Breaking Up The Music-Teachers’ Cartel

Playing the pianoLittle Johnny finally has a chance for some decent-priced piano lessons, thanks to the diligence of your Federal Trade Commission.

On Monday, December 16, 2013 the FTC slammed the full weight of its antitrust authority against the Music Teachers National Association (MTNA) and their vicious cartel to make little Susie pay more for her violin lessons.

The Association entered into a consent decree with the FTC, addressing the following provisions in their code of ethics: “The teacher shall respect the integrity of other teachers’ studios and shall not actively recruit students from another studio.”

It might seem odd that the FTC would spend its time and resources worrying about music teachers. Indeed, they were heavily criticized for just that, including in the Wall Street Journal. And it is not hard to see why. At first glance, it is kind of silly.

But I suspect the FTC was less concerned about music teachers (and their students) and more concerned about communicating a message.

See, when attorneys like me are advising companies and trade associations about what to do (and not do), we pay close attention to silly FTC actions like this because they signal the agency’s agenda, and how they are interpreting the competition laws. The FTC knows this.

They probably picked this particular case not because of the loss of consumer surplus from parents paying a couple dollars more for music lessons, in the rare instances that this provision has an actual effect.

Of course, I have zero musical ability, so what do I know?

Instead, I think they pursued it because the challenged provision is so obviously anticompetitive that they can send a clear message without having to litigate. The FTC is telling me—and I am telling you—that they care about what trade associations are doing, and what provisions are in their documents.

At the same time, they entered a similar consent decree with the California Association of Legal Support Professionals for similar code of ethic provisions limiting members from stealing employees from each other.

If you are part of a trade association, it might be time to dust off the old Code of Ethics, and read it (for perhaps the first time). If there is any language limiting the rights of members to compete for customers, or limiting individual pricing or other terms, I recommend that you call a great antitrust attorney.

In fact, given the FTC’s renewed focus on trade associations, not having a strong antitrust and competition compliance policy could put the association and its members at risk of both government enforcement and civil actions.

Speaking of civil actions, if you read an antitrust class action complaint alleging a horizontal conspiracy among members of any particular industry, you will invariably see allegations outlining defendants’ trade-association activity. Don’t give them something to talk about.

Participating in a trade-association isn’t necessarily anticompetitive, but there are so many risks from these competitor interactions that you have to really be careful, and then document that care.