I.  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 (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. Talone may be the first case holding that tying professional society membership to credentialing could violate the antitrust laws. (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; there the court affirmed the plaintiff’s standing to sue but denied class action status; the defendant there does not now tie membership and certification, according to its website.)

II.  Talone v. American Osteopathic Association

In the United States, physicians who practice medicine are either trained in medicine (M.D.s) or osteopathic medicine (D.O.s). After graduating from medical school, a physician is required to complete an accredited residency program. AOA is an accrediting agency for osteopathic graduate medical education. In addition, after completing their education, D.O.s ordinarily become board certified in a specialty by the AOA. (The American Board of Medical Specialties (ABMS) also offers board certification to D.O.s who complete their residencies at an ABMS certified residency. However, completing an AOA residency is not sufficient for ABMS board certification.) The AOA charges examination, processing and administrative fees to candidates for specialty certification, as well as an annual board certification maintenance fee for those it certifies.

Since August 1, 2012, in addition to its annual board certification maintenance fee, the AOA has 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 that violates the antitrust laws.  The preliminary proceedings so far have been largely procedural; AOA has not explained why it adopted the link between membership and certification in 2012.

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 invalid tying arrangement is the seller’s exploitation of its control over the tying product to force the buyer into purchasing a tied product that the buyer did not want at all or might have preferred to purchase on different terms. The presence of “forcing” is what violates the Sherman Act.

AOA filed a motion to dismiss the class action claims, which was denied by the U.S. District Court for the District of New Jersey. The Court found that the plaintiffs had sufficiently stated claims for both rule of reason and per se antitrust violations. It ruled that when the plaintiffs’ allegations are taken as true, they show that the AOA ties two distinct products, that it has market power in the tying product market, and that it affects a substantial amount of interstate commerce. Finally, the court ruled that the allegations, when accepted as true, show that the AOA’s tying arrangement substantially lessens competition so that other professional association membership organizations are foreclosed from competing for AOA board-certified D.O.s’ business.

III.  What does this mean for nonprofit organization membership and maintaining credentials?

While the New Jersey case is in its early stages, it signals that there may be a decision addressing 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 AOA’s motion to dismiss means there is a basis for the plaintiffs’ claim that could be entitled to relief under both the Sherman Act and state antitrust statutes. This could be a warning to nonprofits as they structure their credentialing criteria in relation to membership. As this case proceeds, nonprofits may have at least one court’s perspective on the limits on tying organizational membership to maintaining credentials.

Nonprofit organizations that tie credentialing (professional certification or entity accreditation) to membership should carefully monitor this case. The result of Talone could signal a change in─or the end of─a nonprofit’s ability to tie credentialing to membership.