UNITED STATES OF AMERICA

BEFORE FEDERAL TRADE COMMISSION

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MBALMERSFTC FileNo. 041-0014

COMMENTS OF CITIZENS FOR VOLUNTARY TRADE

Proposed Decision andOrder Announced August16, 2004Comments Filed September 14, 2004

Citizens for Voluntary Trade (CVT), a Virginia nonprofitcorporation, files the following comments in response to the

Federal Trade Commission’s proposed Decision and Order in theabove-captioned case.

Introduction

The Commonwealth of Virginia forbids any person fromworking asa funeral directoror embalmer without a state-issuedlicense. The Virginia Board of Funeral Directors and Embalmershas exclusive authority to issue, suspend, and revoke such licenses.The

Board is composed of nine members appointed by Virginia’sgovernor, seven of whom must be licensed funeral directors with atleast five years experience in Virginia, and two members of thegeneral public. Board members may providefuneral services whilein office, as their Board-related compensation is limited to no morethan $50 plus expenses.The Board has broad power to regulate the entry andprofessional conduct of funeral service providers. No person mayobtain a funeral director’s license unless he possesses a high schooldiploma (or its equivalent), completes an apprenticeship of at least18 monthsanda mortuary science program at a Board-approvedschool, and passes a Board-supervised examination. After receivinga license, a funeral director must comply with various continuing

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education and professional conduct rules enacted by the Board andthe state legislature.Until July 2004, the Board maintained a rule that provided

, “Nolicensee engaged in the business of preneed funeral planning orany of his agents shall advertise discounts; accept or offerenticements, bonuses, or rebates; or otherwise interfere with thefreedom of choice of the general public in making preneed funeralplans.”The Federal Trade Commission challenged this rule as aviolation of Section 5of the Federal Trade Commission Act, whichbroadly prohibits “unfair methods of competition” in interstatecommerce. The FTC’s complaintsaid the agency had jurisdictionover the Virginia Board’s actions because, “funeral directorsperform funerals for residents of other states . . . [and] theregulation at issue prevents the flow of price information acrossstate lines, and affects interstate commerce in funeral supplies andservices in neighboring states.”The FTC and the Board agreed to a proposed consent order,whereby the Board wouldeliminate and not enforce any regulationthat prevents licensed funeral service providers from “usingtruthful and non-misleading advertisements to notify consumers ofprices, and discounts from ordinary prices, for at-need or preneedfuneral products, goods, or services.” The Board may, however,continue to regulate advertising that is “materially fraudulent,false, deceptive or misleading.”

Comments

Occupational licensing is a descendant of the “general patentpower,” the authority exercised by England’s Tudor and Stuartmonarchs over various commercial endeavors. By invoking thegeneral patent power, the Crown restricted entry and competitionin a given industry by granting a charter, usuallycalled a

letter patent

, to favored subjects. Paul Ballonoff explained how thegeneral patent power exasperated tensions between the Crown andParliament in the early 17

century:

The English Parliament’s pro-market revolution occurred in1624.King James I, following his predecessor, made a habit ofgranting—indeed selling—rights for all manner of economicactivity. Typically rights, called “patents,” were for patents ofmonopoly of economic activity, but they were also sold as rightsfor the exercise of governmentoffices or other activities. Patents

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were sold for their revenue benefit to the Crown, whatever thecommercial merits as monopolized services. The sale of patentsfor government offices was so widespread and abused that thepractice was criticized at the

time as being “government bypatentees”.Perhaps the sale of these rights was good business for theCrown, but eventually the Parliament no longer acceptedrampant monopolization created by what today we would call“the administration.” The period 1621 through 1624 wasdominated by issues of how to control the Crown’s powers,especially those in finance, and, thus, focused heavily on theissue of sales and use of monopoly patents. In 1624 Parliamentpassed one of the first statutes specifically limiting theprerogatives of the Crown. In contrast to modern anti-monopolylaws, Parliament’s

Statute of Monopolies

of 1624 was specificallydirected at limiting government grants.

(Citations omitted.)

The

Statute of Monopolies

directly informed the development ofthe first state constitutions in America, and ultimately the federalConstitution of 1787. The Constitution does not grant the nationalgovernment a general patent power, only a limitedpower to securecopyrights and the rights of inventors for limited terms. (The latter

is secured by a “patent”, although that word never appears in theConstitution.)The federal Constitution does not establish whether stategovernments possess a general patent power. The Supreme Court,dating back to the

Slaughter-House Cases

, has repeatedly upheld theright of states to restrict commercial competition and entry. On theother hand, the Commerce Clause and the Due Process andPrivileges orImmunities Clause of the Fourteenth Amendmentgrant the federal government broad power to preempt state lawsthat restrict the economic liberties of its citizens. As Ballonoff and

others have noted, the Supreme Court’s famous decision in

Gibbonsv. Ogden

endorsed the use of the Commerce Clause to preempt a

state’s creation of an economic monopoly.

Gibbons

, however, onlydealt with the subject-matter question of whether the state couldsupersede federal regulation of interstate commerce, not whetherstates possessed general patent power over

intrastate

commerce.

Paul A. Ballonoff, “Limits to Regulation Due to Interaction of the Patent and CommerceClauses”,

Cato Journal

, Vol. 20, No. 3, p. 403 (Winter 2001).

83 U.S. 36 (1872).

22 U.S. 1(1824).