The Federal Trade Commission (FTC) filed suit against the California Dental Association (CDA) after the CDA issued several advisory opinions to its members regarding advertising and other issues. CDA was comprised of approximately 19,000 dentists throughout the state of California and was a tax-exempt organization. Members of the CDA were bound by an ethical code, some of which related to the role of advertising in dental services; the CDA also promulgated a number of advisory opinions and through separate advertising guidelines intended to help members comply with the Code and with state law . . . [.] The CDA also had member services that allowed members to increase profits, such as insurance discounts and other economic benefits.

The FTC brought its complaint against the CTA on the grounds that the CDA’s restrictions on its members advertising went too far and actually restricted truthful, nondeceptive advertising, which lead to anticompetitive effects. After a series of administrative hearings, the case came before the Ninth Circuit Court of Appeals, which upheld the FTC’s findings under a "truncated rule-of-reason test." Such a test adopted a factual examination in a way so as to state that the nature of the restrictions themselves necessitated anticompetitive effects. The Court adopted an intermediate test which lies between the per se anticompetitive illegality test and the standard rule-of-reason test.

The United States Supreme Court, per Justice Souter, immediately noted that the FTC had jurisdiction over a non-profit enterprise such as the CDA under the FTC Act. The Court determined that there was no bright-line standard for a non-profit association which generates profits for its members, nor was there a "threshold percentage of activity for [that] purpose" for a Court to examine and apply. Id. "The FTC Act directs the [Federal Trade] Commission to ‘prevent’ the broad set of entities under its jurisdiction ‘from using methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce . . .. Nonprofit entities organized on behalf of for-profit members have the same capacity . . . as for-profit organizations to engage in unfair methods of competition or unfair and deceptive acts. Id.

The Court next decided that the Ninth Circuit Court of Appeals’ use of the "quick-look" rule of reason analysis was inappropriate. The Court held that the quick-look analysis carries the day only when the great likelihood of anticompetitive effects can easily be ascertained. The Court acknowledged that such a quick-look analysis is appropriate without detailed market analysis, but only when an "observer with even a rudimentary understanding of economics could conclude that the arrangements . . . would have an anticompetitive effect on customers and markets." Id.

Under this standard, the Court decided that the facts in the case, in terms of anticompetitive effects, were not inherently obvious to any observer. CDA’s control of professional price and quality advertising could not be determined to be anticompetitive, procompetitive, or neutral. The past cases that articulated the quick-look rule of reason test had more to do with "classic horizontal agreements" rather than supplying information to the consumer of professional services. The Court articulated that an appropriate situation for a quick-look rule of reason analysis would have been a comparison of the CDA-mandated advertising in comparison to the rest of the marketplace’s standards for advertising, or perhaps a complete ban on price advertising. The Court noted that from an economics standpoint, the view may be right, wrong, or immaterial, but neither the administrative proceedings within the FTC nor the hearing before the Ninth Circuit should have dismissed it as presumptively wrong.

The Supreme Court also stated that the quick-look rule-of-reason analysis did not necessarily have to be supported with a detailed market analysis, nor was every possible case with an obscure anticompetitive restraint a candidate for plenary market examination. The Court acknowledged that there were no bright lines between per se analysis, quick-look analysis, or full rule-of-reason analysis.

The dissent (Justice Breyer, with three concurring Justices), while agreeing with the majority insofar as the FTC’s jurisdiction over the CDA, reiterated the Ninth Circuit’s holding that the restraints were a ban on advertising, and, as such, had the potential for "obvious" genuine adverse effects on competition. The dissent noted that the CDA’s bans on advertising included a prohibition on advertising guarantees of workmanship or gentleness. The dissent, however, as pointed out by the majority opinion, contained an analysis much more detailed than that of the Ninth Circuit’s, and was generally a better opinion than the Ninth Circuit’s.

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