On July 25, 2018, the U.S. District Court for the District of New Jersey granted preliminary approval of the settlement of the Osteopathic Physicians Class Action against the American Osteopathic Association (AOA) in Talone v. American Osteopathic Association (No. 1:16-CV-04644-NLH-JS, 2017 WL 2539394, at *3). According to plaintiffs’ counsel, the benefits conferred to class members by the settlement are valued at more than $35 million.
The settlement resolves the class action’s allegation that the AOA engaged in unlawful tying arrangements by requiring Doctors of Osteopathic Medicine (D.O.s) who become board certified in a specialty by the AOA to purchase AOA memberships in order to maintain their certification. The plaintiffs alleged that this requirement violated the federal Sherman Act and state antitrust laws2
The long-standing question of whether tie-ins between nonprofit organization memberships and maintaining professional credentials can violate antitrust law remains unanswered. After summarizing the Talone case, we then discuss relevant court decisions regarding tying and explain why the Talone settlement may be important to nonprofit membership organizations that tie credentialing to membership.
I. Talone v. American Osteopathic Association
Beginning August 1, 2012, the AOA required all AOA board-certified D.O.s to purchase and maintain annual membership in the AOA and pay the AOA’s annual membership dues as a condition of maintaining their AOA board certification. The new requirement of purchasing annual membership to maintain board certification was the catalyst for the Talone challenge. The plaintiffs claimed that the new requirement constituted an anticompetitive tying arrangement in violation of antitrust law.
The plaintiffs alleged a “rule of reason” tying violation and a “per se” tying violation. Tying is defined as selling one good (the tying product) on condition that the buyer also purchases another, separate good (the tied product). The most important characteristic of an unlawful tying arrangement is the seller’s exploitation of its control over the tying product to force the buyer to purchase a tied product that the buyer did not want or might have preferred to purchase on different terms. The presence of “forcing” is what violates the Sherman Act.
On June 12, 2017, the U.S. District Court for the District of New Jersey denied the AOA’s motion to dismiss both the alleged “rule of reason” and “per se” antitrust claims. It ruled that when the plaintiffs’ allegations were taken as true, they showed that the AOA tied two distinct products, that it had market power in the tying product market, and that it affected a substantial amount of interstate commerce. Finally, the court ruled that the allegations, when accepted as true, showed that the AOA’s tying arrangement substantially lessened competition so that other professional association membership organizations were foreclosed from competing for AOA board-certified D.O.s’ business.
Under the terms of the settlement, the AOA agreed to permanently end its practice of tying AOA certification to AOA membership. In addition, the AOA agreed to confer other significant benefits on the more than 45,000 class members, including:
The AOA further agreed to bear the costs relating to notice of the settlement and to pay plaintiff’s counsel $2,617,000.
II. A Brief History of Tying
The concept of tying as an antitrust violation by nonprofit organizations is not new. Courts have considered whether tying arrangements in the trade association context violate antitrust laws and, with a few exceptions, typically have not found tying arrangements unlawful.
For example, the Seventh Circuit determined that a real estate trade association did not violate the Sherman Act by requiring brokers to purchase membership in the association in order to access its multiple listing service. See Reifert v. S. Cent. Wisconsin MLS Corp., 450 F.3d 312, 315 (7th Cir. 2006); see also Wells Real Estate Inc. v. Greater Lowell Bd. of Realtors, 850 F.2d 803 (1st Cir.1988); O’Riordan v. Long Island Bd. of Realtors Inc., 707 F. Supp. 111 (E.D.N.Y.1988). The Court in Reifert reasoned that because the brokers were able to utilize other real estate services in addition to that of the association, competition had not been foreclosed.
A 1978 federal appeals court case, Bogus v. American Speech & Hearing Association, 582 F.2d 277 (3d Cir.), dealt with essentially the same allegations as Talone—tying membership to credentialing. The court affirmed the plaintiff’s standing to sue but denied class action status; the defendant there no longer ties membership and certification, according to its website.
III. What does this development mean for nonprofit organization membership and maintaining credentials?
There is still not a clear court determination on the long-standing question of what constitutes unlawful tying in a nonprofit organization when it links membership to maintaining credentials. The Court’s refusal to grant the AOA’s motion to dismiss and the subsequent settlement create a risk that other nonprofit organizations that link membership to maintaining credentials could face antitrust claims, which are often exceedingly costly to litigate or settle. Nonprofits should think twice before they structure their credentialing criteria in relation to membership.