Market studies and professional services

Aaron Edlin and Rebecca Haw Allensworth's warning about professional services and antitrust in America applies just as strongly in New Zealand.

They'd written:

The great accomplishment of the Sherman Act has been to make cartels per se illegal and relatively scarce. Unless the cartel is managed by a professional licensing board. Most jurisdictions consider such boards, as creations of states, to be exempted from antitrust scrutiny by the state action doctrine, leaving would-be competitors and consumers no recourse against their cartel activity.

We contend that the state action doctrine should not prevent antitrust suits against state licensing boards that are composed of private competitors deputized to regulate their own competition and to outright exclude those who compete with them, often with the threat of criminal sanction. At most, state action should immunize licensing boards from the per se rule and require plaintiffs to prove their case under the rule of reason. We argue that the Fourth Circuit’s recent case upholding an FTC antitrust suit against a licensing board — creating a circuit split and becoming the only circuit to deny state action immunity to a licensing board — is a step in the right direction but not far enough. The Supreme Court should take the split as an opportunity to clarify that when competitors hold the reins to their own competition, they must answer to Senator Sherman.

The state action doctrine in the US is the NZ's Commerce Act exemption for statutory regimes. The general proposition is that things authorised by Parliament or the Legislature cannot be bad.  

The Sherman Act has had one principal success: cartels and their smokefilled rooms, where competitors agree to waste economic resources for their own industry’s benefit, are unambiguously and uncontroversially illegal in the United States2 --unless that industry is a profession and that cartel is a state licensing board. Although often overlooked, licensing boards have become a massive exception to the Act’s ban on cartels.

Licensing boards are largely dominated by active members of their respective industries who meet to agree on ways to limit the entry of new competitors.3 Some boards use their power to limit price competition or restrict the quantity of services available.4 But professional boards, unlike cartels in commodities or consumer products, are sanctioned by the state--even considered part of the state5 --and so are often assumed to operate outside the reach of the Sherman Act under a line of Supreme Court cases starting with Parker v. Brown. 6

NZ is behind the US in regulating professions, but it's getting worse here. The doctors have been an obvious cartel for a while - there is no better explanation for their restrictions on entry. The Commerce Commission really should use its market studies powers to check into these.

The problem is growing. 

Insolvency practitioners a little while back. 

And now employment advocates. 

The Employment Law Institute of New Zealand has raised the issue of unregulated advocates with the Government on multiple occasions. Representatives met with then-Minister for Justice Andrew Little in August 2020 and then again with Minister of Workplace Relations Michael Wood in May 2021.

But Coley thinks more urgent action should be taken. She believes people have suffered “psychological and reputational damage” as a result of poor legal representation, or they might be led to believe they have a strong case when really there’s not a foot to stand on.

“I pick up files myself where someone's been really poorly represented,” Coley says.

“It's very hard to fix some of the damage that some unregulated advocates are doing, particularly where there's an ongoing employment relationship.”

Rather than turn the profession into a cartel, why not allow judges to award damages a little differently? 

Suppose you're represented by a dodgy advocate who doesn't know what he's doing and is just ramping up the costs for everybody in a hopeless case. 

The judge can award costs and require that you pay your employer's legal bills for the mess, but people in that spot are often judgment-proof. 

Why not make the advocate liable for costs too? If they're behaving in ways so egregious that they'd be struck off by a cartel licensing board, the judge will surely notice. The judge could require that the advocate cover costs on both sides. 

You then have a strong mechanism punishing incompetence, without turning the profession into a cartel.