UNITED STATES OF AMERICA

BEFORE FEDERAL TRADE COMMISSION

)
In the Matter of )
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INSTITUTE OF STORE PLANNERS, ) File No. 021-0144
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a corporation. )
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PUBLIC COMMENTS OF
CITIZENS FOR VOLUNTARY TRADE

Pursuant to the Federal Trade Commission’s April 17, 2003, publication of a proposed

consent order in the above-captioned matter, Citizens for Voluntary Trade (CVT)1 respectfully

submits the following public comments.

Material Facts

On Thursday, April 17, 2003, the Federal Trade Commission (FTC) announced a

proposed consent order (proposed order) with the Institute of Store Planners (ISP), a New York-

based association composed of approximately 860 members. ISP’s members include various

professionals who design and construct retail store interiors. ISP maintains a voluntary ethics

code which is the subject of the FTC’s complaint and proposed order.

The complaint alleges three provisions of the ISP ethics code violate Section 5 of the

FTC Act, which generally prohibit “unfair methods of competition.” The challenged provisions,

according to the complaint, are as follows:

1
Citizens for Voluntary Trade is an unincorporated nonprofit association organized under District of Columbia law.
 1) “a member shall not render professional services without compensation.”
2) “a member shall not knowingly compete with another member on the basis of
professional charges, or use donations as a device for obtaining professional
advantage.”
3) “a member shall not offer his services in a competition except as provided by such
competition codes as the Institute may establish.”

The FTC claims these statements, taken alone and without context, injured the legal

rights of consumers by “discouraging and restricting price competition,” thus depriving

consumers of “the benefit of free and open competition among store planners.”

The proposed order addresses the FTC’s concerns by forcing ISP to amend its ethics code

and other governing documents to reflect FTC viewpoints. Specifically, the order prohibits ISP

from “[r]egulating, restricting, impeding, declaring unethical or unprofessional, interfering with

or advising against price competition by its members, including, but not limited to, the provision

of free or discounted services or restricting members from offering their services in a

competition unless they conform to rules or regulations established by ISP.”

Comments

The FTC presents no actual evidence that consumers were harmed by ISP’s ethics code.

Instead, the Commission relies on a false interpretation of the ethics code’s intent and

application, and from there proceeds to make a number of speculative, unprovable, and

ultimately arbitrary conclusions. In the process, the FTC violates the First Amendment by

imposing a government-enforced prior restraint on ISP’s present and future speech. The

precedent set by this consent order, as well as other recently adopted FTC consent orders against

private associations, will have a chilling effect on the First Amendment rights of all Americans.

For these reasons, entry of the proposed consent order should be rejected.

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 1. Consumer harm.

The FTC alleges the mere existence of certain provisions of ISP’s ethics code constitutes

a legal harm to consumers. The Commission’s complaint states ISP engaged in “unfair

competition” under the FTC Act by “discouraging and restricting price competition among store

planners,” and by denying consumers “the benefit of free and open competition among store

planners.” Both of these statements are false. ISP never restricted legitimate competition among

its members, and consumers suffered no demonstrable injury.

Since the FTC refuses to provide any context for ISP’s ethics code (or even a complete

copy of the code itself), the public is left with little useful information to assess the

Commission’s claims of anticompetitive behavior. Nevertheless, CVT’s independent

investigation into ISP’s affairs turned up some useful information. CVT has determined that

ISP’s ethics code was never intended, or applied, as an agreement to restrict competition in any

manner. Rather, ISP adopted its current ethics code in the 1960’s as a means to advise members

on how to avoid potentially illegal activities. The code is purely advisory in nature, and has

never been enforced with respect to the provisions now challenged by the FTC. Any suggestion

by the Commission to the contrary is simply untrue.

What ISP has advised their members against is entering sham “competitions” that are

designed to exploit individual store planners. It is a well-known practice in the retail industry

that store builders will often solicit proposals from numerous store planners. These planners will

prepare detailed plans and submit them to the builder for a nominal reimbursement, whereupon

the builder will award the job to only one planner. It is also then a common practice for the

winning planner to incorporate—or steal, depending on your vantage—elements of the losing

planner’s designs. In this regard, “competition” serves only to rob the unsuccessful planner of

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the benefits of their work. The consumer in this case behaves more like a parasite than an honest

market actor. ISP’s ethics code thus simply recommends store planners avoid these sham

“competitions” to better protect their intellectual property and professional integrity. At the

same time, however, ISP will not punish any individual store planner that chooses to disregard

its advice.

In challenging ISP’s ethical advisory against sham competitions, the FTC employs a per

se rule, labeling ISP’s behavior illegal without presenting any evidence of actual consumer harm.

In the eyes of the FTC, such evidence is not required, since they’re can be no “competitive”

justification for the challenged conduct. The per se rule, however, is not boundless in its

applications, and the courts consider the rule acceptable only under limited circumstances:

“[P]er se analysis has only applied to price fixing, output

limitations, horizontal market divisions, tying, and group
boycotts…The Supreme Court, and this court, have been unwilling
to expand the categories of conduct subject to the per se
prohibitions…This is especially true where the economic impact of
the restraint is not immediately obvious and where the restraint is a
rule adopted by a professional organization.”2

Nothing in the text or application of ISP’s ethics code fits into the categories enumerated

above. Thus, the FTC is required by precedent to consider ISP’s actions under a “rule of reason”

analysis. This standard requires the Commission to assess whether the challenged conduct was,

on balance, more likely to be beneficial or harmful to competition. Even under this relaxed

standard, however, the FTC still has no credible evidence to charge ISP with violating the FTC

Act.

Once again, the FTC’s failure to provide context on ISP’s activities create a barrier to

properly understanding this case. ISP is not a cartel designed to thwart potential competitors.

2
California Dental Association v. FTC, 128 F.3d at 720, 727 (9th Cir. 1997).

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Quite the opposite, ISP is a professional society designed to promote and expand the store

planning profession.3 ISP describes its own mission as procompetitive:

To recognize and encourage excellence in store planning & design,

the Institute holds two international design competitions annually.
One is for completed store projects and is open to all members.
The other is for students enrolled in college level design courses.
The winning entries of both competitions are published in
nationally recognized design magazines, displayed at national trade
shows and awarded prizes at major industry events.

To encourage quality new entrants into the profession, the Institute

cooperates with various universities and technical colleges by
providing from its membership, lecturers, critics and judges for
interior design courses specializing in store planning. An active
ISP National Education Committee is working to promote a
standard curriculum for students of store planning.

ISP promotes recognition of the store planning profession by

actively participating in local and national store planning events
and by authoring articles for national industry publications on store
planning issues. Seminars are offered on store planning and design.
ISP participates in several international trade shows and
conferences.4

An anticompetitive arrangement, such as a cartel, does not typically encourage “new

entrants into the profession” or offer educational programs to help potential competitors gain

new skills and knowledge. The FTC chooses not to recognize these activities, however, because

they are inconvenient to the Commission’s fixation on three isolated provisions of the ISP ethics

code. But these provisions do not define ISP’s work or practical impact on the marketplace.

The FTC makes no effort to ascertain whether ethics codes like ISP’s benefit consumers

by providing an assurance of quality in the marketplace. A professional ethics code, after all, is

of little use if consumers don’t believe in the quality of the services they ultimately purchase. In

3
It should be noted that the profession does not appear to be growing much. ISP’s membership, once in the thousands, has
dwindled in recent decades to about 800.
4
ISP Website, <http://www.ispo.org/about.htm>.

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this respect, successful ethics codes often serve to boost consumer satisfaction by providing a

“brand” quality that consumers can identify with superior service and ability. As CVT argued in

another FTC ethics code case, the branding principle provides a valuable consumer benefit:

Brands are not just a byproduct of advertising, but a key source of

consumer information. Consumers purchase Coca-Cola because
they know the brand guarantees a safe, consistently high-quality
product. There’s little chance of Coca-Cola putting out a product
they know to be inferior, dangerous, or unsafe, because such
actions would destroy the value of their brand, and ultimately the
company’s profitability. One effect of such brand destruction
would be Coca-Cola’s inability to charge a premium price for their
product (which they do when compared to generic-brand colas.)5

Branding benefits the store planning profession just as it benefits Coca-Cola. By banding

together to raise their industry’s ethical standards, ISP ensures consumers obtain a higher-quality

service, while at the same time ensuring ISP members can maintain profitable businesses.

Contrary to the FTC’s consumerist thinking—where producers must constantly sacrifice

themselves to consumer whims—here the interests of consumers and producers coincide, leaving

only the FTC’s unwanted interference to distort the marketplace.

2. First Amendment Violations.

As noted above, the proposed consent order bans ISP from “[r]egulating, restricting,

impeding, declaring unethical or unprofessional, interfering with or advising against price

competition by its members, including, but not limited to, the provision of free or discounted

services or restricting members from offering their services in a competition unless they conform

to rules or regulations established by ISP.” This entire provision is invalid under the United

States Constitution because it is a facial violation of the First Amendment.

5
In the Matter of American Institute for Conservation of Historic and Artistic Works, FTC File No. 011-0244 (Comments of
Citizens for Voluntary Trade at 6-7) (October 7, 2002).

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 In case the FTC needs reminding, the First Amendment forbids the federal government

from “abridging the freedom of speech, or of the press; or the right of the people to peaceably to

assemble.” The amendment applies to all agencies and instruments of the government, including

the FTC, and no affirmative grant of power under the Constitution can be interpreted so as to

override, restrict, or impede the First Amendment’s protections. This includes Congress’s power

to regulate interstate commerce under Article I, Section 8, which power Congress created the

FTC under. Thus, the FTC cannot suspend the First Amendment simply be alleging ISP

engaged in “unfair competition” or acted to injure consumers. The antitrust laws are not a

license to censor private acts of speech.

Yet censorship is the explicit function of the proposed consent order. ISP is forbidden

from so much as “declaring unethical or unprofessional” certain acts the FTC considers

sacrosanct. The effect of this is to criminalize the opinions of those who disagree with the FTC,

since the Commission is essentially restricting the fundamental liberty rights of ISP and its

members. Such acts go far beyond the government’s constitutional power, and they even exceed

the intent and scope of the FTC Act. ISP’s members did not commit fraud or engage in false

advertising, actions which might justly incur the FTC’s wrath. Instead, ISP is being targeted for

forming an opinion on ethical matters, and having the nerve to actually say it out loud.6 In this

sense, the FTC is not just assaulting First Amendment liberties, but the basic ability of

individuals to think and act upon their mind’s judgment. Such vicious assaults may have had a

place in Saddam Hussein’s Iraq or the Torquemada’s Inquisition, but not in 21st Century

America.

6
Indeed, in the case of one challenged statement, which states “a member shall not render professional services without
compensation,” ISP is doing nothing more than providing a definition. After all, an individual who renders services without
compensation is not a professional, but an amateur.

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 3. The FTC’s agenda.

This case is the latest in a series of FTC attacks on private membership associations. Last

December, the Commission issued a consent order against the National Academy of Arbitrators

(NAA), and a few months before that imposed sanctions on the American Institute for the

Conservation of Historic and Artistic Works (AIC). Like the present case, those cases involved

intentional distortions by the FTC of the nature and effect of private ethical codes. The

precedent set by all three of these orders is that the FTC has expanded its jurisdiction to include

the regulation of private ethics, something which goes beyond the scope of the Commission’s

statutory and constitutional authority.

In the FTC’s recent annual review, the Commission tried to spin their attack on private

ethics codes as a noble cause:

The FTC pursued significant investigations involving the rules of

conduct for various professional associations. Agreements among
professionals that limit competition among themselves, often under
the guise of professional association by-laws or codes of conduct,
harm consumers much like “smoke-filled room” conspiracies.7

This paragraph is utter nonsense. All three of the recent professional association cases

involved ethics codes that were publicly known for years, if not decades. The FTC never

presented any evidence which shows these organizations did anything behind closed doors in an

underhanded manner. If anything, it is the FTC which operates as a “smoke-filled room”

conspiracy by routinely coercing defendants into signing consent orders, then presenting the

public with an inaccurate view of the persecuted groups. Beyond that, the FTC takes every

precaution to avoid having to explain their actions. For example, the FTC has never responded

to CVT’s comments opposing the NAA and AICHAW settlements. Nor has the Commission, in

7
Federal Trade Commission, A Positive Agenda for Consumers: The FTC Year in Review at 9 (April 2003).

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this case or the two previous ones, provided even basic evidence to establish any consumer was

harmed by the respondents’ allegedly illegal conduct.

It seems that this case, and the other “smoke-filled room” cases, is nothing more than a

smoke-screen for the FTC’s real agenda, which is protecting the agency’s budget from

congressional scrutiny. According to the FTC’s own “Performance Review,” the Commission

has a quota of “45 to 70 nonmerger investigations” per year.8 This means the FTC is tying their

own success rate to the number of businesses successfully prosecuted for antitrust violations.

Meeting this quota allows the FTC to justify current funding levels to congressional

appropriators, and allows the Commission to claim a substantial record of accomplishment to the

public at-large.

But as demonstrated in this case, the FTC’s “accomplishment” reflects little more than

the Commission’s ability to coerce respondents into signing a consent order. As the FTC itself

admits: “A law enforcement agency that prevails in every litigated matter may do so because it

pursue only the cases that are easiest to win.”9 Here, the FTC pursued a small professional

society in an industry of limited scope and influence, and effectively bullied said group into

renouncing their First Amendment rights. This is not the proper mission of a law enforcement

agency, and it certainly is not the actions of a government that is supposed to uphold individual

rights as society’s basic organizing principle.

8
FTC Performance Review at 27 (April 18, 2003).
9
Id. at 33.

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 Conclusion

The FTC’s complaint fails to demonstrate any consumer injury. Beyond that, the

proposed consent order constitutes a facial violation of the respondents’ First Amendment rights.

If adopted, this consent order would set a dangerous precedent by expanding the FTC’s authority

over private membership associations whose actions have no substantial effect on interstate

commerce. The FTC should reject entry of the proposed consent order, withdraw its complaint

against ISP, and dismiss this case without further action.

Respectfully Submitted,
CITIZENS FOR VOLUNTARY TRADE

S.M. OLIVA
President
2000 F Street, N.W., Suite 315
Washington, DC 20006
Telephone: (202) 223-0071
Facsimile: (760) 418-9010
E-mail: info@voluntarytrade.org

Dated: May 16, 2003

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