Standard setting and product certification activities
undertaken by private trade associations have historically been the
object of antitrust scrutiny by enforcement authorities. Standard
setting and product certification is a collaborative act which involves
firms with competing, and sometimes opposing, economic interests that
generates industry standards which may become a requirement for
competing firms in that market place. Accordingly, product
standardization can give rise to antitrust liability where such conduct
impairs competition by either depriving some consumers of a desired
product, eliminating quality competition, excluding rival producers, or
facilitating near-monopolistic pricing by easing rivals ability to
monitor each others prices.
However, before antitrust liability is imposed, any
potential pro-competitive effects resulting from the standards conduct
are scrutinized by the courts under the rule of reason analysis.
Pursuant to the rule of reason analysis, the courts weigh the impact of
the anti-competitive effect against the pro-competitive goals of the
change. That is to say, since standard setting and certification
activities by private trade associations may result in pro-competitive
benefits, courts typically evaluate the pro-competitive benefits against
any anti-competitive implications. For example, standard setting can
serve as an efficient means for buyers and sellers to exchange
information on product attributes. Further, economic barriers for
introduction of new technologies and/or low cost alternatives may also
be eased. And, standard setting activities can eliminate excess product
variations from the market, thereby increasing consumer efficiency.
Indeed, even where agreements between direct
competitors to favor one competitive technology over another, or to
exclude a competitor from the standard development process, are now
analyzed under a rule of reason approach. See Northwest
Wholesale Stationers, Inc. v Pacific Stationary and Printing Company,
472 US 284 (1985) (where Supreme Court held that the exclusion of a
competitor from membership should not be assessed under a per se
approach). Thus, courts now conclude that absent the type of conduct
that has traditionally been considered in all instances to be
anti-competitive (such as price fixing), a rule of reason analysis
should be used to assess standard setting or product certification
conduct. As a consequence, the antitrust plaintiff must show that the
challenged conduct created an adverse effect on competition in the
properly defined relevant market, or was undertaken for an
anti-competitive purpose.
For example, in Consolidated Metal Products,
Inc. v American Petroleum Institute, 846 F2d 284 (5th
Cir. 1988), the plaintiff, a manufacturer of oil well equipment, sued
the American Petroleum Institute ("API"), asserting that the
API violated § 1 of the Sherman Act by
delaying the granting of trade standard certification to certain
equipment manufactured by the plaintiff. The court granted summary
judgment in favor of the API and in doing so, rejected the per se rule
of illegality, concluding that:
[w]e hold that a trade association that evaluates
products and issues opinions, without constraining others to follow
its recommendations, does not per se violate § 1, when, for whatever
reason, it fails to evaluate a product favorable to the manufacturer.
Here, denial of API certification in no real sense excludes [the
plaintiff] from the market: without certification, [the plaintiff]
admits that it is still free to sell its products and consumers are
free to buy them. In no real sense is the [API certification]
necessary to the sale of [the plaintiff’s product]: [plaintiff] does
not allege that consumers are somehow unable to use its [product] as
they would [API] certified products.
Significantly, the court in Consolidated Metal
Products, recognized that the API in evaluating the plaintiff’s
products, followed normal procedures for product certification and
recognized that the API committee that evaluated Consolidated’s
product was not made up of the plaintiff’s competitors, but rather of
potential customers. In other words, the product certification was done
in a methodical process and was one which afforded every opportunity for
the product to become certified. These factors played the most prominent
note in the court’s determination that there was no antitrust
violations.
Likewise, in Clamp-All v Cast Iron Soil Pipe
Inst., 851 F.2d 478 (1st Cir. 1998), cert.
denied, 488 US 1007 (1989), the court found no antitrust violations by
the Defendant. In Clamp-All, the plaintiff was a manufacturer of
pipe couplings, and sued the Cast Iron Soil Pipe Inst. ("CISPI"),
a trade association of pipe manufacturers, all of whom either sold or
manufactured pipe couplings competitive with plaintiff’s product.
CISPI created a standard for pipe couplings that did not include
plaintiff’s product, and then sought to have the standard adopted by
various private standard setting bodies, and state and local plumbing
code authorities. Based on such conduct, plaintiff alleged a violation
of § 1.
The Fifth Circuit, however, rejected the plaintiff’s
argument that the defendant’s actions violated antitrust laws.
Instead, the court viewed the defendant’s conduct as pro-competitive:
The standard, and specify what counts as a CISPI
coupling, provides a relatively cheap and effective way for a
manufacture or buyer to determine whether a particular coupling is, in
fact … a CISPI coupling. The adoption by certifiers helps users
quickly and effectively determine that a particular coupling (which
meets CISPI’s standards) also meets state, local, or private
certifiers’ standards of acceptability. The joint specification,
development, promulgation, and adoption efforts would seem less
expensive than having each member of CISPI make duplicative efforts
… if such activity, in and of itself, would have hurt [the
plaintiff] by making it more difficult to compete, [the plaintiff]
would suffer injury only as a result of the defendant’s joint
efforts having lowered information costs or created a better product…
and, that kind of harm is not "unreasonable
anti-competitive".
Conversely, in Allied Tube and Conduit Corp. v
Indian Head, Inc.,
484 US 814, the
jury found that the defendant had violated antitrust laws in blocking
the inclusion of flexible plastic electric conduits manufactured by the
plaintiff into the then current National Electric Code. In Allied
Tube, the defendant was a member of the National Fire Protection
Association ("NFPA"), an organization that through a consensus
standards making process, sets and publishes product standards and codes
related to fire protection. The NFPA’s national electric code
establishes product and performance standards for the design and
installation of electrical wiring and is generally adopted into law in a
substantial number of states and local governments. In addition, it was
widely adopted by private certification laws, insurance underwriters,
and electrical inspectors, contractors, and distributors.
The Allied Tube plaintiff was a manufacturer
of plastic conduit, a product that was not included in the NFPA code,
and sought to have its product approved inclusion. The product was
initially approved by one of the NFPA’s professional panels and only
required approval by a simple majority of the NFPA members attending the
1980 annual meeting. Prior to the 1980 meeting, the defendant, the
leading U.S. producer of steel conduit, met with members of the steel
industry, other steel conduit manufacturers and independent sales
agents, and agreed to exclude plaintiff’s plastic conduit from
inclusion in the 1981 code. To effectuate exclusion, the defendant
recruited 230 people to become new members of the NFPA so they could
attend the annual meeting, specifically to vote against plaintiff’s
proposal. These recruits had their expenses paid, were instructed where
to sit, had group leaders appointed to instruct them how to vote by
walki talkies and hand signals, and were provided with box lunches.
Ultimately, the plaintiff’s proposal was defeated and an appeal was
denied.
After trial, the jury rendered a verdict in favor of
the plaintiff, and awarded it 3.8 million for lost profits. On defendant’s
JNOV motion, the defendant argued that the Noerr-Penington doctrine
required that the verdict be set aside. The Supreme Court, however,
rejected the defendant’s argument and concluded that it was not
immunized from antitrust liability under the Noerr-Penington doctrine.
Indeed, the court stated that:
The scope of [Noerr] protection depends…on
the source, context, and nature of the anti-competitive restrained
issue. "Where a restraint upon trade or monopolization is the
result of valid governmental action, as opposed to private
action," those urging the governmental action enjoy absolute
immunity from antitrust liability for the anti-competitive restraint.
In addition, where, independent of any government action, the
anti-competitive restraint results directly from private action, the
restraint can not form the basis for antitrust liability if it is
"incidental" to a valid effort to influence governmental
action. The validity of such efforts, and thus the applicability of Noerr
immunity, varies with the context and nature of the activity. A
political campaign directed at the general public, seeking legislation
of executive action, enjoys antitrust immunity even when the campaign
employee’s unethical and deceptive methods. But unless political
arenas, unethical and deceptive practices can constitute abuses of
administrative or judicial processes that may result in antitrust
violations.
Accordingly, the application of the Noerr-Penington
doctrine to standard setting or certifying conduct requires a detailed
analysis of the nature of the challenged conduct and a determination of
whether the effects of such conduct result from independent market place
effects or flow directly from government action. Thus, even if the
resulting standard or product certification is adopted by government
agencies, Noerr immunity will not necessarily apply. On the other hand,
if the only anti-competitive effect is as the result of actions by
government agency, Noerr immunity should apply. Thus, courts will be
forced to scrutinize every fact relating to the creation and adoption of
the standard before determining whether Noerr-Penington immunity
applies.
Although procedural safeguards in the standards
development process will not determine the antitrust analysis of
specific conduct, procedural safeguards nonetheless can influence rule
of reason analysis for evaluating specific standards related conduct.
Therefore, procedures should be adopted and closely monitored that
protect against the use of standard setting or a certification process
for the private economic gain of one or more members. For example, these
procedures should encompass concepts of due process, as well as criteria
for membership participation, resolution of negative views, appeal
processes, and the amendment of existing standards. Specifically, the
consensus standard setting and certification procedures indicated by the
American National Standards institute should provide a sort of
procedural protection that is recognized as relevant for antitrust
purposes.
In sum, conduct undertaken in the development of
standards, or the certification of products will be subject to antitrust
liability if the challenged conduct results from an anti-competitive
purpose or causes an anti-competitive affect in a properly defined
relevant market. Generally, the rule of reason analysis will be the
means of scrutinizing the conduct, and the pro-competitive aspects of
standard setting and certification will be balanced against any
anti-competitive effects that may arise.
In order to promote
pro-competitive aspects of standard setting and certification, persons
participating in such organizations should make all efforts to maintain
the integrity of the standards development certification process to
ensure that private economic interests within the association are not
corrupting the objective focus of the associations efforts. Therefore,
the association must ensure that a proper balance be maintained that
protects against adverse competitive results, but which generate the
efficient development of standards.
