Why Lawyers Should Know More About Antitrust Regulations

by Isabel Freitas Peres November 30 2009, 02:06

I.                    Introduction     

     Antitrust law is usually understood as applying to companies and their products. The incentives for assuring competition among companies have not limited the function of antitrust law. Antitrust law has developed its application to beyond those players in the market. Now, lawyers and bar associations also have to watch out for antitrust regulation. The American Bar Association has been under pressure to lighten up several of its rules in order to allow multidisciplinary firms to evolve.[1]      

     The application of antitrust law to lawyers will be discussed in this article. Part I discusses if the definition of “trade” applies to professional services for the purpose of antitrust regulation. Is the discussion of regulation related to horizontal agreements or legislation? If it is legislation (for example, laws establishing bar associations), it is out of the scope of antitrust law. Part II brings the European and also an economic approach to this matter giving more light to the discussion of what are the consequences of the direct application of antitrust law to lawyers. Part III recommends that lawyers should not be exempt from antitrust regulation. The formation of collusion and price fixing exists among this profession as well as in other areas and should be regulated. However, the existence of an exam to evaluate the quality of lawyers is not an anticompetitive behavior limiting entrance on the market, but it is a correction of the market that should exist to inform prospective clients. Part IV provides concluding thoughts on the regulation of attorneys. 

II.                  The Concept of Professionals for Antitrust Purposes          

     The status of “professionals” raises uncertainty in the antitrust context, but the implied antitrust exemption for professional’s collective behavior has come under increasing analysis.[2] For example, in most European countries the legal system does not have a general definition of professionals, but rather there are multiple distinct concepts.[3] The reality is that many of these professionals engage in concerning behavior that would otherwise be unlawful under antitrust laws[4] like fixing price and boycotts.[5]      

     American courts have three periods that can be identified for the professional antitrust exemption debate.[6] At first, early judicial inquiries rigidly differentiated the learned professionals from “trade” or “commerce.”[7] Then, Courts analyzed whether the professionals enjoyed an exemption from antitrust law and the Supreme Court explicitly held that professionals are subject to antitrust law in Goldfarb v. Virginia State Bar (“Goldfarb”). [8]The issue presented in Goldfarb was whether a minimum fee schedule for lawyers published by a county bar association violates the Sherman Act. [9]The bar association affirmed that the activities of lawyers belong to a “learned profession,” which indicates that competition is inconsistent with their practice.[10] Antitrust, therefore could not reach their activities.[11] However, the Supreme Court rejected this argument, stating that in the present market it cannot be denied that the activities of lawyers play an important role in commercial interaction and that anticompetitive activities by lawyers may exert a restraint on commerce within the meaning of antitrust laws.[12] Nonetheless, the Supreme Court mitigated the impact of the above statement, alleging in the same case that it would not be realistic to understand the practice of professions as interchangeable with any other business activities and to automatically apply to the professions anti-trust concepts that were created in other areas.[13] A final understanding regarding this issue, therefore, was not reach by the Court.        

     Currently, California Dental Association v. Federal Trade Commission (“California Dental Association”) is the precedent for the treatment of professionals under antitrust law.  In California Dental Association the Court deals with advertisements regarding quality and price of professionals. The Federal Trade Commission asked for a per se treatment of such behavior.[14] The Supreme Court, however, held the advertisement as pro competitive.[15] The Court also elaborated on the difference between professionals and other typical market participants and affirmed the existence of important challenges to informed decision-making by customers for professional services.[16] The Supreme Court brought an important economic issue behind the discussion, the lack of information among consumers regarding legal services available in the market.                 

     As stated above, the definition and characteristics of the term professional for professional services matter for the treatment and for the application of the antitrust rules. According to supporters of applying antitrust law onto this category, professionals have values and attitudes, which distinguish them from the persons in other occupations, and this justifies self regulation, freedom of government intervention and application of the antitrust laws.[17] Despite the fact that self regulation ensures that poorly informed consumers will be able to maximize their welfare by purchasing professional services of satisfactory quality at a reasonable cost, these professionals believe in the existence of their goals in addition to the maximization of individual gain.[18] At the same time, an additional discussion concerns the bar associations and the instrument for its creation. 

III.                The Economic Implications of This Analysis: Differences from an European Approach           

     Apart from a legal point of view, an economic examination of this subject points out a strong asymmetry of information. For example, the function of the bar association is to provide information.[19]  Since most people do not have the appropriate skills to assess the services of a lawyer, passing the bar exam can evaluate the quality of the attorney and correct this market failure for the prospective clients. However, it should be pointed out that professionals are not immune from making use of typical antitrust concerns, such as price fixing, boycotts and joint ventures that can be employed by these professionals and other industries.[20]       

     The antitrust interpretation of the legal market has changed since the 1940s when the law firms tended to be too small to alert the antitrust authorities.[21] Even so the application of the antitrust laws should be under a rule of reason, and never under a per se rule. Under the rule of reason analysis, courts look at the full context to determine whether the anticompetitive effects pose an "unreasonable" restraint on trade[22]. On the other hand, in a per se analysis, courts are to presume the illegality of activities[23]. The courts should move away from this rigid application because lawyers are not easily exchangeable merchandise (but rather a true “learned profession”). The facts and circumstances of the case presented to Courts must then be carefully analyzed.         

     The European Commission has adopted two reports and commissioned two independent studies on the competitiveness of some particular professions, including the market and activities of lawyers.[24] The report aimed to clarify why antitrust action was needed but also acted pro – actively to set out a plan of action to promote the abolition of unjustified restrictions.[25] This discussion was brought in front of the Court of Justice in the European Union in Wouter et Cie.[26] The main issue in Wouter et Cie was the extent to which the Netherlands Bar Association is a horizontal agreement that violates the Articles 101(1) or (3) of the European Union Regulation.[27] If a regulation limits the lawyers ability to price their services, publicize their services, etc, there is a clear restrain in competition, and thus antitrust/competition law should be applied.      

     Also in Europe, the examples of Sweden and Finland bring interesting insights. In these countries, lawyers do not have to be certified by the bar association to provide legal services, but instead the quality of this profession is reflected by the market.[28] For example, hiring someone with a law degree is more expensive than hiring a young person without a law degree for legal advice. The market, in this case, is said to control the problem of asymmetry, in which you pay more for getting a better quality service. However, such a system does not work in all the countries, and in most of them there is a bar association exercising the main function of controlling the quality of the lawyers in the market.      

     In contrast, a certifying body that does not have a clearly articulated relevant criteria applied on a consistent basis runs the risks of being accused of boycott, even though the practical impact of antitrust exposure in the law market has been low.[29] Also, the idea of the exemption of professionals is also related to the fact that there is less potential for actual agreement among professionals to knowingly engage in anticompetitive activity.[30] The bar association may consequently serve in this case as a potential instrument for anticompetitive behavior.     

IV.       Conclusion         

     The fact that legal services involve the sale of personal services, rather than commodities[31] does not take it out of the category of “trade” and lawyers can certainly give cause to anticompetitive behavior. However, the antitrust rules if applied shall be cautiously used, especially when the analysis is properly based on a rule of reason approach rather than a per se approach. Standards which are useful to individual decision-making in markets should be protected under the rule of reason.[32] The second problem, the asymmetry of information, should be carefully analyzed and legislators and courts should always look to the welfare of consumers. A special and specific approach should be developed for professional services. Otherwise, because of the above stressed points, the traditional antitrust law would not be suitable for these special markets of “intellectual trade”.

     The Courts nonetheless tend to get away from this problem and there are a number of reasons of why they do so. On the one hand, the Court may not think it is appropriate to set up rules governing this issue because it can bring unexpected consequences. On the other hand, the Courts may just have some notion of the specificity of the professions such as lawyers but are unable to articulate the difference. Despite the prejudices and the peculiarity of the discussion, an answer should be articulated either by the courts or the legislative bodies. Otherwise, silence may give incentives for anticompetitive behavior



[1] American Antitrust Institute, AAI Says Legal Profession's Recommendations on Multidisciplinary Practices May Violate Antitrust Laws, http://www.antitrustinstitute.org/Archives/52.ashx. (last visited Nov. 19, 2009).
[2] See Christopher J. Gawley, Protecting Professionals from Competition: the Necessity of a Limited Antitrust Exemption for Professionals, 47 S.D. L. Rev. 233 (2002)
[3] See Daniel Vazquez Albert, Competition Law and Professional Practice, 11 ILSA J. Int’l & Comp. L. 555 (2005)
[4] Id.
[5] Id. According to the author, collective price fixing and the prohibition of certain forms of advertising by a professional association may constitute a restriction of competition under the meaning of Article 81(1) of the European Community Treaty.
[6] See supra note 2
[7] Id.
[8] Id.
[9] Id.
[10] Id.
[11] Id.
[12] See David Shapiro, Cost Containment In The Health Care Field And The Antitrust Laws, 7 Am. J. L. & Med. 425 (1982)
[13] Id.
[14] See Gawley, supra note 2
[15] Id.
[16] See American Antitrust Institute, supra note 1.
[17] See Philip C. Kissam, Antitrust Law and Professional Behavior, 62 Tex. L. Rev. 1(1983)
[18] Id.
[19] See Michelle Behnke, In this Issue: A Fresh Look at an Old Friend: The American Bar Association: Partnership with the Alabama Legal Community, 70 ALA. L. 63 (2009)
[20] Id.
[21]See Thomas D. Morgan, The Impact of Antitrust Law on the Legal Profession, 67 Fordham L. Rev. 415 (1998)
[22] See Meghan K. Woodsome and Katherine S. Dumouchel, Antitrust Violations, 46 AM. CRIM. L. REV. 275 (2009)
[23] Id.
[24] See Mary Catherine Lucey, European Union Antitrust Law and Professional Associations: the Strategic Choices of “Soft” Weapons by the European Commission, 16 Tulsa J. Comp. & Int’l L. 87 (2008)
[25] Id. In Spain, for instance, mandatory fee schedules have been prohibited and advertising and marketing activities by professionals are now permitted as well as geographical restrictions to the practice of professionals have also been repealed. See Francisco Marcos, A New Age In Spanish Antitrust Law: Fighting Against Restrictions To Competition In The Professional Services Market (Nov. 6, 2001), (unpublished article, http://ssrn.com/abstract=282491.)
[26] See Eleanor M. Fox, The Competition Law of the European Union in Comparative Perspective (2009)
[27] Id.
[28] Id.
[29] Id.
[30] See Albert, supra note 3
[31] See Geoffrey C. Hazard, Why Lawyers Should be Allowed to Advertise: A Market Analysis of Legal Services, 58 N.Y. U. L. Rev. 1084 (1983)
[32] See Gawley, supra note 2
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