Recent public policy on standards and certification reflects both the high value placed on the voluntary standard setting system and serious concern that the system is being misused to exclude competitors and injure consumers. Disagreement has arisen over the means for remedying the anticompetitive consequences of some standard-setting activities.

When government intervenes in an open market, the choice of regulatory approach must be measured by the extent to which it creates incentives for compliance, the ease with which it can be administratively enforced and the costs it imposes. Critics of perceived excessive regulation argue that the government must be careful not to discourage productive standard setting activity or to impose costs without providing offsetting benefits.¹ However, the courts,² the justice Department,³ administrative agencies,⁴ and the Congress,⁵ are taking a grave view of antitrust violations by all types of standards organizations.

In ASME, Inc. v. Hydrolevel Corporation, the Supreme Court affirmed that the ASME was liable for treble damages to Hydrolevel, intending that the fine would both compensate the small firm and serve as a deterrent "to insure that standard-setting organizations act with care . . .."

Many professional associations anticipated that the Supreme Court's decision would seriously hamper the voluntary standard-setting process. In the fifteen months since the decision, organizations have altered the process of setting standards to reduce their potential liability for damages, but the standard-setting system as a whole has continued without major incident.

Several federal agencies have recently taken positions on standard setting. The Federal Trade Commission staff has recommended a rule aimed et prohibiting and remedying the failure of standards developers to consider and decide complaints that their actions unreasonably restrain trade.⁶ A new policy statement issued by the Office of Management and Budget (OMB) urges government agencies to rely on voluntary standards, both domestic and international, whenever feasible.⁷ The FTC is reviewing comments on its proposed rule to determine if the OMB regulation and the Supreme Court decision on ASME v. Hydrolevel have so improved the process of standard setting that the FTC rule may not be necessary.

Issues of Politics, Competition and Due Process
Examination of the recent history of industrial product standard-setting will serve two purposes: 1) it will demonstrate how policy on standard setting is subject to periodic readjustments due to political considerations, and 2) it may clarify the current public policy issues and their impacts on professional associations and similar organizations.

In the late 1960's a case against the Douglass Fir Plywood Association focused on the possibility that a trade association's standard setting group could use its authority to prevent a new competitor from entering the market, causing him to file for bankruptcy.⁸ In 1974, the Federal Trade Commission began a probe of plastics manufacturers, charging that a standards committee of the Society of the Plastics Industry, Inc. had allowed a highly flammable foamed plastic to reach the market. The FTC initiated a broad scale inquiry into the development of standards and certification and concluded that "standards development and certification have the potential to, and have in certain instances led to, competitive and consumer injury."⁹

The American National Standards Institute and fifteen other organizations concerned with standards and certification sued the Federal Trade Commission in 1979, alleging that its rulemaking proceedings violated various constitutional and statutory rights.¹⁰ Opposition to FTC rulemaking authority was carried into Congressional authorization hearings for the FTC. Strong organized lobbying by industry, professional and trade associations resulted in passage of the Federal Trade Commission Improvements Act of 1980.¹¹ By this Act, the Commission lost the authority to "develop or promulgate any trade rule or regulation with regard to the development and utilization of standards and certification activities.. ." The FTC, however, was able to continue its rulemaking over unfair methods of competition under another section of the FTC Act.¹²

The American Medical Association (AMA)has led a continuing effort to strip the FTC of its authority to regulate professional associations. The powerful medical lobby has sought to exempt physicians from federal review and only narrowly lost on this issue in the 1982 Congress. Professional associations have continued their fight against FTC authority in the 1983 Congress. The American Bar Association overwhelmingly approved a resolution at its annual meeting this past summer, urging Congress to bar the FTC from regulating lawyers.¹³ However, consumer groups have so far succeeded in fending off the professional societies' campaign.

On another front, many of the standards organizations, including professional societies and trade associations, turned to the National Association of Manufacturers (NAM) in the spring of 1982 to organize a lobbying effort to revise aproposed OMB directive on "Federal Participation in the Development and Use of Voluntary Standards."¹⁴ These groups found fault with clauses in the OMB circular which stipulated due process preconditions to federal participation in private standard setting activities. OMB was prepared to establish a uniform policy for all government agencies authorizing them to participate in the support standards activities of private sector organizations provided they self-certify that they comply with stated due process and other basic criteria in carrying out those activities. This would have meant some notice to the public or to all parties which might be affected. It also provided for a dispute resolution service to resolve complaints against voluntary standards organizations. However, the rule did not survive the Reagan Administration's regulatory review. Instead, a revised Circular A-119, closely reflecting the NAM lobby's position, became effective in March 1983. The Director of the Associations Department of the NAM said the group was generally pleased with the provisions:¹⁵

the due process criteria have been eliminated as well as the requirement thatvoluntary standards bodies adhere to those criteria as a prerequisite for federal participation, the provisions for the establishment of a voluntary dispute resolution service have been eliminated, in place of the due process requirements the circular cautions federal agencies to be aware of laws end regulations which may be violated by agency participation on committees.

These revisions in the OMB rule place the burden on the plaintiff to demonstrate that he has been harmed and that his right to due process has been denied by the standards organization.

The FTC staff estimated that standards development organizations without procedures for handling substantive companies and those with procedures that are significantly restricted together produce over 80% of the privately developed standards in the United States.¹⁶ In an effort to improve the complaint handling procedures of the standards organizations, the staff of the Federal Trade Commission recommended a rule that "declares it to be an unfair method of competition for standards developers to fail to consider and decide complaints that their standards unreasonably restrain trade." Since the Supreme Court decision in ASME v. Hydrolevel should encourage the development of adequate complaint handling systems by standards developers, the staff recommended a comment period to receive evidence on current complaint processing by standards organizations. The FTC does not speak in one voice on this issue, however.¹⁷

Despite disagreement on mechanisms for implementing policy, there is consensus in the Reagan Administration that the government should play an active role in preventing anti-competitive activity in the atandardsettfng business.The preferred approach at the FTC is case-bycase enforcement, including an examination of the benefits and costs of the challenged restraint on a specifically defined economic market. The revised OMB circular is a significant piece of an overall standard-setting policy,for it signals a shift from a broad focus on industry-wide regulation to localized enforcement of what is perceived as the relatively few instances of anticompetitive activity.

Implications for Professional Associations
Apprehension about the current regulatory climate is well-founded among professional associations. There is now legal precedent for holding an association liable for the acts of its members end individual members liable for their acts as members of the associations. New law is also being made, including some which relates to professional liability to third parties (See Note 2). Since the courts ere not an appropriate focus for organized lobbying, these precedents will be more difficult to change and potentially more coetly than FTC rules and OMB circulars.

Professional associations and certification organizations generally serve the business interests of their members and are organized for, among other things, the profit of those members. Like trade and industry groups, most professional associations are voluntary organizations supported by dues and contributions from members. These organizations have developed a broad array of standards for both industrial products and professional performance. Their standard-setting committees are composed of volunteers, many of whom are employed by major industrial firms which pay them for their participation on the committees. These volunteer committee members are usually assisted by staff members from the standard setting-association. Programs of professional societies have been held to constitute concerted joint action in restraint of trade. Unreasonable restraints resulting from standards set by such an organization could expose it to antitrust liability because it was a participant in a combination with industry members.

Law journal analysis and reports from association committees reflect the developing legal approach for professional associations anxious to protect themselves from antitrust violations such as were the bases for ASME v. Hydrolevel. Responding to the persistent criticism of complaint handling, prudentgroups in the standards industry ere focusing on improvements in the procedural due process provisions in their standard setting process.

Similarly, a committee of the American Bar Association, meeting in June 1983, wrestled with responses to ASME v. Hydrolevel. They heard reports on model rules de ned to protect committees which issue advisory ethics opinions. A past president of the Chicago Bar Association noted to the committee that the most vulnerable advisory opinions are those that have something to do with setting fees, that restrict an activity or suggest that a certain practice is unethical, or that restrain competition among lawyers.¹⁸

Many of the legal defenses once available to professional and trade associations have been eroded by the courts. Professional and trade association activities which are perceived as price fixing, group boycott and other such violations under the guise of standards and ethical codes, are apt to be struck down by the courts. They may subject the actors and their employers to possible liability for compensatory damages and perhaps even punitive damages.

In another approach to coping with the present climate, the American Academy of Opthamology submitted its proposed ethics code to the Federal Trade Commission for review of possible violations of antitrust laws. In June 1983, the Association reported that the provisions of the code relating to clinical experiments, investigative procedures, delegation of services, postoperative care and communications to the public do not violate the FTC Act or other statutes enforced by the Commission.¹⁹

The necessity of stronger guarantees regarding the provisions for due process are not well received by some associations. The President of the AMA, in recent criticism of mandatory reportinglaws regarding physician discipline, termed the government's approach an attempt to legislate morality: "There is so much due process, my friends, that there is not much justice."²⁰

The American Society of Association Executives also complained that several recent Supreme Court antitrust cases seriously inhibit association self-regulation programs. They specifically protested the Hydrolevel doctrine holding associations strictly liable for the actions of their agents and would like the criteria used for judging an ethics code to be broader than only the code's effect on competition.²¹

New developments in this area of the law continue to emerge. The New Jersey Supreme Court, in what may be a precedent-setting decision, has recently ruled that a professional can be held liable to non-cilent third parties for negligence.²² The court essentially ruled that the law regulating professionals should become something akin to that requiring strict liability for products. The implications of the decision are that the court has eliminated the ability to make professional judgments, which by hindsight might be found wrong, but which should not be considered negligent or actionable.²³

The Supreme Court decision in Hydrolevel has created additional problems for standards organizations relying on corporate employees. As many associations suggested in amicus briefs filed in the Hydrolevel case, volunteer misconduct cannot be controlled effectively. Full time staff will have to play a more central role in the development and interpretation of standards at a significant increase in cost. Funding of standards committees by business interests may present a serious potential for conflicts of interest and consequent antitrust violations. This may cause corporations to rethink their policy of funding the participation of their employees on these committees.

A decade ago economist Reuben A. Kassel considered self-regulation by the professions "on a par with having spiders run an orphanage for flies."²⁴ In the interim, a period of strong consumer activism, new interpretations of legal principles, and both congressional and agency attention to enlilruat violations, have motivated professional associations to improve their provisions for self-regulation. This trend is likely to continue.

Too much is at stake in the voluntary standard-setting system far all industry and professional associations to vacate the field as some of them predicted both before and after the Hydrolevel decision. A likely scenario is that the number of standard-setting organizations will decline and their work will be shifted to the small number of standard-setting groups which can afford to provide the necessary due process safeguards. Greater government involvement seems unlikely for reasons already stated. In addition, the revised OMB circular specifically encourages government adoption of industry standards.

In conclusion, it seems likely that the standard-setting associations will adapt to the current regulatory climate through a series of incremental changes in procedures. The system will emerge more responsive to the public interest.

Footnotes
1. Statment of Timothy Marts, Director, Bu, reau of Consumer Protection, Federal TradeCommision accompanying the Federal Staff Report on Standards and Certification, April 1, 1993.
2. ASME, Inc. v. Hydrolevel Corporation, 102 S.Ct. 1935 (1982) and related cases.
3. Letter from Ronald G. Carr, Acting Assistant Attorney General. Antitrust Division, U.S. Department of justice, June 22,1982 to Donald E. Sowle, Office of Management and Budget commenting on Revised OMB Circular A-119.
4. U.S. Federal Trade Commission. Bureau of Caasumer Protection Standards and Certification Final Staff Report, April 1983, p 339 ff. hereafter referred to as FTC Standards and Certification; OMB Circular Revised A-119.
5. The Congress began holding hearings voluntary Industrial Standards in 1975 which were preceded by reports issued by the House Select Committee on Small Businees in 1969 and by the Science Policy Research Division of the Library of Congress 1975.
6. See FTC Standards and Certification.
7. The policy was announced in OMB Circular lar A-119 revised (Federal Register pp. 49498, November 1, 1982).
8. Structural Laminates. Inc. v. Douglass Fir Plywood Association !261 F.Supp. 154.Ore. 19661 aff 'd per curiem, 399 F.2d 155 (9th Car. 1988) cart. denied, 393.
9. FTC Standards and Certification. P.1.
10. American National Standards Institute v. FTC_ civ. No. 79-1275 (D.D.C. 1979), titan May 9,1979. The case was dismissed by the Federal District Court for the l7i atrictof Columbia in February 19172.
11. P.L.96-252.
12. See H.R. Rep. No. 96-917, 98th Cong, 2d Sess. (1980) at 29.
13. Wall Street Journal, August 3, 1963.
14. National Journal, 9/28/91, pp 1717-1719.
15. Telephone conversetion with RicherdNor mans March 15, 1983.
16. FTC Standards and Certification.
17. Sea Ibid.. accompanied by statements of Bureau of Consumer Protection Director, Timothy Maria end Associate Director far service Industry Practices. Michael G. Moceley.
18. Richard W. Austin, remarks at session of American Bar Association's Ninth Annual Workshop on Lawyers' Professional Responsibility, June 9-11, 1983. 51 LW 2761.(6-21-83).
19. Professional Regulation News, lung 1983, p.3.
20. William Y. Riel. quoted in Professional Regulation News, April/May 1983, p.10.
21. Ibid., p 4
22. H. Rosenblum. Inc. v. Jack Adler, A-39/85 Untie 9. 1983.
23. Comments of General Counsel for Touche Rose and Go., the accounting firm which was the defendant in the case, as quoted in Professional Regulation News, June 1963.
24. Reuben A. Kessel, Essays in Applied Price Theory, ads. R.H. Cause and Merton H. Miller (Chicago: University of Chicago Press, 1980), p. 60.