California Dental Association v. Federal Trade Commission

PETITIONER: California Dental Association
RESPONDENT: Federal Trade Commission
LOCATION: Elizabeth Township, Allegheny County

DOCKET NO.: 97-1625
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Ninth Circuit

CITATION: 526 US 756 (1999)
ARGUED: Jan 13, 1999
DECIDED: May 24, 1999

ADVOCATES:
Lawrence G. Wallace - Argued the cause for the respondent
Peter M. Sfikas - Argued the cause for the petitioner

Facts of the case

The California Dental Association (CDA), a nonprofit association of local dental societies, provides its members with insurance and financing arrangements, and engages in lobbying, litigation, marketing, and public relations for members' benefit. Members agree to abide by the CDA's Code of Ethics, which prohibits false or misleading advertising. The Federal Trade Commission (FTC) brought a complaint against the CDA, alleging that the CDA's guidelines restricted two types of truthful, non-deceptive advertising: price advertising and advertising relating to the quality of dental services and therefore had violated section 5 of the Federal Trade Commission Act (FTC Act). An Administrative Law Judge (ALJ) held that the FTC had jurisdiction over the CDA and found a violation of section 5 of the FTC Act. The FTC adopted most of the ALJ's factual findings and held that the price advertising, as well as the non-price, restrictions were violations of the Sherman and FTC Acts under an abbreviated rule-of-reason analysis. In affirming, the Court of Appeals sustain the FTC's jurisdiction and concluded that an abbreviated rule-of-reason analysis was proper in this case.

Question

Does the Federal Trade Commission have jurisdiction over the California Dental Association (CDA), a nonprofit professional association? Does an abbreviated rule-of-reason analysis suffice to justify the conclusion that the CDA's advertising restrictions violated the Sherman and Federal Trade Commission Act?

Media for California Dental Association v. Federal Trade Commission

Audio Transcription for Oral Argument - January 13, 1999 in California Dental Association v. Federal Trade Commission

Audio Transcription for Opinion Announcement - May 24, 1999 in California Dental Association v. Federal Trade Commission

William H. Rehnquist:

The opinion of the Court in No. 97-1625, California Dental Association versus the Federal Trade Commission will be announced by Justice Souter.

David H. Souter:

This case comes to us on writ of certiorari to the United State Court of Appeals for the Ninth Circuit.

The California Dental Association (CDA) is a nonprofit organization of Dentists that gives it members'advantageous access to insurance and financing and lobbies and litigates for its members' interests.

Dentist who belong to the CDA agree to follow the CDA's guidelines and rulings regulating members' advertising.

The Federal Trade Commission brought a complaint against the CDA alleging that the CDA unfairly restricts competition by applying its advertising guidelines, so as to ban some truthful nondeceptive advertising.

An Administrative Law Judge held that the Commission had jurisdiction and he found that the CDA had restricted competition in two ways.

First, by banning advertisements that state an across-the-board discount without giving exact prices, for example, 10% off for all senior citizens; and second by banning advertisements about quality of services such as highest quality, most gentle service.

The Commission agreed with the ALJ in the Ninth Circuit affirmed.

It found that the Commission had jurisdiction and then performed what is known antitrust law as a "quick look" in which it said that it could easily conclude that the CDA restrictions illegally restrained competition, because the restrictions on price-advertising or a naked restraint on price competition and the restrictions on quality advertising were a form of output limitation.

In an opinion filed with the Clerk today, we vacate and remand.

There are two issues: As to the first, we affirm that the commission had jurisdiction over a nonprofit like the CDA, which provides substantial economic benefit to its for-profit members.

The Federal Trade Commission Act gives the Commission jurisdiction over an entity that carries on business for its own profit or that of its members.

The CDA produces more than de minimis profit for its members through its insurance and financing arrangements and its litigation and lobbying.

The purpose of the Act is to prevent unfair competition and nonprofit entities organized on behalf of for-profit members can be as unfair as for-profits.

It is on the second issue that we vacate the judgment of the Ninth Circuit.

We hold that the "quick-look" that the Ninth Circuit applied to the advertising restrictions was inadequate in this case.

Both types of restrictions appear designed to avoid false and deceptive advertising in a market where the dentist knows much more than the patient does.

The price advertising restrictions might affect price competition by limiting information available to customers but they also might help competition by protecting customers from misleading and unverifiable claims of across-the-board discounts.

The quality advertisements restrictions might hurt competition by keeping useful information about the quality or care away from customers, but they might also enhance competition by avoiding false and unverifiable quality claims.

We do not hold that a full-market analysis which required only that a "quick-look" is not appropriate where such plausible, procompetitive justifications exist.

What the case calls for is a closer look.

aAccordingly, we vacate the judgment and remand the Ninth Circuit for fuller consideration.

Justice Breyer has filed an opinion concurring in part and dissenting in part in which Justices Stevens, Kennedy and Ginsburg join.