FEDERAL TRADE COMMISSION, PETITIONER V. INDIANA FEDERATION OF DENTISTS No. 84-1809 In the Supreme Court of the United States October Term, 1985 On Writ of Certiorari to the United States Court of Appeals for the Seventh Circuit Brief for the Federal Trade Commission TABLE OF CONTENTS Question Presented Opinions below Jurisdiction Statute involved Statement A. Background -- dental health insurance cost containment B. IDA, IFD, and their boycott C. Impact of the boycott D. Proceedings below 1. Proceedings before the Commission 2. The court of appeals' decision Summary of argument Argument The court of appeals misapprehended and grossly misapplied the standard of review in overturning the Commission's determination that IFD's conduct constituted an unreasonable restraint of trade A. The court of appeals improperly substituted its judgment for that of the Commission by rejecting the Commission's finding that IFD's boycott had an anticompetitive effect 1. A dentist's willingness to submit x-rays to insurers is an element of competition among dentists 2. The IFD boycott restrained competition among dentists B. The court of appeals, erred by crediting IFD's assertion of legal, moral, and ethical justifications for the boycott 1. IFD did not show that moral or ethical considerations prohibit insurer use of x-rays for claims review 2. IFD did not establish that Indiana law prohibits use of x-rays by insurers Conclusion OPINIONS BELOW The opinion of the court of appeals (Pet. App. 1a-50a) is reported at 745 F.2d 1124. The opinion and order of the Federal Trade Commission (Pet. App. 54a-112a) and the decision of the administrative law judge (Pet. App. 118a-283a) are reported at 101 F.T.C. 57. The Commission's order denying respondent's petition for reconsideration (Pet. App. 113a-117a) is reported at 101 F.T.C. 718. JURISDICTION The judgment of the court of appeals (Pet. App. 51a) was entered on October 11, 1984. A petition for rehearing was denied on December 21, 1984 (Pet. App. 52a-53a). The time within which to file a petition for a writ of certiorari was extended to and including May 20, 1985. The petition was filed on May 17, 1985, and was granted on October 15, 1985. The jurisdiction of this Court rests upon 28 U.S.C. 1254(1). STATUTE INVOLVED Pertinent portions of Section 5 of the Federal Trade Commission Act, 15 U.S.C. 45, are set forth at Pet. App. 284a-288a. QUESTION PRESENTED Whether the court of appeals misapplied the "substantial evidence" standard of review and this Court's precedents regarding analysis of horizontal restraints of trade in vacating an order of the Federal Trade Commission that prohibits dentists from conspiring to boycott insurance company cost containment programs, where the court of appeals erroneously concluded that the dentists' conspiracy constituted mere collective adherence to an established "legal, moral, and ethical" policy to promote "quality dental care." STATEMENT A. Background -- Dental Health Insurance Cost Containment This case involves a conspiracy by Indiana dentists to withhold x-rays that were sought by insurance companies in order to review effectively dental insurance claims and eliminate unnecessary charges for dental services. Industrial dental health care insurance policies became widely available to consumers in the early 1970s pursuant to collective bargaining agreements between major employers and labor unions. /1/ In response to corporate employers' pressure to keep insurance premiums as low as possible, unions' demands that fringe benefit dollars paid by employers not be consumed disproportionately by health insurance payments, and insurers' own interest in reducing expenses and premiums, dental insurers have developed various techniques to help contain the rising cost of dental care (Pet. App. 86a, 139a; J.A. 20, 25, 36-38). One approach, used both in Indiana and throughout the country, is a contract provision limiting benefit payments to the cost of the "least expensive yet adequate treatment" (Pet. App. 139a n.25, 140a; J.A. 20-21). /2/ If a dental patient desires a more expensive treatment, the additional cost must be paid by the patient; it is not covered by insurance benefits (Pet. App. 241a). /3/ In order to determine the benefits to which a patient is entitled under such an "alternate benefit" provision, insurance companies must evalute the treatment furnished (or proposed to be furnished) /4/ by dentists to insured patients. Insurers accordingly request dentists to submit with the completed claim form copies of available pre-treatment dental radiographs (x-rays) /5/ and other relevant information. Pet. App. 61a-62a n.4; J.A. 2-3, 22-24. Insurers use dental x-rays to help screen out the great majority of clearly justified claims from the small percentage of claims warranting further scrutiny (J.A. 22-25, 30-32). /6/ The claim forms, x-rays, and any other proffered information are reviewed initially by law examiners, who are authorized to approve claims but not to deny them (Pet. App. 92a). If a lay examiner questions any claim, he or she refers the matter to the insurer's dental consultant, who is a licensed dentist (id. at 247a). The dental consultant, after considering whatever additional information is deemed relevant in the exercise of the consultant's professional judgment, then recommends that the insurer either grant the claim, deny it, or agree to pay only the cost of an "alternate benefit". /7/ Before recommending the denial of a claim or the payment of an alternate benefit, a dental consultant generally contacts the treating dentist to discuss the proposed treatment and the patient's condition. J.A. 18-19, 21-23, 29-30. During 1976 and 1977 insurers made over $13 million in payments to, or on behalf of, Indiana consumers under dental insurance plans containing alternate benefits provisions (Pet. App. 149a). The record in this case discloses no instance in which any insured patient was injured or threatened with injury, or in which a patient received less than adequate dental treatment, because of any insurer's cost containment measures (id. at 91a-92a). B. IDA, IFD, And Their Boycott The Indiana Dental Association (IDA), whose membership accounted for 85% of Indiana's dentists during the period relevant to this case, viewed insurers' cost containment programs as a threat to the economic welfare of dentists and an unwarranted intrusion into the dentist-patient relationship (pet. App. 78a-80a). In a 1974 speech to IDA's Council on Dental Care Programs, Dr. David McClure, then Secretary of IDA and the future first president of the Indiana Federation of Dentists, explained (Pet. App. 80a; J.A. 104): We are fighting an economic war where the very survival of our profession is at stake. * * * The name of the game is money. The government and labor are determined to reduce the cost of the dental health dollar at the expense of the dentist. There is no way a dental service can be rendered cheaper when the third party has to have its share of the dollar. IDA and its member dentists undertook a concerted campaign to thwart insurers' cost containment measures, engaging in a collective refusal to submit x-rays to insurers for claims review (Pet. App. 152a-172a). A key ingredient in the campaign was a highly successful drive to secure written pledges of adherence to IDA's "Principles for Determining the Acceptability of Plans for the Group Purchase of Dental Care," which provided that dental care plans should not require dentists to submit x-rays to third parties (J.A. 88); and acceptance of the more specific IDA policy against sending x-rays to insurers (Pet App. 78a-80a, 156a-170a). From the boycott's inception, its leaders recognized that concerted action was necessary to defeat insurers' cost-containment efforts. Without a unified front, dentists who refused to submit x-rays might lose patients covered by dental insurance programs to dentists who cooperated with insurers (see pp. 29-30, infra). IDA's appeal for concerted action was successful, and by early 1975, "most Indiana dentists were not only agreeing in theory but following in practice (IDA's) plan to boycott insurers" (Pet. App. 175a; see also J.A. 97-99). Following this Court's decision in Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975), IDA's enthusiasm for the boycott flagged (Pet. App. 207a-209a). Concern over antitrust liability was the principal factor that prompted certain IDA leaders from the Anderson, Indiana, area to form the Indiana Federation of Dentists (IFD) in 1976 (id. at 70a, 152a, 211a; J.A. 106, 109). IFD and its members continued the IDA boycott under the misapprehension that their self-styled status as the "nation's first union of private practice dentists" (J.A. 106) would confer "unquestioned immunity" and free them from "the antitrust albatros(s) around our neck" (Pet. App. 213a; J.A. 109-110). /8/ The leaders of the new organization believed that their mandate was to intensify the IDA boycott campaign (Pet. App. 70a-71a). In a report to IDA's Board of Trustees on IFD's formation (id. at 215a; J.A. 114), IFD's first President explained: (A)bout 80-90% of dentist (sic) practices in the Anderson area (IFD headquarters) is covered by one insurance carrier; therefore, the dentists there believe they need more muscle than organized dentistry can give them. They found that via a union they could go beyond dental association activities. In their opinion the union movement will not weaken the IDA but will supplement it. IFD clearly was founded for economic reasons. Its "Constitution and By-Laws" states that IFD exists "(to) represent dentists in all socio-economic matters, negotiations and grievances with employers, third, and fourth parties or any group that is involved in financing or delivery of dental care" and "(t)o seek to insure adequate compensation and proper working conditions for dentists" (Pet. App. 216a; J.A. 58). IFD's credo, incorporated into its charter, recites that "only in and through a united effort can we be assured of receiving full and just compensation and due appreciation for our services" (Pet. App. 211a). To achieve IFD's economic goals, the Constitution and By-Laws authorizes "strikes, job actions, boycotts, or other forms of economic pressure" (Pet. App. 217a; J.A. 59), and discipline of IFD members by censure, fines, suspension, or explusion for "any action detrimental to the welfare of the organization" (Pet. App. 217a; J.A. 62-63). IFD's Executive Committee also has considered the circumstances under which IFD will seek (although "only as a last resort") to "discipline, or (undertake) acts of reprisal against, non-member dentists and dissident members" (Pet. App. 220a; J.A. 120). Immediately after its formation, IFD began its campaign to further the boycott. At the association's first annual meeting the full membership adopted the IFD Work Rule (Pet. App. 22a, 82a-83a, 217a-218a), which provides, in pertinent part (id. at 218a; J.A. 123): The patient's dentist * * * has a moral and legal responsibility to not allow a determination of his patient's condition to be made for any purpose, without benefit of a complete examination. The rule barred IFD members from sending dental x-rays to insurers who requested x-rays in connection with benefit determinations (Pet. App. 82a-83a, 89a,-90a, 218a). IFD's Executive Board directed that the Work Rule be printed on the back of a claim form that IFD provided to its members. The claim form, together with a standard letter designed by IFD, was used by IFD members in refusing to submit x-rays to dental insurers. IFD members offered instead to provide insurers with "all diagnostic aids," including x-rays (and an opportunity to examine the patient), if the insurer would send its licensed dental consultant to the treating dentist's office. Id. at 24a, 71a-72a, 218a. IFD established chapters in and around three Indiana communities: Anderson (Madison County), Lafayette, and Fort Wayne (Pet. App. 8a). Each of these towns is the site of a plant employing workers insured under a dental health care plan (id. at 177a, 188a; J.A. 125), and IFD was highly successful in recruiting members in these communities. As of September 1976, IFD's Chapter I secretary reported that nearly 95% of all practicing dentists in Madison County had joined IFD, while the Chapter II (Lafayette) newsletter reported in September 1977 that "(a)ll but a few dentists in our four county area are now members of the Federation" (Pet. App. 84a-85a; J.A. 124). /9/ C. Impact Of The Boycott A majority of Indiana dentists joined the IDA/IFD boycott; as a result, competition among dentists with respect to submission of x-rays to insurers was substantially eliminated. The flow of x-rays to insurers narrowed to a trickle in certain localities and the few dentists submitting x-rays did so covertly for fear of reprisals by the organizations. Because insurers were denied information they required in order to substantiate claims, some claims were paid late, or not at all, and the insurers' efforts to contain costs by paying only for reasonable care were thwarted. Pet. App. 85a-86a, 95a-96a. For example: 1. Within one year after the campaign began, Aetna Insurance Company (Aetna) had accumulated a backlog of 600 unpaid claims because it was unable to verify allowable benefits (Pet. App. 83a, 180a). In a one-time attempt to eliminate the backlog, Aetna, at substantial expense, sent its dental consultant -- a licensed dentist -- to the office of each dentist who had refused to submit x-rays with insurance claims (id. at 83a, 181a). The consultant, who subsequently was admonished and threatened with sanctions by IDA officials for urging cooperation with Aetna, /10/ reviewed the claims with the individual dentists and encouraged them to submit x-rays in the future (ibid.). Many dentists responded that they did not dare submit x-rays; others simply refused (Pet. App. 83a, 179a). In the face of the continuing boycott, Aetna ultimately was forced to conduct examinations of claimants in its Fort Wayne office (id. at 83a-84a, 187a-188a). Between 1974 and 1978 Aetna conducted nearly 4700 examinations at a then-estimated expense of $10 apiece (id. at 84a, 87a-88a) and an unquantifiable expense and inconvenience to patients required to undergo a second examination. 2. Connecticut General Insurance Company (Connecticut General) suffered similar experiences in attempting to administer its group dental policy covering General Motors' employees (Pet. App. 84a, 188a-203a). Between autumn 1974 and spring 1976, Connecticut General received one per cent "if that many" of the x-rays it requested from dentists in the Madison County area (J.A. 13). In 1973 and 1974 Connecticut General officials met several times with IDA officials -- including the future president of IFD -- in an attempt to reach an accord regarding the submission of dental x-rays (Pet. App. 189a-190a). Connecticut General was informed, however, that "Indiana dentists have a definite and unified position with regard to the use of x-rays" (id. at 192a (emphasis omitted)). In order to conduct some sort of claims review, the company finally entered into a "cumbersome, time-consuming, expensive, unsupervisable arrangement" for the review of claims in Madison County (id. at 201a (footnote omitted); J.A. 4-10). Under this arrangement insurance claims were referred to a local dentist recommended by IDA. This dentist worked out of his local office because claims could not be processed in Connecticut General's Indianapolis claims review office in the absence of the submission of x-rays (id. at 84a, 200a-203a). The arrangement Connecticut General worked out with the Madison County dentists was "absolutely unique" (J.A. 6), and would have been prohibitively expensive had the company been forced to use a similar arrangement over a wider area (Pet. App. 202a n.237; J.A. 6-7). In January 1977, Connecticut General's Indianapolis office manager again requested the submission of x-rays in an attempt to determine whether the position of Madison County dentists had softened. IFD promptly dispatched a three-man delegation to Connecticut General to reiterate in forceful terms its unified opposition to x-ray submission. As a result, Connecticut General abandoned all efforts to obtain x-rays from Madison County dentists. J.A. 15-17. 3. The conspiracy also affected Madison County employees of Brockway Glass Company (Brockway). The company's representatives met in January 1977 with officials of IFD to request that x-rays be submitted to Metropolitan Life Insurance Company so that benefits could be paid under Brockway's dental insurance plan; the insurer had refused to pay claims that were not supported by appropriate x-rays. IFD's representatives advised Brockway that IFD had been formed to place "leverage" on employers, and that IFD members would not submit x-rays. After this meeting, Brockway's employees continued to suffer denial of benefits under the group dental policy. Direct appeals by Brockway to individual members of the dentists' conspiracy failed to secure the submission of x-rays. Pet. App. 84a, 225a; J.A. 33-35. D. Proceedings Below 1. Proceedings Before The Commission In October 1978, the Commission issued an administrative complaint against IFD, alleging that its boycott constituted an "unfair method of competition" in violation of Section 5 of the Federal Trade Commission Act, 15 U.S.C. 45. /11/ The matter was assigned to an administrative law judge (ALJ) who presided over an evidentiary hearing. a. On March 24, 1980, the ALJ issued his initial decision, finding that IFD had conspired with others in restraint of trade by engaging in a boycott to deny x-rays requested by dental insurers (Pet. App. 118a-283a). The ALJ determined that the IFD-led conspiracy among competitors constituted a per se violation of the antitrust laws (id. at 276a). He also determined, after analyzing the competitive effects and IFD's proffered justifications under the rule of reason, that IFD's conduct had substantially injured competition (ibid.). Finally, the ALJ concluded that the state action doctrine did not exempt IFD from antitrust liability (ibid.). Finding that IFD had been conceived "simply as a 'labor union' front for those IDA members * * * who were most concerned with keeping IDA's boycott of dental health insurers alive, even after antitrust prosecution began to loom as a real threat" (id. at 278a-279a (emphasis in original)), the ALJ issued a cease and desist order directing, inter alia, the dissolution of IFD (id. at 282a-283a). b. IFD appealed the ALJ's decision to the full Commission, which rendered its decision and order on February 17, 1983 (Pet. App. 54a-112a). The Commission noted that concerted conduct among horizontal competitors frequently has been held to be a per se violation of Section 1 of the Sherman Act, 15 U.S.C. 1. It concluded, however, that IFD's boycott should be anlayzed under the rule of reason because, among other things, the Commission wished to consider the procompetitive benefits, if any, related to the ethical and public service justifications advanced by IFD in support of its conduct (id. at 76a-77a). The Commission then examined the "nature, purpose and effect on competition" of IFD's restrictions (Pet. App. 78a). The Commission noted that the boycott had the effect of "reducing or eliminating competition among dentists as to their policy of dealing with third-party payers" so that patients covered by dental health care plans of the type involved here "found it difficult to purchase care from dentists who would satisfy the terms of their coverage" (id. at 85a). Without a conspiracy, the Commission observed, individual dentists would have been subject to competitive market forces, creating incentives for them to cooperate with the requests of patients' third-party insurers (ibid). However, "(b)y colluding, competitor dentists were freed to some extent from these market forces because they knew other participants in the boycott would also refuse to cooperate" (ibid.). The boycott thus "reduced consumer choice" and "impaired insurance companies' ability to conduct cost-containment programs" (id. at 95a), with the final victim being "the patient policyholder who lost the value of his insurance company's efforts to contain costs" (id. at 86a). Against these concerns, the Commission considered IFD's principal contention at trial, that "'under the rule of reason the pro-competitive or beneficial effect of (its) alleged conduct on health and safety, outweighs any anticompetitive or anti-consumer effects'" (Pet. App. 73a, quoting IFD's Appeal Brief to Commission 4). The Commission held (Pet. App. 90a-92a) that IFD had not shown that the boycott had procompetitive effects and had not substantiated the purported health and safety justifications for its conduct. The Commission stated that "(n)ot a single instance has been cited where any dentist agreed to provide less-than-adequate treatment because of the fear of an erroneous insurance determination" (id. at 91a-92a) and that "IFD has presented no evidence to even suggest that these restraints were necessary to serve any legitimate procompetitive purpose" (id. at 95a-96a). /12/ The Commission also rejected IFD's claim that the boycott did not harm competition because insurers could review x-rays by visiting dentists' offices, finding that "the record is clear that this was prohibitively expensive" (Pet. App. 88a). It further held that the effectiveness of x-ray review by insurers as a cost containment measure is irrelevant in assessing the anticompetitive effect of the boycott. The Commission stated that "(a)n antitrust violation cannot be justified on the grounds that it sought to remedy a poor business decision by the targets of the boycott. It is enough that the restraint is shown to have signficantly distorted the competitive process" (ibid.). Finally, the Commission rejected IFD's contention that its conduct was immune from liability under the state action doctrine, noting that "Indiana law does not affirmatively express any policy in favor of collusion among dentists in order to prevent * * * the use of x-rays by insurance companies" (Pet. App. 98a-99a). The Commission also observed that IFD had not demonstrated that its anticompetitive conduct was supervised by state authorities (ibid.). /13/ Having found a violation of Section 5, the Commission issued a cease-and-desist order against IFD (Pet. App. 54a-57a). The Commission deleted the ALJ's proposed dissolution requirement, noting that while "IFD was created primarily to continue the implementation of IDA's boycott of dental insurers" its members might wish to pursue lawful functions "through the vehicle of a special organization such as IFD" (id. at 109a). After filing a petition for rehearing, which the Commission denied (id. at 113a-117a), IFD petitioned the court of appeals for review of the Commission's order. 2. The Court Of Appeals' Decision The court of appeals held that the Commission failed to establish that the IFD boycott was unlawful under the rule of reason because the Commission did not show that the boycott had an anticompetitive effect (Pet. App. 2a). Repeatedly characterizing IFD's collective refusal to submit x-rays as the product of a "legal, moral, and ethical" policy to achieve "quality and proper dental care," the majority held there was "no substantial evidence" to support the Commission's findings that dentists compete with one another in dealing with insurers and that such competition had been harmed by IFD's actions (id. at 38a-44a). The court rejected as insufficient to establish the required anticompetitive effect evidence showing that most Indiana dentists participated in the boycott through IDA (Pet. App. 6a) and that 95% of all dentists in the Anderson area, and all but a few in the Lafayette area, joined IFD and implemented its policies (id. at 40a). The court found instead that because IFD member dentists continued to treat patients covered by group dental plans and invited insurers to review diagnostic aids in the treating dentists' office, competition was not harmed (id. at 42a-43a). The court also observed that "neither the ALJ nor the Commission found that the submission of a patient's dental x-rays actually lowered the insurer's dental costs" (id. at 41a), and that, in any event, the extra expenses imposed by the boycott had affected only "insurers in their review of dental claims" rather than "dentists in their competition for patients" (id. at 43a). The court concluded that the Commission's finding of an antitrust violation amounted to a "rubber-stamp approval of the group dental health care insurers' practices" (Pet. App. 44a). It asserted that by challenging the boycott, the Commission was "preventing dentists from joining together to promote standards of quality dental care" and, "with absolutely no expertise or training in the highly advanced field of dentistry," was "unwisely regulat(ing) the dental profession and all of its specialties, including endodontia, exodontia, oral surgery, orthodontia, pedodontia, periodontia, and prosthodontia, to the detriment of consumers" (ibid.). Although the court cited no evidence to show that cost containment programs reduce the quality of dental care, it stated that "insurers cannot be permitted to forsake standards of quality and proper dental care in an attempt to lower their dental costs" (ibid.). /14/ Senior Judge Fairchild concurred in the result (Pet. App. 45a-50a), although he subsequently voted to grant the Commission's petition for rehearing (id. at 52a-53a). He expressly rejected the majority's repeated assertions that the concerted refusal to submit x-rays was based on "legal, moral, and ethical" considerations. He accepted instead of Commission's summary of evidence showing that an express motivation for the boycott was economic (id. at 49a-50a). Judge Fairchild stated that he joined the majority in vacating the Commission's order only because the Commission had not shown that "a dentist's policy of refusal or cooperation (with insurers) has any significance in competition among dentists" (id. at 49a). The Commission's petition for rehearing was denied, with Judges Cudahy, Eschbach, and Posner voting to grant the suggestion for rehearing en banc and Senior Judge Fairchild voting to grant rehearing by the panel (Pet. App. 52a-53a). SUMMARY OF ARGUMENT The rapidly rising cost of health care is among today's most serious economic problems. Because third-party insurers typically defray all or part of the expense of treatment, and consumers thus do not pay directly for each service rendered, consumers may lack incentive to scrutinize both the necessity and the cost of particular treatments. This circumstance tends to increase overall costs, and, inevitably, insurance premiums, to the ultimate detriment of consumers. Employers and employee unions, the authorized bargaining agents for the employees/consumers who were the beneficiaries of the Indiana group dental insurance policies relevant in this case, were sufficiently concerned about rising health insurance costs to insist upon the use by insurers of the cost containment measures that became the subject of the Indiana dentists' boycott. The Federal Trade Commission, in a unanimous opinion, determined that the dentists' concerted refusal to cooperate with these costs containment efforts was an economically motivated conspiracy, a principal purpose of which was to reduce the threat to dentists' revenues posed by these insurer/patient efforts to control dental costs. In reversing the Commission's decision, purportedly for lack of substantial evidence, the court of appeals misconstrued the economic relationships involved, ignored the relevant evidence adduced before the Commission, and erroneously credited the conspirators' claim that they were acting merely to further "legal, moral, and ethical" policy goals. The court's ruling distorts antitrust analysis to reflect the social and economic objectives of colluding health care providers at the expense of the procompetitive objectives embodied in the antitrust laws. 1. The court of appeals grossly misapplied the substantial evidence standard of review and this Court's precedents regarding analysis of horizontal restraints of trade in overturning the Commission's finding that the boycott was anticompetitive. The court held that there was no evidence that dentists compete with each other with respect to their policy of submitting x-rays to insurers. That simply is not so, and IFD did not even argue this position before the Commission. The record demonstrates that cooperation with the cost containment efforts of insurance companies is an important service offered by dentists. Insurers, who together with consumers are the purchasers of dentists' services, seek access to x-rays to determine whether prescribed treatments fall within the insurers' contractual obligation to pay for the least expensive yet adequate care. In the absence of the conspiracy led by IFD, each dentist would decide invididually whether to provide x-rays to insurers. Since failure to submit x-rays could (and often did) result in insurers' inability to evaluate and pay patients' claims, both insurers and insured patients would be expected to favor cooperating dentists over those who refused to provide x-rays. As the Commission aptly stated, and as the evidence demonstrates, "individual dentists would have been subject to market forces of competition, creating incentives for them to treat patients and comply with the requests of patients' third-party insurers" (Pet. App. 85a). 2. Next the court compounded its error by holding that, even if submitting x-rays to insurers were an element of competition among dentists, the evidence before the Commission did not show that the boycott had an anticompetitive effect. This case involved a conspiracy among direct competitors to restrict an important element of the service they offer to patients -- providing x-rays sought by insurers to facilitate both payment of patients' claims and cost containment efforts. The conspirators agreed jointly to withhold from buyers information that buyers deemed useful in making a purchasing decision. The conspiracy achieved widespread adherence among dentists throughout Indiana and in IFD's areas of concentration. As a result, competition among dentists with respect to providing x-rays largely was eliminated. These facts are more than sufficient to demonstrate an unreasonable restraint of trade, absent a showing that the concerted conduct itself generated offsetting procompetitive effects. Since the court of appeals did not purport to find any procompetitive effects -- and the record contains no evidence that such effects exist -- the decision below cannot stand. 3. Finally, the court of appeals erred by accepting IFD's contention that its boycott constituted mere collective adherence to an established "legal, moral, and ethical" policy to promote "quality dental care." In addition to ignoring well supported Commission findings that the boycott had substantial economic motivations and did not in fact serve health or safety purposes, the court's implicit acceptance of IFD's asserted noncompetitive justifications for the boycott threatens erosion of this Court's holding that ethical norms are relevant to antitrust analysis only insofar as they "serve to regulate and promote * * * competition." National Society of Professional Engineers v. United States, 435 U.S. 679, 696 (1978). For that reason as well, the decision should be reversed. ARGUMENT THE COURT OF APPEALS MISAPPREHENDED AND GROSSLY MISAPPLIED THE STANDARD OF REVIEW IN OVERTURNING THE COMMISSION'S DETERMINATION THAT IFD'S CONDUCT CONSTITUTED AN UNREASONABLE RESTRAINT OF TRADE It is settled that "(t)he weight to be attributed to the facts proven or stipulated (in proceedings before the Federal Trade Commission), and the inferences to be drawn from them, are for the Commission to determine, not the courts." Corn Products Refining Co. v. FTC, 324 U.S. 726, 739 (1945); see also FTC v. A.E. Staley Manufacturing Co., 324 U.S. 746, 758 (1945); 15 U.S.C. 45(c) (upon judicial review of the Commission's orders, "findings of the Commission as to the facts, if supported by (substantial) evidence, shall be conclusive"). This deferential standard of judicial review "frees the reviewing courts of the time-consuming and difficult task of weighing the evidence, it gives proper respect to the expertise of the administrative tribunal and it helps promote the uniform application of the statute." Consolo v. FMC, 383 U.S. 607, 620 (1966) (footnote omitted). This Court has cautioned against judicial encroachment upon the Commission's fact-finding authority, holding that the courts of appeals may not "make (their) own appraisal of the (evidence), picking and choosing for (themselves) among uncertain and conflicting inferences." FTC v. Algoma Lumber Co., 291 U.S. 67, 73 (1934); see also FTC v. Standard Education Society, 302 U.S. 112, 117 (1937). More recently, the Court observed in a related context that reversal of a court of appeals' decision regarding an agency's factual determinations is appropriate if the lower court "'misapprehended or grossly misapplied' the substantial evidence test." American Textile Manufacturers Institute v. Donovan, Inc., 452 U.S. 490, 523 (1981) (citation omitted). The court of appeals in the present case grossly misapplied the standards governing judicial review of the Commission's decisions. Cf. FTC v. Algoma Lumber Co., 291 U.S. at 73 ("(t)he Court of Appeals, though professing adherence to (the proper standard of review), honored it, we think, with lip service only"). Thus, the court below ignored record evidence supporting the Commission's determinations, and considered factual issues that had not been contested before the Commission. Moreover, the court of appeals endorsed the conspiracy led by respondent as the promotion of a "moral, legal, and ethical" policy, despite the Commission's express finding that respondent's actions could not be justified on that basis. In sum, the decision below reflects a manifestly undeferential and hostile approach to the Commission's findings in this case that is irreconcilable with the standard of review prescribed by Congress and consistently applied by this Court. When the proper standard is applied, it is clear that the Commission's decision is supported by substantial evidence, and that the Commission's order accordingly should be enforced. A. The Court Of Appeals Improperly Substituted Its Judgment For That Of The Commission By Rejecting The Commission's Finding That IFD's Boycott Had An Anticompetitive Effect The Commission found (Pet. App. 78a-96a) that the IFD boycott constituted an unreasonable restraint of trade violative of Section 1 of the Sherman Act, 15 U.S.C. 1; analyzing the boycott under the rule of reason, the Commission concluded that IFD's conduct had the effect of suppressing competition. See Professional Engineers, 435 U.S. at 691; Chicago Board of Trade v. United States, 246 U.S. 231 238 (1918). /15/ Before discussing the abundant record evidence supporting the Commission's determination, it is appropriate to examine the economic relationships relevant to the restraint at issue in this case. The health care industry is characterized by the presence of third-party payors, principally insurance companies. Thus the "buyer" of health care services in most circumstances of both the patient and a third-party payor. Moreover, it is often the third-party payor that bargains over the price of health care services, reacting to the cost concerns that normally drive buyers' purchasing decisions. See Kartell v. Blue Shield of Massachusetts, Inc., 749 F.2d 922, 924-926 (1st Cir. 1984), cert. denied, No. 84-1353 (Apr. 15, 1985. Pennsylvania Dental Association v. Medical Services Association, 745 F.2d 248, 256 (3d Cir. 1984), cert. denied, No. 84-1296 (Apr. 15, 1985). /16/ As the Commission found (Pet. App. 228a), "(t)he insurers broadly represent the economic interests of the dentists' patients." The particular economic practice at issue here, IFD's campaign against the submission of x-rays to insurers ca n be viewed in general terms as a group boycott because it is "a method of pressuring a party with whom one has a dispute by withholding or enlisting others to withhold, patronage or services from the target." St. Paul Fire & Marine Insurance Co. v. Barry, 438 U.S. 531, 541 (1978) (footnote omitted). the sellers (dentists) have attempted to exert pressure upon the buyers (patients and insurers), by withholding certain services from the buyers (the submission of x-rays to insurers). As this Court recently observed (see Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co., No. 83-1368 (June 11, 1985), slip op. 9-10), the term "group boycott" encompasses a wide variety of activities. The dentists' agreement resembles two types of restraints that previously have been found to violate the antitrust laws. First, this Court has held that the antitrust laws prohibit agreements by competitors to refuse to deal with purchasers except upon collectively specified terms. See Paramount Famous Lasky Corp. v. United States, 282 U.S. 30 (1930); cf. NCAA v. Board of Regents, No. 83-271 (June 27, 1984), slip op. 11-13. Here, the dentists collectively specified one term of their agreements with the patient/insurer buyers. Second, the dentists' agreement denied buyers information required for cost containment purposes. It is thus similar to the restraint on competitive bidding held unlawful in Professional Engineers, 435 U.S. at 692-693, because it precluded sellers from supplying buyers with information they perceived as useful in deciding whether to purchase and how much to pay, thereby obstructing the operation of competitive market forces. As in these previous cases, no elaborate analysis is needed to show the anticompetitive effect of the dentists' agreement at issue here. /17/ The restraint deprives buyers of important information in a manner that insulates the dentists from the competitive forces of the marketplace, with respect to both cooperation with insurers regarding the submission of x-rays and the larger issue of cost containment. The court of appeals plainly erred in concluding that the evidence before the Commission did not support the finding that the dentists' conspiracy had an anticompetitive effect. The court's decision rested on two grounds. First, that dentists' willingness to submit x-rays to insurers is not an element of competition among dentists, and second, that even if such competition existed, it was not adversely affected by IFD's boycott. The court's assessment of the record with respect to both of its conclusions is fundamentally flawed. 1. A Dentist's Willingness To Submit X-rays To Insurers Is An Element Of Competition Among Dentists The court of appeals' conclusion that the Commission failed to establish that IFD's boycott had an anticompetitive effect is based largely on its view that the Commission failed to prove that dentists compete with respect to submission of x-rays to insurers (see Pet. App. 37a). In reaching this conclusion, the court of appeals decided an issue that IFD never raised before the Commission. Moreover, the proposition that providing x-rays to insurers is an element of competition among dentists is supported by both common sense and substantial record evidence. Common sense dictates that if there is something that buyers want (or could find useful), it perforce becomes an element of competition. Indeed, the Court recognized this fact in Professional Engineers, 435 U.S. at 695, when it stated that the legislative judgment in favor of competition that underlies the antitrust laws applies to "all elements of a bargain -- quality, service, safety, and durablity -- and not just the immediate cost." The element of the bargain between patient, insurer, and dentist at issue here -- the submission of x-rays to insurers -- plainly is an element of competition among dentists. There is strong buyer demand for dentists to provide x-rays to insurers, and strong incentives for individual dentists to do so. Insurers consider x-ray inspection to be an efficient means of evaluating claims in order to contain costs. Patients want dentists to cooperate with insurers' requests for x-rays because a dentist's refusal could delay or even foreclose payment by the insurer, and thereby delay or prevent the patient from obtaining desired care. See pp. 3-4, supra. /18/ The individual dentist, an "independent competing entrepreneur()" (Arizona v. Maricopa County Medical Society, 457 U.S. 332, 357 (1982)), thus has a strong economic incentive to satisfy the demands of patient and insurer; failure to do so could cause the patient to take his business elsewhere. In the proceedings before the Commission none of the parties doubted that providing claims information requested by patients' insurers is an element of competition among dentists. /19/ IFD expressly acknowledged in briefs before the Commission that "(d)entists who are not members of (IFD) will naturally get favorable treatment from insurers, unions, and employees with whom they may contract" (J.A. 181) and that "(p)atients desirous of x-ray submission seek out complying dentists thus promoting novel insurance oriented dental clinics" (id. at 186). /20/ The State of Indiana, which intervened before the Commission of IFD's behalf (Pet. App. 127a-128a) also acknowledged that "(a)ssuming that a percentage of dentists in a particular area do not submit insurance x-rays, it is only reasonable, and foreseeable, that the remaining dentists who do supply x-rays will have a competitive edge when seeking insurance related business" (J.A. 172-173 (emphasis in original)). The conspirators' documents of record (Pet. App. 289a-314a) demonstrate that a dentist's refusal to cooperate with insurers was perceived as having competitive consequences; the conspirators repeatedly observed that patients shifted to dentists who submitted x-rays pursuant to insurers' requests. For example, a dental society newsletter published early in the conspiracy complained that some Indiana dentists were ignoring the boycott and submitting x-rays "in an attempt to gain economic advantage over their peers" (id. at 289a). These dentists were accused of an "unethical practice (that) puts increasing pressure of a monetary nature" on their competitors (ibid.). /21/ In the same vein, a group of oral surgeons from Fort Wayne jointly wrote to their local IDA chapter to protest the "unethical" behavior of a competing practitioner who was gaining business from them by agreeing to submit x-rays to insurers (Pet. App. 182a n.147, 313a-314a). The surgeons noted (id. at 314a) that they were petitioning their dental society's "Ethics and Censorship Committee" in an effort to bring the offending competitor into line and hinted that if the competitor continued to submit x-rays to insurers, then "we as oral surgeons may have to alter our present direction regarding submission of films" -- i.e., begin to compete on the same basis. The gain or loss of patients as a result of a dentist's approach toward submission of x-rays to patients' insurers also was acknowledged in dental society documents discussing the fact that in border areas "(Indiana) dentists who do not submit radiographs are hurt by the willingness of fellow dentists in urban Louisville in Kentucky who will intentionally do this to gain a patient" (Pet. App. 307a). As a result of competition from Kentucky dentists who "will send radiographs to Aetna," one IDA member reported that "many Indiana dentists in the New Albany area had lost entire families to Kentucky dentists" (id. at 300a) and the Louisville area was viewed as one of the few in which the IDA/IFD boycott was weak (id. at 311a). It is thus evident that the Commission did not merely "assume() without substantial evidentiary support in the record" that "because IFD member dentists acted in concert rather than individually, competition had to exist among and between dentists in their policy of dealing with insurers" (Pet. App. 38a-39a). /22/ The existence of competition among dentists with respect to their willingness to submit x-rays to insurers was recognized by all parties to the proceeding and demonstrated by weighty record evidence that plainly is such "'as a reasonable mind might accept as adequate to support a conclusion.'" American Textile Manufacturers Institute, Inc. v. Donovan, 452 U.S. at 522-523, quoting Universal Camera Corp. v. NLRB, 340 U.S. 474, 477 (1951). /23/ 2. The IFD Boycott Restrained Competition Among Dentists The court of appeals also concluded that even if providing x-rays was an element of competition among dentists, the Commission did not show that the dentists' conspiracy to withhold x-rays had an anticompetitive effect. In reaching this conclusion the court grossly misapplied both the substantial evidence test and this Court's precedents regarding analysis of competitors' agreements in restraint of trade. As we have discussed (see pp. 25-26, supra), the type of horizontal agreement here resembles other restraints of trade this Court has found unlawful. Here, as in Professional Engineers, a conspiracy deprived buyers of information that the buyers deemed useful in deciding whether to purchase and how much to pay. While the conspiracy "is not price fixing as such, no elaborate industry analysis is required to demonstrate the anticompetitive character of such an agreement." Professional Engineers, 435 U.S. at 692. The Commission, however, did not rely merely on the nature of the agreement to support its finding that the agreement had and anticompetitive effect. The Commission found that IDA and IFD had the market power to make their boycott effective. IDA was composed of 85% of all dentists licensed in Indiana; it enlisted most of its members in the boycott (Pet. App. 151a-152a, 172a-175a). In continuing IDA's statewide conspiracy in selected localities, IFD achieved participation by nearly 95% of practicing dentists in Madison County and all but a few dentists in the area covered by its Lafayette Chapter (p. 9, supra; Pet. App. 39a-40a). /24/ Where the boycott held sway, dentists refused to submit x-rays to insurers or did so only covertly because they feared reprisal. Thus to a very considerable degree, competition among dentists was eliminated with respect to their submission of x-rays to insurers (Pet. App. 83a-86a). The Commission also chronicled the impact of this restraint of dentists' competition. In various localities the flow of x-rays to insurers was reduced to a trickle and patients were inconvenienced by late payment or non-payment of claims and the inability to find dentists willing to cooperate with insurers. Insurers, as surrogates for consumers, were thwarted in their efforts to use x-rays as a means of containing the costs of dental care (Pet. App. 83a-86a; see also pp. 9-12, supra). This evidence was more than sufficient to support the Commission's condemnation of this restraint of trade, absent some showing (of which the court found none, see Part B, infra) of a countervailing benefit to competition. NCAA v. Board of Regents, slip op. 26; Professional Engineers, 435 U.S. at 692; cf. Paramount Famous Lasky Corp. v. United States, supra. /25/ In rejecting the Commission's carefully articulated and substantiated finding of anticompetitive effect, the court of appeals reweighed the evidence in direct violation of the standards governing judicial review of the Commission's decisions. See FTC v. Algoma Lumber Co., 291 U.S. at 73; see also American Textile Manufacturers Institute, Inc. v. Donovan, 452 U.S. at 523; Steadman v. SEC, 450 U.S. 91, 99 (1981). For example, the court found (Pet. App. 28a-29a, 42a-43a) that the boycott was not "complete" because insurers could review x-rays by visiting dentists' offices. The court rejected the Commission's finding that in-office vists by insurers were "prohibitively expensive" (Pet. App. 88a) on the ground that this finding was "tempered" by evidence that "smaller insurers had generally gone along with the Indiana dentists' demands" /26/ and that group dental health care insurers visited dental offices to examine and review all diagnostic and clinical aids (id. at 42a-43a). /27/ Even if smaller insurers acquiesced in the boycott by abandoning x-ray review and larger insurers in some instances agreed reluctantly to conduct the in-office visits demanded by the dentists, these facts demonstrate only that the boycott succeeded in its purpose of thwarting insurers' cost containment efforts. They do not show that the boycott lacked an anticompetitive effect. Similarly, the fact that some dentists continued to cooperate with insurers establishes only that the boycott was less than 100% successful, not that it failed to restrain trade significantly. An agreement need not eliminate all competition in order to amount to an unreasonable restraint of trade. See Paramount Famous Lasky Corp. v. United States, 282 U.S. at 44. The court also concluded that any costs imposed by insurer acquiescence in the boycott affected only "the insurers in their review of dental claims" (Pet. App. 43a). Even if this were so, it would hardly disprove the Commission's finding of an adverse effect on competition. But as the Commission recognized, costs to insurers are ultimately borne by consumers, and thus the "final victim in this distortion of the market was the patient policyholder who lost the value of his insurance company's efforts to contain costs" (id. at 86a). Cooperation with insurer cost containment efforts was desired by the purchasers of dental insurance as well as by the insurers. This element of consumer demand, which competition among dentists could otherwise be expected to meet, was left unsatisfied as a result of the dentists' conspiracy. In addition to this improper reweighing of the evidence, the court also imposed on the Commission the burden of demonstrating that the boycotted cost containment programs were effective in reducing premiums (Pet. App. 41a). Leaving aside the practical difficulties of making such a showing (id. at 88a), /28/ the court's novel test amounts to a requirement that the consumer choice affected by a restraint of trade (here, the submission of x-rays to insurers) be shown to be reasonable or somehow objectively "good" for society before a conspiracy to eliminate that consumer choice may be condemned under the antitrust laws. However, all that is necessary under the antitrust laws is a showing that the element of competition foreclosed is desired by purchasers of dental services patients and insurers. A suppliers' cartel may not impose its contrary preference, even if it believes that consumers' preferences were misguided. See NCAA v. Board of Regents, slip op. 23; Professional Engineers, 435 U.S. at 695; Fashion Originators' Guild, Inc. v. FTC, 312 U.S. 457 (1941); Pet. App. 88a (FTC decision). B. The Court Of Appeals Erred By Crediting IFD's Assertion Of Legal, Moral, And Ethical Justifications For The Boycott As we have shown, the anticompetitive nature of IFD's conduct is clear from the record in this case. The only issue remaining under the rule of reason, and the principal focus of IFD's defense before the Commission (Pet. App. 73a), is whether the conspiracy had procompetitive benefits that somehow outweighed the injury to competition caused by the challenged restraint. See NCAA v. Board of Regents, slip op. 23; Professional Engineers, 435 U.S. at 693. IFD argued that the boycott did not violate the antitrust laws because it was necessary to promote health and safety and ensure quality dental care. The Commission rejected these contentions, finding no evidence that any consumer received substandard dental care or suffered any injury as a result of insurer examination of x-rays (Pet. App. 91a-92a, 240a-241a). The Commission also found no state law requirement barring health care providers, such as dentists, from furnishing third-party payors with patient information (id. at 100a-101a). The court of appeals, on the other hand, based its analysis on the premise that the boycott furthered "legal, moral, and ethical" goals, and that the position adopted by the conspirators reflected "established, accepted, and approved standards of quality dental care" (Pet. App. 21a-24a). Indeed, the majority repeatedly invoked these phrases (more than 20 times), as though they were established fact, ignoring the Commission's express finding to the contrary (id. at 91a-96a). /29/ Although the court did not state in so many words that its holding rested upon these asserted noncompetitive justifications for the IFD boycott, it did acknowledge that its "analysis stems from the fact that the conduct of the IFD member dentists is not designed to drive out competitors but to promote a legal, moral, and ethical policy of quality and proper dental care" (id. at 33a n.15). Implicit in the court's opinion is its apparent view that the mere assertion of justifications unrelated to the competitive effect of a challenged restraint should weigh heavily in cases concerning conspiracies by professionals to subvert competition. However, this Court has "refused to tolerate manifestly anticompetitive conduct simply because the health care industry is involved." Jefferson Parish Hospital District No. 2 v. Hyde, No. 82-1031 (Mar. 27, 1984), slip op. 22 n.42. The Court's decisions make clear, that lower courts should carefully scrutinize anticompetitive conduct of private associations of professionals and other entrepreneurs, even when purportedly carried out in the name of "ethics," morals," "public health or safety," or "law." See Professional Engineers, 435 U.S. at 679 (ethical prohibition on competitive bidding purportedly aimed at preventing shoddy and unsafe work); Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975) (pricefixing under an ethical guise); American Medical Association v. United States, 130 F.2d 233, 249 (D.C. Cir. 1942), aff'd, 317 U.S. 519 (1943) (boycott of group health plan on purported ethical and health grounds); Fashion Originators' Guild, Inc. v. FTC, 312 U.S. at 467-468 (boycott against style copiers allegedly violating state tort law). /30/ Thus, as the court of appeals itself acknowledged, "rule of reason analysis 'does not open the field of antitrust inquiry to any argument in favor of a challenged restraint that may fall within the realm of reason. Instead, it focuses directly on the challenged restraint's impact on competitive conditions'" (Pet. App. 34a, quoting Professional Engineers, 435 U.S. at 688). /31/ In applying the Professional Engineers standard to IFD's asserted justifications, the Commission recognized that "some situations will present difficult factual questions" (Pet. App. 94a). This case, however, did not. As we demonstrate below, IFD's professed "legal, moral, and ethical" justifications for its conduct are of no substance. IFD, which bore the burden of establishing any justification for its conspiracy (cf. NCAA v. Board of Regents, slip op. 26), failed even to make the threshold showing that would enable a factfinder (let alone a reviewing court) to conclude that the asserted "legal, moral, and ethical" purposes of its boycott bore in any way upon the procompetitive goals of Section 5 of the Federal Trade Commission Act. 1. IFD Did Not Show That Moral Or Ethical Considerations Prohibit Insurer Use Of X-rays For Claims Review The court of appeals erroneously assumed that insurers who requested x-rays were violating established standards of care by "formulat(ing) a course of dental treatment * * * based solely upon an insurance claim form and copies of a patient's dental x-rays" (Pet. App. 29a; see also id. at 3a, 22a-23a, 28a, 29a, 32a, 39a, 44a). This led the court to conclude that "insurers cannot be permitted to forsake standards of quality and proper dental care in an attempt to lower their dental costs" (id. at 44a (emphasis added)). In fact, of course, insurers merely determine the extent of their liability under the insurance contract; the patient alone, after considering the dentist's advice, selects the court of treatment. At no stage of these proceedings has IFD submitted any evidence that x-ray inspection for claims review purposes threatens any medically undesirable results. /32/ As noted above (pp. 3-4, supra), insurers use x-rays to separate the majority of patently justified claims from claims warranting further scrutiny. The lay examiners who conduct this initial screening process are authorized only to grant claims; they cannot deny them. In cases in which initial review of the claim form and x-ray suggests the need for further scrutiny, the claim is referred to a licensed dentist employed by the insurer. Only this licensed dentist may recommend to the insurer that a particular claim be denied, and he generally does so only after consulting the treating dentist. See pp. 3-4, supra. In light of these facts, IFD failed to demonstrate, and, indeed, did not even argue before the Commission "that any consumers have in fact been harmed by alternative benefits determinations, or that actual determinations have been medically erroneous" (Pet. App. 91a). Likewise, the Commission found that IFD did not cite even "a single instance * * * where any dentist agreed to provide less-than-adequate treatment because of the fear of an erroneous insurance determination" (id. at 91a-92a). Thus, the court's conclusion that the boycott was necessary to promote quality dental care is completely without factual support. /33/ Moreover, the court of appeals' benign view of the IFD boycott is contradicted by substantial evidence cited by the Commission showing that Indiana dentists were fighting what IFD's first president called "an economic war" in which "(t)he name of the game is money" (J.A. 104). The dentists viewed the cost containment programs as an effort "to reduce the cost of the dental health dollar at the expense of the dentist" (ibid.) and their boycott was designed to avoid this result. IFD, in particular, was formed expressly to promote its members' economic interests and styled as a "labor union" in the misguided belief that this would immunize if from the antitrust consequences that would otherwise attach to its conspiratorial conduct (pp. 6-7, supra). Its credo, incorporated into its charter, recited that "only in and through a united effort can we be assured of receiving full and just compensation and due appreciation for our services" (Pet. App. 211a). The express economic purposes of the boycott belie any argument that the boycott can be justified on ethical grounds. 2. IFD Did Not Establish That Indiana Law Prohibits Use Of X-rays By Insurers The court of appeals' apparent belief that IFD had a colorable "legal" justification for its boycott (see Pet. App. 16a) is as unfounded as its supposition that a cognizable moral or ethical justiciation existed. The Commission found no Indiana law prohibiting dentists from submitting x-rays to insurers, or prohibiting insurers from using x-rays to assess insurance claims. And IFD never has argued that Indiana law authorizes ad hoc boycotts to enforce the conspirators' views of legal requirements. The linchpin of IFD's "legal" justification for the boycott is its contention that insurers' use of lay personnel to screen x-rays constitutes the unauthorized practice of dentistry and that dentists who submit x-rays violate Indiana law as aiders and abetters (Pet. App. 243a). Both the Commission and the ALJ found, however, that Indiana law did not clearly prohibit law personnel from screening x-rays for the purpose of referring questionable claims to a licensed dentist (id. at 100a-101a, 243a-260a) and the court of appeals did not challenge this conclusion. /34/ Moreover, as the Commission also found, even if there were some colorable basis for the belief that an insurer's use of lay personnel to review x-rays violated Indiana law, that fact could not excuse IFD's boycott. Nothing in Indiana law sanctions an ad hoc coercive boycott as a means of enforcing professional code requirements, and this Court has long frowned on the use of collective boycotts as a means of imposing upon the marketplace economic competitors' own vision of morality or law. Fashion Originators' Guild, Inc. v. FTC, supra. /35/ CONCLUSION The judgment of the court of appeals should be reversed and the case remanded with instructions that the court affirm and enforce the order of the Commission. Respectfully submitted. CHARLES FRIED Solicitor General DOUGLAS H. GINSBURG Assistant Attorney General Department of Justice MARCY J. K. TIFFANY Acting General Counsel ERNEST J. ISENSTADT DAVID C. SHONKA M. ELIZABETH GEE L. BARRY COSTILO Attorneys Federal Trade Commission DECEMBER 1985 /1/ By 1978, dental insurance, primarily multi-state group health insurance plans underwritten by corporate employers, covered 48 million people nationwide (Pet. App. 139a n.22) and at least 1.5 million persons in Indiana (J.A. 107). The evidence in this case concerns dental insurance covering employees of the International Harvester Company, provided by Aetna Life and Casualty Co.; employees of the General Motors Corporation, provided by Connecticut General Life Insurance Co.; and employees of the Brockway Glass Co., provided by Metropolitan Life Insurance Company (Pet. App. 6a-7a, 83a-84a). /2/ Such a provision is often called an "alternate (or alternative) benefits" clause (Pet. App. 61a n.4, 140a). /3/ For example, a patient may elect to purchase an enamel crown for cosmetic purposes, even if a less expensive gold crown would suffice to remedy the patient's medical problem. In addition, many dental procedures are elective in nature and even those that are not may necessitate choices based upon cost. J.A. 20-21, 24-25, 29-31, 50-51. /4/ When an expensive course of treatment is involved, insurers prefer to review the proposed treatment and advise the dentist and patient of the benefits that will be paid under the policy. This "predetermination" of benefits allows the patient to decide how much, if any, of the planned treatment will be covered by the insurer. Although predetermination is encouraged by insurers, it is not generally required as a condition of payment. Pet. App. 61a-62a n.4, 158a n.76. /5/ In many situations involving major dental treatment, dentists use pre-treatment x-rays in making a diagnosis (e.g., J.A. 2). The record contains no evidence that insurers have insisted upon submission of x-rays in a case in which the dentist had not taken x-rays prior to treatment. /6/ Examination of the patient's x-rays can verify the existence of many dental problems (Pet. App. 235a-236a) and dental health insurance plans therefore use x-rays as an important part of their claims evaluation process (see id. at 240a). In Indiana, the impetus for requesting dentists to submit x-rays came not only from individual insurers, but also from employers and unions interested in controlling the costs of dental health insurance (id. at 86a, 200a). /7/ Although the alternate benefit usually is less costly than the treatment originally proposed, it occasionally is more costly (Pet. App. 140a n.26). /8/ IFD, in fact, is not and has never been a bona fide "labor organization" within the meaning of Sections 6 and 20 of the Clayton Act, 15 U.S.C. 17 and 29 U.S.C. 52 (see Pet. App. 146a), and IFD has abandoned any contention that its self-described status as a labor union exempts its conduct in any way from the FTC Act (cf. id. at 65a n.7). IFD also has abandoned any contention that its status as an organization of professionals entitles it to exemption under Section 4 of the FTC Act, 15 U.S.C. 44, which defines "corporation," as used elsewhere in the Act, to mean any "company * * * or association * * * organized to carry on business for its own profit or that of its members" (See Pet. App. 65a n.7, 275a). /9/ IFD's Chapter III, encompassing Allen County (Fort Wayne), gained adherents more slowly, gorwing to 13% of the county's practicing dentists by June 1979, one year after it was founded (Tr. 220, 2261; CX 21). /10/ The dentist was warned that he "would place (himself) in a position of being censored (sic)" if he continued to urge his fellow dentists to submit x-rays. Fearing criticism of his objectivity and a charge of breach of ethics by his peers, the dentist eventually terminated his relationship with Aetna. Pet. App. 183a-187a. /11/ IDA was named a co-conspirator in the complaint, but was not a respondent in the FTC proceedings because it previously had consented to entry of a cease and desist order prohibiting the continuation of its boycott activities and the repetition of similar conduct (Pet. App. 11a n.6). /12/ The Commission rejected IFD's arguments that there was insufficient evidence to establish the required effect on interstate commerce (Pet. App. 64a-69a), and that the evidence did not demonstrate the existence of a conspiracy among IDA, IFD, and IFD's members to withhold x-rays from insurers (id. at 70a-72a). /13/ The Commission did not make a determination regarding the boycott's effect upon competition in the dental insurance market (Pet. App. 86a-87a), and, having found the boycott to be an "unfair method of competition," is declined to address the question whether IFD's boycott also constituted an "unfair act or practice" prohibited by the Federal Trade Commission Act (id. at 96a-97a). /14/ The court did not address the "state action" defense raised by IFD (Pet. App. 45a n.18). /15/ The "(u)nfair methods of competition" proscribed by Section 5(a)(1) of the Federal Trade Commission Act, 15 U.S.C. 45(a)(1), include restraints of trade violative of Section 1 of the Sherman Act, 15 U.S.C. 1. See FTC v. Cement Institute, 333 U.S. 683, 693 (1948). The Commission applied Sherman Act precedents in reaching its decision (Pet. App. 74a-78a). /16/ Insured patients generally will be less concerned about the cost of a particular treatment because that cost is defrayed entirely or substantially by the insurer. However, insured patients (or the employers and unions that negotiate and contract for health insurance on their behalf) necessarily are concerned about health insurance premiums (see pp. 2-4, supra) and the size of such premiums depends upon the insurer's ability to minimize its costs by avoiding liability for unnecessary treatment. Indeed, the premiums involved in this case were directly tied to the anticipated level of claims over the policy term (Pet. App. 147a n.48). /17/ The Commission declined to classify the conspiracy as per se unlawful, in significant part because it wanted to consider the justifications for the agreement advanced by IFD (see Part B, infra) and also because the type of restriction involved in this case had "not been the subject of frequent prior antitrust analysis" (Pet. App. 76a-77a). /18/ Alternatively, if treatment has already been provided, the consumer may have to pay a greater sum out of pocket if the dentist does not assist in obtaining insurer approval of the claim. /19/ Indeed, IFD's failure to raise this issue before the Commission barred the court of appeals from overturning the Commission's order on this ground. This Court stated in United States v. L.A. Tucker Truck Lines, Inc., 344 U.S. 33, 37 (1952), that "(s)imple fairness to those who are engaged in the tasks of administration, and to litigants, requires as a general rule that courts should not topple over administrative decisions unless the administrative body not only has erred but has erred against objection made at the time appropriate under its practice." /20/ To illustrate its point, IFD cited the testimony of a dentist who had joined the boycott and lost a patient because of his refusal to submit x-rays to the patient's insurer (see J.A. 51). /21/ The same newsletter warned that dentists who violated the boycott might continue to do so because cooperation with insurers would be "the way to the greatest personal financial gain" (Pet. App. 293a (emphasis in original)). /22/ It is true, however, that if providing information requested by insurers were not an element of competition among dentists, there would have been no need for a conspiracy, complete with elaborate enforcement mechanisms (see pp. 7-8, supra), to enable individual dentists to implement their purported "legal, moral, and ethical" views in dealing with insurers. /23/ Even the court of appeals recognized that dentists compete by, inter alia, cooperating with patients' insurers. In discussing IFD members' willingness to allow in-office and in-mouth examinations by insurance company dentists, the majority noted that "the IFD member dentists, did, in fact, compete among themselves and with non-IFD dentists in their billing of patients covered by group dental health care plans and in their policy of dealing with the insurers" (Pet. App. 42a (emphasis added)). /24/ Because the boycott, which IFD was formed to continue, included almost the entire state of Indiana during IDA's stewardship and persisted in the areas in which IFD was organized, the Commission properly concluded (Pet. App. 85a n.12), that no more elaborate analysis of the market was required. See NCAA v. Board of Regents, slip op. 23-24 & n.42. While IFD challenged the Commission's findings regarding membership percentages (which were derived from IFD's own documents), these findings were not rejected by the court of appeals. Moreover, even IFD's preferred figures (J.A. 187-190) would place its membership at 66%-69% of dentists practing in Madison County and 50%-56% of those in the Lafayette area. Compare Paramount Famous Lasky Corp. v. United States, 282 U.S. at 44. /25/ Judge Fairchild agreed that "(t)here is little question that the Indiana Dental Association organized boycott of insurers' request for x-rays had a significant economic impact on the functioning of group dental plans within Indiana" (Pet. App. 46a). /26/ In making this finding, the court of appeals quoted a statement by the ALJ (Pet. App. 177a) that was based upon a single IDA document (CX 39-B) written in 1971, a time when there was very little group dental insurance business in Indiana. Nothing in the document supports the proposition for which the court (but not the Commission or ALJ) used it -- that smaller insurers found it economically feasible to conduct in-office visits to review each claim. In fact, "go(ing) along" with IDA could as easily mean not making any serious attempt to scrutinize claims (and contain costs) as engaging in cumbersome in-office visits to review each claim. /27/ This finding was an apparent reference to the experiences of Aetna and Connecticut General, which, contrary to the court's assumption, demonstrated that in-office claims review was so expensive and cumbersome that even large insurers could afford to use such a procedure for only a very limited time in a very limited area. See pp. 10-12, supra. /28/ Certainly nothing in the record casts doubt on the conclusion that x-ray review helps to limit health care costs by allowing insurers to reject unnecessary treatments without the prohibitively costly expense of an in-office visit to review every proposed treatment. While insurance company representatives testified that, as a practical matter, they were unable to quantify the effects of their cost containment programs, they believed them to be effective. See, e.g., J.A. 2-3, 20-25, 29-31; cf. J.A. 39. /29/ The court characterized the IFD boycott as nothing more than the "dentists' concerted effort to ensure quality dental care" (Pet. App. 29a), and described the issue in the case variously as whether IFD engaged in a group boycott by collectively "adhering to a policy that complies with the established, accepted, and approved standards of quality dental care" (id. at 24a) and whether substantial evidence supported the Commission's finding that "the dentists' adherence to a legal, moral, and ethical policy of quality and proper dental care * * * had an anticompetitive effect" (id. at 37a). /30/ The cases establish that competitors cannot invoke "quality" as a defense when they restrict consumer choice by imposing on the market their own view of the appropriate level of quality. The antitrust laws recognize, however, the procompetitive potential of attempts to improve quality by making available either new or improved products or services, or more reliable information about the quality of existing products or services. Cf. Broadcast Music, Inc. v. CBS, 441 U.S. 1, 18-23 (1979). For example, in settings involving hospital privileges or specialty certification standards of private professional organizations, reasonable standards that foster quality or enhance efficiency and that are not more restrictive than necessary to accomplish their legitimate objectives will pass muster under traditional antitrust analysis because they enhance competitive market forces. See, e.g., Professional Engineers, 435 U.S. at 696; Robinson v. Magovern, 521 F.Supp. 842 (W.D. Pa. 1981), aff'd, 688 F.2d 824 (3d Cir.) (Table), cert. denied, 459 U.S. 971 (1982). /31/ Indeed, respondent IFD has disavowed any attempt to defend its boycott on grounds of affirmative justification, contending that the court of appeals' decision properly "delineates that professional motives do not excuse anticompetitive conduct" (Br. in Opp. 11). /32/ For this reason, the court's discussion of why x-rays alone are insufficient to provide complete information for "diagnosis" or "treatment" (Pet. App. 22a-23a) is inapposite. /33/ IFD's quality of care claim is not helped by the court's sua sponte invocation of the American Dental Association's (ADA) policies on dental care programs (Pet. App. 22a-23a, 44a). Nothing in the record indicates that dentists' provision of x-rays as requested by Indiana insurers, or the use insurers made of x-rays in the claims review process, was inconsistent with ADA guidelines (cf. Pet. App. 142a n.34). /34/ The record reflects "no evidence * * * that the Attorney General of Indiana or anyone else has ever charged * * * any layman of practicing dentistry without a license on the ground that such person screened X-rays for a dental health care insurer" (Pet. App. 252a; see also id. at 259a). /35/ The Commission's findings with respect to the meaning of Indiana law (Pet. App. 97a-104a) also dispose of the single issue not addressed by the court of appeals (id. at 45a n.18) -- whether IFD's conduct is exempt from antitrust liability under the state action doctrine. Anticompetitive conduct by private parties is entitled to immunity under this doctrine only if the conduct is (1) undertaken pursuant to a clearly articulated, affirmatively expressed policy of the state, acting in its sovereign capacity, to displace competition and (2) actively supervised by the state. Southern Motor Carriers Rate Conference, Inc. v. United States, No. 82-1922 (Mar. 27, 1985), slip op. 8; California Retail Liquor Dealers Association v. Midcal Aluminum, Inc., 445 U.S. 97, 105-106 (1980). Plainly, IFD can point to no clearly articulated, affirmatively expressed policy of the State of Indiana to displace competition among dentists with respect to their submission of x-rays to insurers who request them. Similarly, there was no state supervision of IFD's conspiratorial conduct. Accordingly, this Court need not remand this case to the court of appeals for resolution of the state action issue.