Earlier this year, the California Dental Association (CDA) prevailed in its 8 year battle with the Federal Trade Commission (FTC) over CDA's advertising guidelines. The FTC had alleged that the CDA's advertising guidelines were impermissibly anticompetitive.
A. The Advertising Restrictions
The CDA is a California dental trade association and part of the American Dental Association. Approximately 75 percent of the licensed dentists in California belong to the CDA.
The CDA has historically developed and enforced the following advertising guidelines for dental services:
1. Any communication or advertisement that refers to the cost of dental services must be exact, without omissions, and must clearly identify each service without the use of such phrases as "as low as," "and up," "lowest prices," or words or phrases of similar import.
2. Any advertisement that refers to the cost of dental services and uses words of comparison or relativity (such as "low fees"), must be based on verifiable data substantiating the comparison or relativity.
3. Since advertising claims as to the quality of services are not measurable or verifiable, they are likely false or misleading, and are thereby prohibited.
4. Any advertisement offering discounts must include all of the following:
B. The Litigation
- The dollar amount of the nondiscounted fee for the service;
- Either the dollar amount of the discounted fee or the percentage of the discount for the specific service;
- The length of time that the discount will be offered;
- Verifiable fees; and
- The identity of specific groups who qualify for the discount or any other terms and conditions or restrictions for qualifying for the discount.
In 1993, the FTC brought a complaint against the CDA alleging that these advertising guidelines were an illegal restraint of trade. The administrative law judge who heard the case ruled against the CDA. That ruling was upheld by the FTC itself, and by a federal appellate court.
However, the United States Supreme Court overturned the prior rulings, sent the case back to the federal appellate court, and ordered that court to weigh the advertising guidelines' procompetitive justifications against their anticompetitive effects.
The federal appellate court subsequently found that the advertising restrictions did cause anticompetitive harm, in that they made it more difficult for dentists to compete with each other on the basis of price or claims of quality. However, the court also concluded that the pro- competitive justifications of the advertising restrictions outweighed their anticompetitive effect. More specifically, the court identified two primary reasons (both suggested by the Supreme Court) why the FTC failed to meet its burden of proving a net harm to competition.
First, the court noted that there was an informational asymmetry in the dental market, because dentists are far better at evaluating the quality of dental services and the reasonableness of prices than patients. The court believed that the CDA's advertising restrictions corrected for some of the information asymmetries by requiring dentists to fully disclose information about price or quality.
Second, while the CDA restricted certain types of advertising, the restrictions did not result in a complete ban of any type of advertising. Therefore, the court concluded that the guidelines were much less likely to result in a restraint of competition.
Although advertising by medical professionals has become more acceptable since the inception of the FTC's battle with the CDA in 1993, the FTC's resounding defeat in the CDA case could embolden trade associations around the country to try to turn back the clock.