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Cal. Dental Ass'n v. Ftc - 526 U.S. 756, 119 S. Ct. 1604 (1999)

Rule:

A naked restraint on price and output requires some competitive justification even in the absence of a detailed market analysis. No elaborate industry analysis is required to demonstrate the anticompetitive character of horizontal agreements among competitors to refuse to discuss prices or to withhold a particular desired service. With an abbreviated or "quick-look" analysis under the rule of reason, an observer with even a rudimentary understanding of economics could conclude that the arrangements in question would have an anticompetitive effect on customers and markets. As in such cases, quick-look analysis carries the day when the great likelihood of anticompetitive effects can easily be ascertained.

Facts:

Petitioner California Dental Association (CDA), a nonprofit association of local dental societies to which about three-quarters of the State's dentists belong, provides desirable insurance and preferential financing arrangements for its members, and engages in lobbying, litigation, marketing, and public relations for members' benefit. Members agree to abide by the CDA's Code of Ethics, which, inter alia, prohibits false or misleading advertising. The CDA has issued interpretive advisory opinions and guidelines relating to advertising. Respondent Federal Trade Commission (FTC) brought a complaint, alleging that the CDA violated § 5 of the Federal Trade Commission Act (Act), 15 U.S.C. § 45, in applying its guidelines so as to restrict two types of truthful, nondeceptive advertising: price advertising, particularly discounted fees, and advertising relating to the quality of dental services. An Administrative Law Judge (ALJ) held the Commission to have jurisdiction over the CDA and found a § 5 violation. As relevant here, the Commission held that the advertising restrictions violated the Act under an abbreviated rule-of-reason analysis. In affirming, the Ninth Circuit sustained the Commission's jurisdiction and concluded that an abbreviated or "quick look" rule-of-reason analysis was proper in this case.

Issue:

Were CDA’s restrictions on its members' advertising illegal?

Answer:

Yes

Conclusion:

The Supreme Court vacated the appellate court decision and remanded. FTC did have jurisdiction over CDA under 15 U.S.C.S. § 45(a)(2) because CDA provided substantial economic benefits to its for-profit members. But because the anticompetitive effects of the restraints on advertising were not intuitively obvious, a more detailed inquiry into the consequences of advertising restraints was required under the rule-of-reason analysis. CDA's advertising restrictions might plausibly be thought to have a net pro-competitive effect or no effect at all on competition because the restrictions were designed to avoid false or deceptive advertising.

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