It is hard to imagine piano teachers being the target of a Federal Trade Commission (“FTC”) investigation but recently the FTC forced the Music Teachers National Association (“MTNA”) to accept a consent decree over the group’s code of ethics. The MTNA was founded in 1876 to advance the value of music study and support professional music teachers. It is a nonprofit organization that, among other things, offers programs to support music teachers such as competitions and awards. Its aspirational code of ethics contains commitments to students, colleagues, and society. Unfortunately for the MTNA, the FTC interpreted one of the association’s code’s provisions, which encouraged members not to recruit students from other members, as a restraint on free trade. The FTC determined that the provision to aspire not to recruit other colleague’s students was an attempt to raise prices for music lessons.
After receiving notice of the investigation, the MTNA removed the provision from its code of ethics and demonstrated that the provision had never been enforced. Nevertheless, the FTC gave the MTNA the unappealing choice of entering into a consent decree or spending money the association does not have on fighting the determination. The unapproved consent decree requires the MTNA to take many actions such as hiring a compliance officer and setting up training sessions for employees. The FTC was not swayed by the MTNA’s arguments that the FTC has no real authority over nonprofits.
The United States Supreme Court gave some insight into the FTC’s ability to regulate nonprofit organizations in California Dental Association v FTC, 526 U.S. 756 (1999). In this case, the California Dental Association, a nonprofit association, prohibited its members under the code of ethics from engaging in false or misleading advertising. The association had issued advisory opinions and guidelines concerning the advertising of services. The FTC brought a complaint alleging the association applied its guidelines so as to unreasonably restrict truthful and non-deceptive advertising related to price and the quality of dental services in violation of the Federal Trade Commission Act.
The Supreme Court held that the FTC does have jurisdiction under the Federal Trade Commission Act to regulate nonprofit trade associations and professional societies which provide economic benefits to its for-profit members such as life insurance, lobbying, and marketing, which fall within the object of enhancing the members’ profits. However, the Supreme Court stated that a nonprofit that does not offer any such benefits, but is organized solely to provide professional education may be outside the FTC jurisdiction. How much comfort that provides to associations and professional societies is up for debate. It is easy to imagine an argument that any service, including continuing education, is an economic benefit to its members that helps to enhance their ability to profit.
Interestingly, the alleged anti-competitive practices found by the FTC to be committed by both these associations were contained in their code of ethics. One, in the case of the MTNA, was found to be anti-competitive on its face, and the other, was found to be anti-competitive as applied. Either way, associations should carefully examine their own code of ethics to determine if any provisions could possibly be interpreted in similar manner.