advertising.

We could see the winds of change were coming fast.

So what we stated in the spring of ’76 was this: the public is entitled to know and the physician is entitled to advertise useful information provided… including information about fees… provided only that the information was not false or misleading or deceptive.

And we suggested and defined four practices that we believe have a significant capacity to mislead patients.

Newton N. Minow:

Now, that was 14 months before Bates was decided.

Consumer groups, including the Ralph Nader organization, immediately congratulated the AMA as being the first profession to move with the evolving law.

We went to Washington.

We told the FTC what had happened, what we had already done about advertising.

To no avail.

We told the FTC of our new positions on contract practice, practices to which the FTC has not objected to this day.

We got nowhere with the staff so we filed a formal motion with the Commission and said to the Commission you ought to reconsider this in light of what we’ve done.

Besides, the Supreme Court is considering Bates.

It’s on the docket of the Supreme Court.

Why don’t you wait until the Supreme Court decides the law in Bates and then decide whether our current positions are appropriate to meet the law.


June ’77 this Court decided Bates.

The Court’s opinion, written by Justice Blackmun, refers to the AMA’s current standards.

The Court says professional societies should help to define the line between deceptive and nondeceptive practices… precisely what the AMA had done 14 months earlier.

And as the law further developed, values changed, the AMA continued to revise and to improve its guidelines.

You would think the FTC would have given us a medal.

Instead, we had a long, tedious trial concentrating on the events of the ’20s, and the ’30s, and the ’40s, and the ’50s, and the ’60s and the early ’70s, all pre-Goldfarb, in what Justice Jackson when he wrote the opinion in 1952 in Oregon State Medical Society called a great amount of archaeology.

After exhuming all this archaeology, the FTC introduced no evidence whatever on the competitive impact of the AMA’s current policies on price, quality, availability of medical care.

We called witnesses like the late Dr. Michael Halberstam, the late Dr. France Inglefinger, who was then the editor of the New England Journal of Medicine; and they told how the practices that we thought were misleading could horribly misguide and mislead patients, particularly the poor, the unsophisticated.

We showed through the tragic testimony of victims, particularly women who responded to ads about cosmetic surgery, who ended up being butchered on a filthy operating table and even to death.

The response of the FTC was rescind all your guidelines, get out of the business of trying to define the line between deceptive and nondeceptive practices, make no pronouncements whatever on advertising for two years, and then even after the two years don’t do anything without our permission first.

We went to the FTC.

We said good lord, if Hippocrates were alive today, he’d need your permission before he could write the Hippocratic oath.

Warren E. Burger:

We’ll resume there at 1:00.

Mr. Minow, you may resume your arguments.

Newton N. Minow:

Mr. Chief Justice, may it please the Court:

Just at the break I was saying we then appealed to the full Commission.

The Commission made no analysis of any kind about whether our current positions promoted or impeded competition.

They didn’t even look at any anti-competitive consequence, pro-competitive consequence.

Then in a curious opinion it said that it itself was not capable of writing new guidelines with respect to advertising; but then in a process which it called exegesis, it then proceeded to say that our guidelines were “troublesome”, “worrisome”, “overbroad”.

Newton N. Minow:

We’ve got a strange opinion.

It’s not a case where the FTC is saying we have a better set of guidelines that we want you to follow.

It’s not a case where the FTC is saying why we think your guidelines are wrong or violate the law.

It’s not a case where the FTC found that our current guidelines have any anti-competitive consequence.

It is a case where the law, where social values were exploding and changing very quickly, where Goldfarb, Bates were creating a revolution in the thinking about the law and the professions.

Now, in the light of Bates why does the FTC press on?

Why are we still fighting?

Well, did you press your W.T. Grant and Company argument before the FTC?

Newton N. Minow:

Very much, Justice Rehnquist.

We also did at the Court of Appeals.

We said there’s no cognizable risk of any recurrence here.

All these practices have stopped.

But the FTC said in the exercise of its discretion that our pre-Goldfarb orders, pre-Goldfarb orders violated the Federal Trade Commission Act, and therefore, in its discretion it would take the action that it did.

Now, I think there is an important question of jurisdiction involved.

Perhaps that’s why the FTC presses on.

I think the FTC is stretching to establish a precedent that it has jurisdiction under the Federal Trade Commission Act over not-for-profit professional associations.

Unlike the Sherman Act, unlike the Clayton Act, the Federal Trade Commission Act does not apply to everybody.

The Clayton Act, passed at the same Congress as the Federal Trade Commission Act, applies to all associations, all persons.

But when it got to writing the Federal Trade Commission Act, Congress very carefully limited the language of the FTC’s jurisdiction to an association

“organized to carry on business for its own profit or the profit of its members. “

Unlike the Sherman Act, the Federal Trade Commission Act is not a carefully studied attempt to bring everyone within its jurisdiction.

Now, the three not-for-profit institutions, professional associations that are here simply are not organized to carry on business for their own profit or for that of their members.

It is undisputed, undisputed in the record, even taking the FTC’s witness, that the bulk, the principal part of each association’s resources are devoted to furthering not economic interests, not profit.

It is equally undisputed that when the Federal Trade Commission Act was passed in 1914 that learned professions were not regarded as business.

Does the AMA conduct any business enterprise other than perhaps the AMA Journal?

Newton N. Minow:

The AMA’s biggest activity in dollars is publishing, and a lot of scientific journals, magazines.

On its business activities it pays taxes.

The bulk of its activity involves accreditation of medical schools, scientific work, research, validating drugs.

The Chief Justice is familiar with its work involving prisons and health in prisons.

It’s involved fundamentally in work involving advancing health is the bulk of its activity.

Newton N. Minow:

Now, we don’t suggest that the medical profession is outside the antitrust laws.

We don’t suggest that at all.

We understand that the Justice Department can invoke the Sherman Act against professionals in the federal courts.

The federal courts are equipped to make the delicate assessments required of purpose and effect required to apply antitrust standards to the not-for-profit sector.

But the FTC, we contend, with its tunnel vision is not so equipped to make those judgments.

We do say the FTC was on the right track in–

Well, you wouldn’t suggest that would be a reason for deciding in your favor.

What you’re really saying is that Congress didn’t intend it to cover it, is that it?

Newton N. Minow:

–Justice White, I was just saying Congress didn’t intend–

I mean Congress might have covered it whether they had the ability or not.

Newton N. Minow:

–We think Congress did not intend it originally.

Moreover, Congress did not intend it in 1977.

The FTC went to Congress in–

But that question doesn’t depend on how able the FTC is.

Newton N. Minow:

–No, but we think the FTC was designed at the beginning, based on its legislative history, to have expertise involving industries, and there was nothing at all talked about at that time involving the professions.

In 1977 the FTC went to Congress and said we’d like you, Senators, Congressmen, to change the law to expand our jurisdiction over the not-for-profit sector.

I think that was the right way to deal with this question.

They went to Congress.

They put in their case.

Congress said no, absolutely no.

So the law was not changed in 1977.

To show you that another reason–

That doesn’t tell us what the law was.

Newton N. Minow:

–The law was left as it was written in 1914.


Newton N. Minow:

To show you again its–

The proposed change, Mr. Minow, would have added all nonprofit corporations, right?

Newton N. Minow:

–That’s correct, including professional associations as well.


Do you think that it makes any difference how much economic assistance an organization such as the AMA would give to its members?

Could it change its activities in such a way as to bring it under the act, in your view, by increasing the amount of the assistance?

Newton N. Minow:

We think that the statutory language, unlike the FTC’s argument, first of all talks about profit rather than economic benefit.

We think any not-for-profit association, whether it be the Smithsonian Institution, the American Bar Association, or the American Medical Association, any such institution offers some benefits to its members, whether it be… whether I’m involved in public broadcasting, whether it be involved in getting a free subscription to a magazine, or free parking, or buying insurance or whatever.

There’s some amount of it.

We say when the bulk, predominant part of an activity and its purpose and its motivation is not designed for its own profit or that of its members, then clearly it’s not within the Act.

Well, when you say the bulk do you have any percentage figure in mind?

Newton N. Minow:

Well, the FTC says you should weigh your budget and see what it is.

If you take that test, we don’t think that’s a very sensible test, but if you take that test, we each produced experts.

Our experts said 91 percent goes for scientific, educational.

Their experts said something like 35 percent goes for economic benefits; 35 to 43 they said goes for economic benefits.

I don’t think that’s it.

I think it’s whether it’s organized… I’ll go back to the statutory language… is it organized for the benefit of itself for profit for itself or its members.

What was its intention.

We recognize, Justice Rehnquist, that trade associations are subject to the Act.

We recognize that.

Why are they?

They don’t make profit themselves, but they’re organized to–

Newton N. Minow:

For the profit of their members.

–Well, doesn’t the AMA have any impact on the profitmaking capabilities of doctors?

They certainly are in business for a profit.

Newton N. Minow:

If it does, it’s insignificant.

The Administrative Law Judge, Justice White, said that if the AMA improves medical standards of medical schools or advances health, that’s for the economic benefit of the doctors because that will produce more patients.

We think that’s preposterous.

That was not the purpose of doing medical research or validating of drugs.

I think we’re not any different from the lawyers, or any other professional association, or librarians.

I don’t think people join professional associations with the idea that they’re going to make money off it.

So what if the AMA, perhaps what it does has a series of adult education programs for doctors to keep them up to date.

Newton N. Minow:

Would you believe that it was contended here that our continuing education programs are for the profit of our members, because if you learn something there, you’ll get more patients.

That’s silly.

That’s not why professionals conduct continuing education programs.

Newton N. Minow:

It’s to keep–

Well, that may not be why, but you don’t suggest that it doesn’t help.

Newton N. Minow:

–Help advance your knowledge, help advance your professional skills, yes, but you don’t go there for profit.

Well, I don’t know.

The more skillful the physician, I take it the more other physicians would lean on him, for example.

Is the cost of attending those programs deductible for income tax purposes?

Newton N. Minow:

I would think so, Justice Stevens.

Because they produce income.

Newton N. Minow:

I would think so, but I don’t think that has anything to do with whether the AMA or the Connecticut Medical Society or the New Haven Medical Society were organized for the purpose of producing profit for themselves or their members.

That’s a different question.

I suppose, Mr. Minow, that if it is deductible, and I would assume that it is, it’s on the same basis that a schoolteacher taking summer courses can deduct, summer courses at the university.

Newton N. Minow:

To advance your skills or advance your… right.

I would think so, Mr. Chief Justice.

But that isn’t probably profitmaking except that it’s profitable for the teacher in the long run, but we would hope for the public, too.

Newton N. Minow:

For the public good as well.

In 1978, as the Court knows, it decided Professional Engineers.

That is the third case.

As far as we’re concerned, what’s important here is Goldfarb, Bates, Professional Engineers.

Professional Engineers said when you look at an ethical canon, a professional canon, and that case involved engineers, you judge as to whether it promotes or it impedes competition.

What did the FTC do?

It didn’t even look at that question.

It didn’t even look at our 1976, our current standards.

How did they get around it?

They got around it, as Justice Rehnquist said, they said your ’71 standards are no good pre-Goldfarb.

And therefore, in the exercise of our remedial discretion we’re going to knock you for ’76 out as well, and we’re just going to put you under this order where you’re out of the business.

Now, we think that’s wrong.

Why do we think that’s so wrong?

Because we think there’s a big risk and a big danger to patients.

If a doctor says I cured my last 25 patients, we think that’s false, deceptive, misleading; we think it’s dangerous.

No two patients are alike.

Newton N. Minow:

It doesn’t say anything about the difficulty, the danger, the risk.

I ask the Court to take the time to read the evidence, read the testimony of these poor patients who saw an ad in a magazine or a newspaper, usually a woman with a cosmetic surgery.

They ended up, as I say, being butchered.

That’s the risk.

You’re not dealing here with products.

You’re dealing with health.

You’re dealing with life.

You’re dealing with safety.

We think there should be guidelines and protection for the public.

We’ve said to the FTC repeatedly why don’t you get the Consumer Protection Division of the FTC and do something about stopping these things instead of trying to deal with us who are trying to establish guidelines to protect the public?

We get no answer.

The FTC says, moreover, and I’m sure you’ll hear from it, that there were some activities post-Goldfarb by the states, by the local societies.

I point out to the Court there are some 1,900 state and local medical societies in this gigantic country of ours with 230 million people speeding across 3,000 miles.

We are not in control or in charge at the AMA of state and local societies.

They are independent.

They are autonomous.

They’re on their own.

They may or may not choose to follow AMA principles or standards.

In many cases we don’t even know what they do, and I point that out.

With respect to the AMA, which is the party in the case, the AMA immediately after the 1976 publication of its standards did nothing whatever to do with advertising at any time.

You wouldn’t rule out the possibility of some local or state association being included within the FTC’s jurisdiction, would you?

Newton N. Minow:

I think it would depend, Justice Rehnquist, whether it was in the statutory test organized for its own profit or the profit of its members.

Well, suppose that fixed minimum fee a la the Goldfarb case had the same experience, the same kind of a record as appeared before this Court in the Goldfarb?

Newton N. Minow:

We have absolutely no restrictions whatever on minimum fees, on maximum fees.

No, but I was giving you a hypothetical.

Newton N. Minow:


Suppose it went that far.

Newton N. Minow:


Oh, I think that would be… of course, under the Sherman Act it’s been held that–

It would fall under Goldfarb then, would it not?

Newton N. Minow:

–Yes, it would.

I’m not sure that it would be under the Federal Trade Commission’s jurisdiction, but certainly under Goldfarb it would, Mr. Chief Justice.

Now, the FTC has–

I thought your position was not that you weren’t sure, but it definitely would not be under the Federal Trade Commission Act because you’re not a corporation.

Newton N. Minow:

–Well, but I was saying if there was an association that was organized for profit–

No, but say you have exactly the same organization you have today.

Newton N. Minow:


But then you engaged in the activity of price fixing.

Newton N. Minow:

I’d say we are certainly subject to the Sherman Act–

I know, but–

Newton N. Minow:

–I think there’s a serious question of whether we… I do not change our position, Justice Stevens.

–Yes, that’s what I thought.

Your position is you’re not a corporation, so even if you did that, you would not be subject to the Federal Trade Commission.

Newton N. Minow:

We’re not a corporation within the meaning of Section 4.

So you would not be subject to the Federal Trade Commission Act even if you engage in price fixing.

Newton N. Minow:

That’s correct.

We’d say that the remedy lies… in fact, there have been cases, there have been cases where state associations have been sued by the Justice Department for such actions.

We say that’s where it belongs.

Other states as well, other states as well.

Mr. Minow, is there a jurisdictional agreement between the Department and the Commission in terms of what kind of cases the Department will handle, or do you know?

Newton N. Minow:

Not that we’re aware of.

Well, I’m aware of it this way, Justice White.

We’re also counsel for the American Bar Association in its case in this area where the Justice Department pursued the case.

As you’ll recall, as soon as the ABA changed its rules, the Justice Department dropped the case.

They said it’s finished, over, done.

But the Federal Trade Commission, that’s why I–

But you’re not aware of any jurisdictional infighting on this case.

Newton N. Minow:

–No, no, no.

Well, are you telling us that as a result of that development that you just mentioned that Chief Justice Taft was not in any trouble by chairing the commission that wrote the code of… what did they call it… the canons of judicial ethics in that day back in ’25?

Newton N. Minow:

We’d be glad to defend Chief Justice Taft any time, Mr. Chief Justice, on that.

Newton N. Minow:

We think it was a perfectly proper role in the administration of justice.

To announce standards of ethics.

Newton N. Minow:


We think that ethics–

Do you think there’s any First Amendment right on the part of the Bar Association or the Medical Association to announce any standards it wants to?

Newton N. Minow:

–I think that professionals are citizens who under the First Amendment have a right to freely associate with each other, to join in trying to establish professional ethical standards.

We recognize if they got together and fixed prices or did something like that, we recognize that’s wrong.

But there is an area of speech which is protected, which is constitutionally protected.

You know, when we had Dr. Halberstam looking at it from a doctor’s point of view, what did Dr. Halberstam say about this?

He said if there is anything that’s erosive to the very nature of professionalism it’s the idea that a profession cannot govern its members’ ethical standards.

Well, lumber dealers and potters may have thought they had a First Amendment right to get together and govern the professions, so to speak, govern the business by setting prices, but certainly that wouldn’t carry the day, would it?

Newton N. Minow:

Not in this case, Justice Rehnquist, where we’re saying yes, advertise; in fact, we think that that promotes competition to have information in the marketplace for patients, we think it’s desirable, but don’t do it in a false or misleading way.

That’s our position.

Well, I understood you to carve out price fixing as always being subject to–

Newton N. Minow:

I think that’s per se improper.

We don’t defend that.

But what we do say is that when professionals in this case are trying to advance ethical standards for the benefit of patients, of informing patients without deceiving them, we think the government ought to encourage them, not condemn them.

We think that that’s what’s involved.

The record shows that the state licensing body said we welcome the role of the professional societies.

They help us.

This Court said in Bates we think it’s important.

I come back to what Judge Mansfield said.

–Mr. Minow, before you close would you just say a word or two about the contract practice aspect of the case, because that really isn’t right within the line of cases you’ve been discussing.

Newton N. Minow:

When the case began, when the FTC had its first announcement of it, all the attention was on advertising.

When they got into that and saw we had changed our rules, they changed their focus to talking about contract practice.

All those contract practice rules have gone by the boards years, decades long ago.

Most of the doctors today, Justice Stevens, who are in practice one way or another, in HMOs, hospitals, are involved in some contractual relationship for their services.

So we regard that as archaic, gone; it has nothing to do with anything current of any kind.

We don’t defend those old practices.

We published new ones in 1977 in the first edition of our guidebook that we could, and that’s gone by the boards.

Newton N. Minow:

We don’t defend it.

Thank you.

Warren E. Burger:

Mr. Shapiro, you may proceed when you’re ready.

Howard E. Shapiro:

Mr. Chief Justice, and may it please the Court:

In this case the Federal Trade Commission, acting under Section 5 of the FTC Act, found a continuing nationwide private agreement in restraint of trade among AMA and its affiliates and its members.

This agreement was effectuated by certain ethical restraints.

The restraints on which the Commission focused were in effect at the time the Commission filed its complaint in December 1975.

They almost totally banned advertising by physicians, and they protected traditional fee-for-service practice from competition by alternative contract arrangements of physicians.

So we dealt with advertising and what is usually denominated by the American Medical Association as contract practice.

Now, the Commission entered a cease and desist order designed to eliminate the conspiracy, which was nationwide, and its effects throughout the nation.

The order was intended to leave physicians free to choose whether and how and with whom they will make contractual arrangements for their services and whether and how they will compete through nondeceptive advertising.

It was intended to open the previously blocked flow of information needed by consumers seeking access to the market for medical services, for I emphasize to Your Honors that there is a market.

Now, the Commission also found that because advertising in the medical context involves public interest considerations sharply different from those applicable in the ordinary commercial context that the American Medical Association and similar organizations may and should continue through ethical standards to police false or deceptive or oppressive advertising by physicians.

The issues that my brother has discussed with you are two.

First, does the Commission have jurisdiction over AMA under Section 4 of the FTC Act; that is, is the American Medical Association a corporation within the meaning of that statute.

And should the Commission have terminated the case after AMA began to make changes subsequent to the filing of the complaint.

Now, the only matters before the Commission when that occurred are AMA’s statements in April 1976 dealing with advertising, and its March 1977 revision of its opinions and reports.

I think that I should touch a bit on the chronology because I think it’s important.

The April 1976 statement was not an abstract new piece of writing.

The AMA was very careful in drafting that statement to assert that it was reaffirming its prior position on advertising.

Moreover, the Commission… all this is in the findings, incidentally… the Commission found that this April 1976 statement and the March 1977 version of it reflected a very close link to the previous restrictions.

The statements did not contain any express recision of what had gone before.

There is no statement in this record in which AMA tells the affiliates, who are the means by which this conspiracy is enforced, that they are to disregard the previous restrictions.

It doesn’t even identify what they are to disregard.

Yes, but some previous restrictions were eliminated.

Howard E. Shapiro:

Well, we have had some difficulty identifying precisely what was eliminated.

Well, are you suggesting that there was no change at all in ’76 and ’77?

Howard E. Shapiro:

It was so highly ambiguous that it is unclear whether there was a change or not.

The Commission ultimately concluded that there had not been any really clear, unambiguous abandonment of the conspiracy.

This was reflected in other findings.

Howard E. Shapiro:

For example, in the very statements which AMA says today represented a change, it was also saying that local societies could have restrictions that exceed anything that AMA had in its current principles of ethics with respect to advertising.

It left the ban against solicitation in the principles of ethics unchanged.

AMA’s own witnesses who were put on in surrebuttal to explain its current position on advertising… and this included the chairman of its board of trustees, a members of its House of Delegates, chairman of the section on medical schools… each seemed to be stating positions that were clearly reflected in what had gone before.

Moreover, and perhaps most important given the fact that we are concerned with dissipating the effects of a conspiracy, the evidence before the Commission indicated that even after AMA’s March 1976 statements the old restrictions were being applied by AMA’s affiliates in numerous circumstances, ranging from one of the Connecticut petitioner’s warnings to an ophthalmologist who had benefitted from some newspaper publicity to the Maryland Medical Society’s published ethical guide, based on AMA standards, which condemned advertising–

Well, what do you do with a statement in the… the ’76 statement which says that the principles do not proscribe advertising; they proscribe solicitation?

Now, there was no statement like that before that.

Howard E. Shapiro:

–Well, there was, Your Honor, and that is one of the interesting things.

In the record you will find, in the findings–

You mean they never have banned advertising, is that it?

Howard E. Shapiro:

–Well, that was their position at times.

And yet you need a cease and desist order to keep them from banning advertising?

Howard E. Shapiro:

Well, the wording of their position has changed considerably, I must say.

We have outlined in the brief and the Commission has outlined in its findings positions by the FTC which seemed to indicate that all advertising was bad, that all solicitation includes advertising.

And then there would be a slight shift because they would allow obviously some of the simplest forms of advertising… a card, a sign, an official directory.

So that the Commission’s finding on this matter is that the AMA’s abandonment was highly ambiguous.

In fact, how ambiguous can best be seen, I think, by looking at something that AMA has brought to the Court’s attention, although it’s extra-record, in January of 1980 they finally abolished the ban on solicitation entirely from their principles of ethics, July of 1980, and in January of 1981 they issued a complete new edition of the opinions and reports which very clearly seems to be an effort to come into conformity with the law by providing that doctors can advertise as long as it’s not misleading, or false, or deceptive, or oppressive.

Let me back up a little bit on something that seems to me very fundamental here, Mr. Shapiro.

Do you think there is any authority in the state or the government or by statute that would limit the rights of a voluntary group of lawyers, doctors, dentists, or any other profession from announcing a set of standards that precluded advertising and solicitation?

Howard E. Shapiro:

Yes, Your Honor.

I think if there was a total–

A voluntary association that you can join or not join?

I’m not talking about an integrated bar.

Howard E. Shapiro:

–Well, yes, I think so in this way.

Certainly the voluntary association is not, of course subject to the First Amendment itself, but the voluntary association if it’s an association of entrepreneurs I subject to the requirement that it not suppress competition or restrain trade in violation of the antitrust laws.

Well, does the announcement… you go into that very rapidly for me… the announcement of a Ten Commandments by a lawyers’ club or a doctors’ society, you say that the First Amendment doesn’t protect that?

Howard E. Shapiro:

The announcement is certainly something that is within the First Amendment, but if those words are words that as implemented add up to a restraint of trade… and that is what we have here, a conspiracy in restraint of trade… through the application of these restrictions–

You’re making that jump very fast.

I’m trying to take you one step at a time.

Howard E. Shapiro:

–Yes, sir.

The announcement of ethical standards like the Ten Commandments you concede, I take it, that that’s protected by the First Amendment?

Howard E. Shapiro:

The announcement of ethical standards would be within the First Amendment.

That here is the way we, the people who are announcing it, think the profession ought to be practiced.

Howard E. Shapiro:

Goldfarb and Bates, although Bates, of course, involves a slightly different issue, but Goldfarb and Bates clearly indicate that one cannot under the guise of exercising First Amendment rights restrain trade.

Now, we have–

But Goldfarb had nothing to do with solicitation or advertising.

Goldfarb was a straight price fixing, either a gentleman’s agreement or a gentleman’s agreement buttressed by the bar association practice.

Everyone in the bar would charge the fixed price.

Howard E. Shapiro:

–Well, an agreement–

All the lawyers in Fairfax County exercise their First Amendment rights to quote a price for reading a title.

Howard E. Shapiro:


It brings us back to Professional Engineers, Your Honor, that restraints of trade–

But I’m just talking about the announcement of the code.

Howard E. Shapiro:

–Well, if the announcement of the code carries with it the effects of a restraint of trade, then using the Central Hudson analysis that unlawful speech or speech in aid of unlawful activity is not protected by the First Amendment, then we would have to say that the restraint of trade takes the conduct and the utterances outside the protection of the First Amendment.

Now, the First Amendment was invoked before the Commission by the Petitioners in this case and in the Second Circuit, but only in connection with challenges to the order.

Moreover, and I think I come back to the Central Hudson analysis on this, restraints on competition are always affected through speech and writings.

That speech, as I’ve said, is unlawful.

The government interest in suppressing it is substantial within the meaning of Central Hudson, and reasonable restrictions advance that substantial interest within the meaning of Central Hudson.

If it’s reasonably related to the violation, then I think remedial restraints on that speech are deemed to be no more extensive than necessary.

You can’t quite make a Central Hudson analysis if you’re trying to deal with a remedy for unlawful conduct.

That’s our essential position on the First Amendment.

Now, there’s much debate about what the Commission did or said with respect to AMA’s changes here.

What the Commission did was to examine the changes very closely under the standards mentioned by Justice Rehnquist, the W.T. Grant standards.

In fact, AMA’s argued before this Court and before the Commission that we couldn’t even do that, that we had to judge their liability on their post-complaint changes.

I know of no case that says that.

The Oregon Medical Society, which my brother invokes, doesn’t support it.

The Commission examined the conduct alleged in the complaint, found a violation, and looked to see the relationship between that conduct and the post-complaint changes.

What it was concerned with was three questions, once it had found this nationwide conspiracy which the evidence showed had gone on with the continued enforcement of the old standards.

It looked first to see whether the post-complaint changes by AMA would dissipate the effects o the conspiracy, because that, after all, is the first concern of any remedy in a conspiracy case.

The second question was whether the post-complaint changes reflected a clear and unambiguous abandonment of the conspiracy, not only by AMA but by the other members, because the conspiracy was between AMA and its federated affiliates.

And finally, the Commission had to consider whether there was a cognizable danger of recurrence.

Howard E. Shapiro:

This kind of analysis is essentially what I think is implied in two categories of cases: first, the line of cases reflected, for example, in FTC against Colgate concerning the Commission’s remedial responsibilities and discretion; and secondly, the line of cases reflected in W.T. Grant and cases in that line.

The issues thus never went to AMA’s post-complaint… I mean the issue about AMA’s post-complaint changes didn’t go to its liability; they went rather to the appropriateness under the public interest of a remedy.

Now, the Commission examined at length that question.

It found that AMA’s changes simply did not meet these tests.

The record, I think, can be examined.

I won’t take up the Court’s time with details further.

In terms of liability is it the FTC’s normal practice to say liability is to be determined as of the date of the filing of the complaint?

Howard E. Shapiro:

That has been its general practice.

Like in antitrust cases.

Howard E. Shapiro:

As in antitrust cases.

Occasionally one allows evidence in up to the date of trial.

But that second question–

Is a remedy question.

Howard E. Shapiro:

–Is remedy.

And that’s how the FTC approached it here.

It could very well have found that on a different showing of change the case might have not warranted a remedy.

I must say I would like to invite the Court’s attention to one aspect of the Commission’s order, because I think it’s important.

Section 4 of the Commission’s order, which I think you’ll find it about page 371 of Petitioner’s appendix, Section 4 is designed to achieve compliance, and what it focuses on is a requirement that AMA change its ethical standards to comply with the order to get rid of the restrictions.

All right.

AMA says at least by July of… by January of 1981 it has done that.

It also requires that steps be taken to assure that the affiliates agree to obey the order.

And finally, that AMA take steps to police the order and disaffiliate anyone who does not comply.

That is really the concern of the Commission when it addresses the abandonment issue.

Excuse me.

What page did you say that was?

Howard E. Shapiro:

I was bringing the Court’s attention to the Petitioner’s appendix, the white, thick book.


Howard E. Shapiro:

At 371, which dealt with the remedial provisions of the order.

Thank you.

Howard E. Shapiro:

Now, I would like to spend the remainder of my time on the jurisdictional issue.

Before you go to that, let me see if I have a clear impression of what you’re saying to us about the impact of Goldfarb and Bates.

You say that Goldfarb and Bates, or either, or the two of them together would prohibit a group of lawyers from getting together and saying here is our code: it is unethical to solicit; it is unethical to advertise; and you can’t be a member of this organization unless you take a pledge not to do that.

Howard E. Shapiro:

Yes, Your Honor.

Standing alone.

Howard E. Shapiro:

That is the Commission’s finding here.

An absolute ban by members of a profession, an entrepreneurial profession–

Not a profession.

Members of a professional organization.

The organization I’m talking about no one need join if he doesn’t want to, but if he joins he must accept the pledge not to advertise.

Would you say that’s a violation of law?

Howard E. Shapiro:

–That would be a violation of law, because as in the Engineers case, it is a prohibition against engaging in competitive conduct.

But the Engineers case was a pledge, a binding pledge never to enter into competitive bidding.

Howard E. Shapiro:


And you think that’s the same as a pledge not to advertise or solicit?

Howard E. Shapiro:

I think that they’re quite close in the sense that advertising is an offering of services, and you’re sort of pledging I will never make certain public announcements of my availability.

The market aspects of a profession… and that’s all that the Commission is interested in, not the doctor-patient relationship obviously… the market aspects of a profession, the commercial aspects of a profession are subject to the antitrust laws, as in Engineers; and that is what the Commission was addressing.

I don’t understand your answer to the Chief Justice.

If in this town, the District of Columbia, twenty lawyers get together and say we are banding together to be a very ethical group, and we’re not going to do anything wrong, and that’s our code, they can’t do that?

Howard E. Shapiro:

Well, a very small number–

My number is twenty.

Howard E. Shapiro:


I think that–

And if you push me, I’ll take it to six.

Howard E. Shapiro:

–Well, the essence of the violation is the agreement not to advertise.

Well, that’s an agreement.

Howard E. Shapiro:

And that would be a violation within… under the rule of reason, I might add, if someone can come up with justification, advertising in a professional context is always assessed under the rule of reason.

Could one lawyer say I’m a very ethical lawyer and not be ethical?

Howard E. Shapiro:

Oh, yes.

There’s no agreement then, no agreement.

Then it will come down to two, wouldn’t it?

Howard E. Shapiro:

But two is… if it involves an agreement–


Howard E. Shapiro:

–Not to advertise, it’s an agreement not to compete, and an agreement not to compete is an agreement under restraint of trade.

The firm of Jones and Jones, Jones and his wife.

Howard E. Shapiro:

Well, the firm is an integration of competitive functions.

I mean I don’t see why you have to go so far on this.

Howard E. Shapiro:

Your Honor?

I don’t see why you have to go so far on it.

Well, you’re not going any farther than a nationwide association.

Howard E. Shapiro:

Well, actually I can’t really go further than the Commission, which did involve a nationwide conspiracy.

Let me turn–

But you seemed at the moment, whether it’s relevant or not, to be making an exception if a law firm having 250 lawyers tells every lawyer in that firm if you solicit or advertise, you’re out.

A violation of law?

Howard E. Shapiro:

–No, because law firm partnerships–

A law firm is a voluntary association.

Howard E. Shapiro:

–It’s not the voluntary association that’s the essence of it; it’s the integration of competitive functions to achieve a more competitive function.

A law firm is–

Like a corporation?

Howard E. Shapiro:

–Like a corporation or like the musical copyright groups that combine and in effect enhance competition through their combination.

Now, I’d like to turn to the jurisdictional question very briefly.

The Commission’s holding on jurisdiction is relatively easily stated.

First, the Commission does not claim broad jurisdiction over nonprofit associations.

It claims jurisdiction over nonprofit associations made up of entrepreneurs when those associations are engaged in substantial part in operating for the profit of those entrepreneur members.

That is the essence of the holding.

What the Commission has said is that if you look at AMA you will find that it is engaged in many praiseworthy noncommercial activities of all kinds, but you will also find that in many respects it functions like a trade association.

The findings of the Commission were that the bulk of AMA’s members are engaged in the profit-motivated private practice of medicine, in the traditional practice of medicine, fee-for-service medicine.

In short, doctors are in that aspect of their practice like any other entrepreneurs.

They’re entrepreneurs operating for their own account.

When you combine persons together into an association, the association may be a nonprofit organization like any other trade association, but if it’s acting for the profit of those members in part, in substantial part, then we think that it fits within the definition of a corporation in the Federal Trade Commission.

Mr. Shapiro, I’m interested in your use of the word “entrepreneurial”.

What about an association of ministers, say the Southern Baptist Association?

Howard E. Shapiro:

Such an association would not be an association of persons engaged in entrepreneurial functions, in for profit functions.

Why not?

Howard E. Shapiro:

They don’t operate for profit in the same… I don’t know the association.

But don’t they have to make a living?

Howard E. Shapiro:

Yes, they–

Aren’t they interested in the contributions to the church?

Howard E. Shapiro:

–They may indeed be interested.

In fact, there are many, many associations which are concerned with the economic interest of one–

But you would not include the ministers.

Howard E. Shapiro:

–I would not include the ministers.

I would not–

What about the schoolteachers?

Howard E. Shapiro:


Schoolteachers are typically employees, and there’s a difference.

I could use a hypothetical–

What about the NEA?

Howard E. Shapiro:

–The National Education Association?

Yes, sir.

Howard E. Shapiro:

I think–

That’s not interested in elevating the salaries of teachers?

Howard E. Shapiro:

–They are, and that brings me to my hypothetical.

If you approach a union, which is a group of people combined together in economic interest but the union member is an employee, he is not an entrepreneur for profit.

Congress chose that word FTC’s jurisdiction to the type of organization which involves those people who are entrepreneurs for profit.

But, Mr. Shapiro, isn’t the NEA interested in the profit of its members?

Howard E. Shapiro:

In a very broad, nontechnical sense, yes.

But the Commission has accepted–

How do you distinguish it?

It is concerned with education, but it’s also concerned with the profit of schoolteachers.


I’m not criticizing that.

But this is precisely what you say, as I understand you, is the situation of the AMA–

Howard E. Shapiro:


I think I’ve drawn… I’ve attempted; I haven’t yet… drawn a line between profit in the sense of somebody who is engaged in business to gain income over costs, revenue over costs, which all doctors have to do when they’re operating their office practices and their fee-for-service practices, as distinguished from the employee or the schoolteacher–

–You put the NEA in the category of a union of employees.

Howard E. Shapiro:

–It comes closer to that than a guild or a trade association, which in some of its functions, not all, AMA approaches.

And that brings me to the other limit on the Commission’s jurisdiction here.

The limitation is one which focuses on the commercial aspects, the entrepreneurial aspects of the membership; and it also focuses very closely on substantiality.

Obviously, there are all kinds of charitable organizations which have incidental commercial function… we have to concede that… whether it’s raising money through selling something or what have you.

But if it’s incidental, then as the Commission has said in its opinion, as the Eighth Circuit indicated in the Community Blood Bank case, which we think the Commission’s opinion is consistent–

Well, what if the NEA ran a placement service for its members and charged a fee?

I suppose it may be a different case then.

Howard E. Shapiro:

–It may be incidental.

One of the problems–

Well, there may be a profitmaking operation even for it.

Howard E. Shapiro:

–It might be.

And if it’s a substantial activity that impacts on the marketplace substantially–

Well, the employment agencies normally do.

Howard E. Shapiro:

–Then that activity, that aspect might bring, might come within it.

It depends on substantiality.

There are a whole range of indicia that have to be looked at.

I mean it’s not an automatic or simple test.

The Commission’s test has essentially been one of looking to a number of factors.

It looks to the origin of the organization, it looks to its statement of purposes, it looks to the members’ relationship to profit-motivated activities, it looks to publications, it looks to a whole range of functions.


What did the FTC conclude as to what the violation was?

Howard E. Shapiro:

–In this case?


Howard E. Shapiro:

The violation was twofold.

One was a violation of the prohibition against totally banning advertising, and the other was a violation against restricting contract practice.

Yes, I know.

But in terms of its charter, this is an unfair trade practice?

Howard E. Shapiro:

Oh, yes.

The FTC found an unfair trade practice… well, no.

I’m sorry.

An unfair method of competition.

Because it violated some antitrust law.

Howard E. Shapiro:

It’s twofold.

There was an unfair method of competition finding based on the antitrust laws, and the Commission also found some consumer injury because the advertising cutoff cut off consumers from valuable information concerning–

And what business was that of the Federal Trade Commission in terms of the FTC Act, the Federal Trade Commission Act?

Howard E. Shapiro:

–It was unfair method of competition with respect to the suppression of advertising in the contract practice, and an unfair practice with respect to consumer injury in denying consumers access to needed information as to how to–

That’s strictly a construct of the Federal Trade Commission.

Howard E. Shapiro:

–That’s the way the Commission has construed its statute.

The record on jurisdiction is quite lengthy.

I shall have to contradict my brother on his suggestion that the Commission said the budgetary analysis was proper.

That was precisely what it rejected.

What it said was you look to the actual activities of the association.

And a quick, short way of getting an idea of what the AMA is about in its commercial aspects is at page, I think it’s–

Are you in the white volume now?

Howard E. Shapiro:

–I’m in the white volume.

I believe it’s 75A.

Well, I seem to have lost my way within the document.

But it’s a document which simply says

“What’s the AMA done for you lately? “

You’re right.


Howard E. Shapiro:

And I won’t go through it step by step, but I think that a quick glance at it will enumerate listings ranging from things AMA has done to enhance the productivity of practice to things AMA has done to cut down the competition of competing Health Maintenance Organizations.

And these are the kinds of indicia that the Commission went through very carefully and at great length.

What is the date of that,

“What has the AMA done for you lately? “

Howard E. Shapiro:

I believe that was 1975.

There is, however, a 1976 statement made in December 1976–

Well, if you had the ’81 they would probably say what we’ve done for you lately is to repeal our advertising restrictions.

Howard E. Shapiro:

–Well, they have moved on that certainly, and we welcome what they have done as of ’81.

The problem is what’s happening out with the rest of the country.

If the old standards are still continuing–

Well, why is that the business of why would you insist that the AMA take responsibility for what’s going on in the states?

Howard E. Shapiro:

–Well, in answer–

Rather than focusing under a W.T. Grant standard on the AMA itself, which I take it the FTC did.

Howard E. Shapiro:

–We did focus on it, but we do have a remedial responsibility.

Now, if the local affiliates are as independent in ethical matters as AMA claims, not only is our uncontested finding of conspiracy wrong, but then it’s merely a matter of… then its mere publication of modified statements won’t dissolve the conspiracy.

On the other hand, if the affiliates can be expected to adhere to AMA’s published statements, then AMA shouldn’t be denying responsibility for correcting the effects of the conspiracy.

Thank you, Your Honor.

Warren E. Burger:

Do you have anything further, Mr. Minow?

You have about five minutes remaining.

Newton N. Minow:

Mr. Chief Justice, and may it please the Court:

In answer to what my colleague, Mr. Shapiro, just said, I would quote Judge Mansfield: the FTC wants to press for a pound of flesh.

This argument has been over for years and years and years.

They want some kind of an order.

Well, people can certainly differ over whether an injunction or a cease and desist order is appropriate after the illegality has presumably terminated.

Newton N. Minow:

Only, Justice White, if there is some risk or cognizable danger–

But people can differ over whether that risk is present.

Newton N. Minow:

–But in light of Goldfarb–

Witness the split in the court below.

Newton N. Minow:

–Yes, but in light of Goldfarb/Bates/Professional Engineers, the likelihood that the AMA is going to go back to its pre-Goldfarb standards is nonexistent.

The world fundamentally changed.

The law changed, and the AMA responded.

Counsel for the FTC never said, never defended in all this–

Well, do you contest except on jurisdictional grounds their conclusion on liability as of 1975?

Newton N. Minow:

–As for our pre-Goldfarb standards?

As of 1975, the date of filing the complaint.

Do you challenge that other than on jurisdictional grounds?

Newton N. Minow:

I would challenge it because prior to the filing of the complaint, the record will show, prior to the filing of the complaint the AMA had authorized a revision of its guidelines, but they were not satisfied to wait two months until we got it out.

Well, nevertheless, they filed the complaint.

As of the date of the complaint do you challenge the finding of liability?

Newton N. Minow:

Yes, we do, because we would say that the guidelines we had at that time met the law at that time; that the law changed and as quickly as we could in a membership organization with hundreds of thousands of people going through the process spelled out by its procedures and constitution, as quickly as anybody humanly could, before any other profession did it we responded.

So I would say yes, we were all right under that standard.

Never today did the FTC say that our ’76 standards were wrong.

Never did they point out why they were wrong.

And it’s nonsense to say there was a conspiracy.

The brief if you read it… you know, the dentists entered into an agreement with the FTC that said whatever happens to the doctors will also happen to the dentists.

That shows how interested the FTC is in the particular facts about associations or differences between the professions.

But the dentists say it’s ridiculous to say there was a conspiracy going on pre-Goldfarb.

Accountants, lawyers, doctors, dentists… everybody had a different view of where the profession stood with respect to the antitrust laws.

This Court decided Goldfarb.

We immediately–

Mr. Minow, I hate to go back to the contract medicine, but it was clear that that aspect of the profession was always subject to antitrust laws, wasn’t it?

Newton N. Minow:

–That’s right, Justice Stevens.

And as I say, that stuff was long gone.

Do you take issue with finding 146 with respect to the opinions and reports that were unfair and unethical as of 1971?

Newton N. Minow:

I regard… if there’s any part of the case that’s gone and moot, I’d say that’s it because that’s–

But would you not agree that that described illegal conduct?

Newton N. Minow:

–I don’t know that I’d characterize it as illegal because it was nonexistent at the time.

The fact was that for a period of 40 years all those practices had been abandoned.

More than half the doctors–

Well, this is quoted in a 1971 report.

Finding 146 on page 228A of the appendix.

“The 1971 AMA judicial counsel’s opinions and reports provide the following with respect to contract medicine: A) When the compensation received is inadequate based on the usual fees paid for the same kind of service and class of people in the same community. “

That was in effect at that time, was it not?

Newton N. Minow:


Newton N. Minow:

It was all pre-Goldfarb, Justice Stevens.

Well, but when a reasonable degree of free choice of physicians is denied those cared for in a community where other competent physicians are readily available, this relates to the contract.

Newton N. Minow:

I understand, but I repeat, these are all pre-Goldfarb.

And You think it was perfectly clear it was fair to assume pre-Goldfarb that these were not subject to the antitrust laws at all.

The contract–

Newton N. Minow:

I think the law–

–The contractual arrangement aspect of the case.

Newton N. Minow:

–I think lawyers could differ on it, but certainly there had never been any holding by this Court until Goldfarb, as the Court went out of its way in its opinion to say this is the first time we’ve ever held that the learned professions are subject to the antitrust laws in Goldfarb.

And I think there could be–

Well, what about the Oregon State Medical Society case?

Newton N. Minow:

–The Oregon State Medical Society case, you will recall, ended up without any… this Court upheld a dismissal.

Yes, but there was an understanding that the Society was subject to the antitrust laws.

No remedy was necessary because they had abandoned the practice.

Newton N. Minow:

And believe me, if there had been any conduct by the AMA post either the decision against the AMA in the ’30s or post-Oregon, believe me, we would have heard about it from the Department of Justice.

All this stuff was a dead letter and gone.

They were never enforced.

There’s never been any action by the AMA enforcing one of those rules at any time.

They were ignored, they were forgotten, and they were never enforced.

Mr. Chief Justice, thank you.

Warren E. Burger:

Thank you, gentlemen.

The case is submitted.