Saturday, February 28, 2009

Why the RIAA (and all trade associations) should NOT be focusing on 'business models'

The gloating over recent layoffs at the RIAA presents a good opportunity to knock down some of the common myths about what trade associations like the RIAA and MPAA are and are not -- and what they are allowed to do.

Trade associations exist in virtually every significant industry in the US, from valve manufacturers, to pork producers, to mushroom growers, to travel agents, to refrigerated warehousers, to sign-makers, to frozen food freezers, to . . . yes, the recording and motion picture industries. What do these organizations do? They advocate for their members' interests. They lobby federal and state lawmakers, seeking tax breaks and fighting regulations. They seek to improve their industry's image, through PR and advertising campaigns. They conduct and publish research about industry trends. Sometimes they develop standards, so that, for example, their members' products can interoperate. And they litigate (either in their own or their members' names), pressing common industry goals through the courts or regulatory agencies.

What do trade associations not do? They do not devise new business models, or business strategies. And why is that? Because they're all a bunch of luddites who would rather go around "suing their customers" than innovating? Wrong. How about: because they do not want their employees to be sent to federal prison!

Here's what I mean: one of the first pieces of advice any antitrust lawyer will give to a businessperson is "exercise extreme caution when talking with your competitors." But what are trade associations all about? That's right: talking to your competitors. It's an environment that presents myriad opportunities for (both explicit and well-disguised) price-fixing, market allocation, group boycotts, bid-rigging, and other forms of potential antitrust violations that can result in massive civil judgments and even criminal convictions. So members of an industry cannot meet at their trade association headquarters and discuss on what terms they should distribute their goods, or what territories they should each sell into, or whom they should -- or should not -- do business with. As this helpful presentation on the antitrust implications of trade association activities advises, the following topics are to be avoided at trade association meetings:
  • Prices, payment terms, costs, wages or salaries, profit levels
    • Joint negotiation with customers or vendors
  • Business strategy, bidding tactics
    • “Announcements” of business strategies
  • Market-place reactions to public policy
    • Comments on how to react in the market-place
  • “Areas of responsibility” like geographic regions, types of customers, or types of products
Of course, these are difficult waters to navigate, and the line between devising litigation strategies and business strategies is not always clear -- which is why major law firms have entire practice groups dedicated to advising trade associations how to stay out of antitrust trouble. So, if you work at a trade association, next time you are admonished to "wake up...and start focusing...on new business models," keep in mind that following such advice could well land you behind bars.

So why, despite antitrust laws, is it perfectly OK for competitors to get together to lobby and to litigate? Because such activity is protected by the First Amendment, the Supreme Court has held in a series of cases known collectively as the Noerr-Pennington doctrine. As the Supreme Court stated in the original Noerr case in 1961, "no violation of the [Sherman Antitrust] Act can be predicated upon mere attempts to influence the passage or enforcement of laws." So RIAA opponents can fulminate all they want that the labels' lawsuits (coordinated by the trade association) are an example of "collusive, cartel-like" activity -- but the courts recognize that these lawsuits are immunized from antitrust attack.

Lastly, it's always important to keep in mind that trade associations are, ultimately, creatures of their members. While they are separate corporate entities, their members pay the associations' bills, and ultimately control their conduct. Trade associations do not freelance. Trade association execs who defy their members are not long for this world. So Techdirt may say it's "ridiculous" to claim that the RIAA followed a certain strategy because "it's what the labels wanted," but it happens to be the truth. The minute the CEO of the RIAA -- or any trade association -- refuses to do what its members want, she will be out on the street.


  1. Then let us correct the statement. The RIAA and MPAA are not serving the interests of their members. Their members should focus on new business models and tell the trade association to stop misrepresenting them. Clear?

    Your entire post is premised on nitpicking language, which is fine, but ignores the actual point. As it is the RIAA is an association -- it is fair to use "The RIAA" as a shorthand for "the members of the RIAA". Therefore saying "The RIAA (meaning, its members) should be focusing on business models" is accurate and correct, and so the headline of your post is wrong in all but a hypertechnical sense.

  2. It's not "nitpicking" at all. I think it's important for people (especially the non-lawyers who read about these issues) to understand the different roles that individual companies and their trade associations play (and are permitted under the law to play).


Comments here are moderated. I appreciate substantive comments, whether or not they agree with what I've written. Stay on topic, and be civil. Comments that contain name-calling, personal attacks, or the like will be rejected. If you want to rant about how evil the RIAA and MPAA are, and how entertainment companies' employees and attorneys are bad people, there are plenty of other places for you to go.