COMPETITION IN THE LEGAL PROFESSION
regulation (also selfregulation) excessively restrict competition and promote the interests of the incumbents, discriminating new entrants and failing to achieve the ebwpiuas promised.
some regulatory restrictions may be justified to remedy the 3 types ofmarket failures: [ asymmetric information; externalities; and undersupply of public goods], or may be justified on distributional or paternalistic motives. But most restrictions are based on rent-seeking and achieve cartel-like effects.
With respect to entry, there are not only qualitative restrictions (education, apprenticeships and exams) but also quantitative restrictions based on demographic or geographic criteria. In addition, professional titles are protected and membership of professional bodies may be required.
With respect to business conduct, there are often rules on advertising, forms of business organization and partnerships. Certain regulations are in the public interest as a remedy to market failures arising from
(a)information asymmetries and
(b) negative [externalities = a consequence of a commercial activity which affects other parties without affecting market prices, such as the pollination of surrounding crops by bees kept for honey.]eg. Poorly qualified legal professionals cause harm to third parties and society at large if legal transactions turn out to be invalid.
Legal quality and integrity are difficult to assess for inexperienced individuals who do not buy these services regularly. Consequently, there is a risk of adverse selection (quality deterioration) in particular segments of the legal services market where professionals meet buyers without independent legal expertise. Apart from adverse selection, information asymmetries also lead to principal-agent problems. Professionals may reduce quality below optimal levels or generate excessive demand.
Regulation and self-regulation at times appears to serve mainly the private interests of the profession rather than broader consumer interests. Professional associations of legal professionals are powerful pressure groups. They are small (compared to their number of customers), single-issue oriented and wellorganized. This may enable them to achieve high profits without compensating benefits for society at large.
They may “capture” public authorities or attain the right to regulate themselves. While self-regulation allows for quality standards to be set by professionals who may be better informed than lay public authorities, this advantage may be outweighed by the harm from the potential for anti-competitive restrictions.
Removing unnecessary restrictions
The major policy challenge is to identify and remove the restrictions which are unnecessary or disproportionate to achieve public interest goals. Competition law and advocacy can play a major role in this respect, either by challenging anti-competitive activity as illegal or advocating changes to laws and regulations.
In most OECD jurisdictions, it had been firmly established that rules of competition law (in particular, the prohibition of price-fixing) apply to the legal professions. However, some restrictions may be justified if it can be shown that they serve consumers’ interests.
<> the burden of proof is on the SRA
The U.S. Supreme Court makes a distinction between
-naked price-fixing agreements that are held per se illegal, and
-restrictions on advertising that might protect consumers from false or misleading claims.
The Ecj has accepted that restrictions of competition, in particular the prohibition of inter-professional cooperation between lawyers and accountants, may be considered necessary for the proper practice of the profession.
The prohibitions of competition law apply only to anti-competitive practices that have been initiated by legal professionals and their associations , and usually not to regulatory measures decided by states.
The Canadian “regulated conduct defense” seems to provide a broad scope for restrictions of
competition. In the U.S., there is a narrower “state action defense”, to defend anticomp claims.
Under Eucl, a state can be liable for infringing the competition rules if it delegates its powers to professional associations and does not provide adequate control of decisions adopted by such associations and the possibility to take decisions of last resort.
<> padi v. uk , for failing to control the sra…on the basis that the anti-competitive restrictions are not suitable for attaining the proposed wpi (eg consumer protection), and go beyond what is necessary to achieve that objective.
exclusive rights [for solicitors to give legal advice) is justified where information asymmetries are pervasive (e.g., legal advice on family matters). Generally, regulation should not be profession-focused but be targeted at particular segments of the legal services market when market failures are most serious.
Independent regulatory authority for legal services
According to the British model, the Head of the Authority and the majority of its member must not be practicing lawyers. The Authority is able to enact new regulations and may also delegate regulatory functions to already existing or newly established regulatory bodies (called front-line regulators). The front-line regulators are not allowed to combine regulatory with representative functions. The Authority is given the power to issue regulatory guidance, to direct front-line regulators to take specific actions, to amend or veto rules of front-line regulators and to remove the authorization of the latter if they abuse their competences.
Disproportionate restrictions in self-regulatory rules may be vetoed. The lack of consumer representation in most self-regulatory bodies is remedied since the majority of the regulatory authority consists of non-lawyers. The proposed institutional framework creates possibilities for competition between self-regulatory bodies.
Entry restrictions:
Entry restrictions should be eased or eliminated where not related to quality. eg. too difficult exams. In Ireland, the Law Society is both the regulator of the Solicitor profession and the sole provider of professional training. and the number of barristers is limited by the capacity of the sole training school in Dublin. this is anticomp.
the American Bar Association is in charge of accreditation of law schools. The accreditation committee has been criticized for protecting the interests of bar associations, law school deans and faculty members.
Exclusive rights
A legal profession should not have an exclusive right to perform tasks that do not necessarily require extensive and broad legal professional training. In most jurisdictions, lawyers only enjoy a monopoly over representing clients in courts.
The market for legal advice remains largely open. For the legal transfer of landed property and the registration of transfers in public registers (conveyancing services), there are diverse situations. Latin notaries enjoy exclusive rights to provide conveyancing services in their jurisdictions. But in certain Common Law jurisdictions (England, Wales and, in the near future, also Ireland and New Zealand) the market for conveyancing services has been opened up to a new category of professionals, licensed conveyancers.
Empirical evidence suggests that allowing a second group of professional to provide a service may stimulate price competition
Advertising and price restrictions
Rules that prevent truthful advertising and that limit competitors from lowering prices are the most difficult to wpi justify.
(self) Regulation cl restrictions:
• qualitative entry restrictions (minimum periods of education, professional examinations, and minimum periods of professional experience);
• compulsory membership to a professional body enjoying public law status2;
• protection of professional titles indicating expertise in legal matters;
• reserved tasks: legal advice (at least in some jurisdictions), exclusive rights to appear in court coupled with compulsory legal representation;
• statutory limitations on the pricing of legal services (in many countries and in Italy until very recently contingency fees are prohibited)
• self-regulatory rules (some subject to approval/assessment by the competent Minister) on:
i)minimum fees
ii) advertising, and
iii) forms of business organization and multi-disciplinary partnerships.
In the field of services provided by Latin notaries, regulation takes the following forms:
• qualitative entry restrictions (minimum periods of education, professional examinations, and
minimum periods of professional experience);
• quantitative entry restrictions based on demographic or geographic criteria;
• protection of the professional title of Latin notary;
• reserved tasks, in particular exclusive rights for allowing a transfer of real estate property to have full effect vis à vis third parties (conveyancing services)4, business incorporations and, in some jurisdictions, family matters (marriage contracts, partnership contracts, wills);
• statutorily fixed fees for particular services;
• additional self-regulatory rules (eventually subject to approval/assessment by the competent Minister) on advertising and forms of business organization and partnerships.
– is regulation necessary from a wpi perspective?
-Is there a risk that state regulation and/or self-regulation is influenced by private interest motives rather than wpi goals?
-how can cl reduce private interest regulation and enhance competition where this is in the wpi?
The wpi alleged goals of (self)regulation, are challenged by private interest goal theories: [that regulatory measures are enacted to reduce competition and increase profits for incumbent professionals, without generating outweighing wpis]
anti-competitive self-regulatory rules may be declared invalid and punished by (criminal or administrative) fines. = [potential liability of both prof.associations and states, for restrictions of competition that cannot be justified on wpi]
The wpi alleged goals of (self)regulation
1-to remedy market failures:
a.Information asymmetry
Information asymmetries may justify regulation to prevent quality deterioration and ensure the integrity of the professionals.
but quality guarantee does not justify advertising restrictions, or fixed fees
also, in markets of well-informed repeat consumers, there is no infoasymmetry, so may not need regulatory intervention.
b. Negative externalities
i.e. the harm caused to third parties and society in general by low quality services. When a legal professional provides sub-optimal quality, not only the consumer of the service but also other individuals, not involved in the transaction, may be harmed.
example, in the Netherlands real estate is being sold on average every seven years (Baarsma, Mulder and Teulings 2004, p. 4). This implies that mistakes may remain hidden for a seven years’ period. Even if consumers buy notarial services several times, the legal quality of the performed services may be assessed only after a relatively long time period.
example: a poorly drafted will that harms the interests of the testator, who will never be able to recognize its weak legal quality…and an inaccurately drafted will harms the heirs of the deceased person
but is different for large commercial clients, such as real estate agents, banks and corporations. They are repeat buyers and the reputation mechanism (coupled with the threat of liability claims) can provide enough incentives for good quality services
In contrast with liability law, which operates post harm, regulation fixes quality standards ante harm
strict liability rule [SLR] (eg. prof.negligence)= compensation by simply proving (act/harm) causality
SLR only incentivises to take efficient care, if the amount of compensation at least equals the harm. This will not be the case if the judge cannot perfectly assess the size of the externalities.
also the prof.negligence slr is only efficient where the legally required level of care at least equals the efficient level of care. This will not be the case if the judge has insufficient information to assess the marginal benefit and cost of additional care.
Moreover, the requirement of causation may not be easily satisfied, so that liability rules will not be able to internalize the negative externalities caused by poor performance of legal professionals.
c. Under-provision of public goods
The third market failure is known as the ‘public good’ problem.
diff:
a. a private good
b. A public good :
b1.is non-rivalrous: [the consumption by one, does not diminish the utility of the good for another]
b2. is non-excludable: it is impossible to exclude non paying individuals from consumption
Public goods thus create positive externalities, i.e. benefits for parties not involved in the transaction. A public good is a good that can be consumed simultaneously by everyone,
even by persons who do not ask and pay for it. In a free market public goods tend to be under-produced, since the producer cannot exclude non-paying beneficiaries. To guarantee that public goods are provided, states enact regulations. Legal professionals generate important positive externalities that are of great value for society in general. Lawyers play a crucial role in the proper administration of justice, and legal certainty of citizens.
2- wpis other than market failures:
a.distributive justice:
Price regulation (maximum prices) may ensure access to legal services for low-income individuals , or guaranteeing the quality of services.
b. paternalism.
regs that force laymen to get legal assistance when they engage in important transactions. Governments may trump cl, in favour of legal certainty.
the The Latin notary exerts an ex ante control [NOT REALLY!!! THEY HAVE NO OBLIGATION TO DO THIS!!] of the quality of the transactions (including existence of debts for which the buyer may be liable and availability of building permits). In this way ex post transaction costs, such as litigation costs, are reduced….This benefits not only the contract parties but also for third parties (banks providing loans, later buyers) and society at large (legal certainty), which is why it is classified as a public function.
also, the real cause of poverty in Eastern Europe and Latin America is not lack of money, but the absence of a reliable registration system for property which impedes financing of real estate transactions.
The IHS Report on EU Regulation of Professional Services (Paterson, Fink and Ogus 2003) :
The higher the respective index score, the more restrictive the regulation system for the profession. we see how the intensity of regulation varies across EU Member States and professions. and lets us also see how the different degrees of regulation impact cl….which may indicate where regulation is serving the private interests of the regulated professions. why? becasue in countries with a high level of regulation, we see less professionals, but with excess profit.
SPAIN
diff:
a. advocate’s [ABOGADO] monopoly : legal defence of clients before courts.
b.solicitor’ [PROCURADOR] monopoly: representation of clients in courts (without legal defence).
For practising these professions it is necessary to belong to the corresponding Professional Association (advocates or solicitors): Consejo General de la Abogacía Española, Consejo General de Procuradores de España
The practice of advocate and solicitor professions is incompatible. Additionally, in the case of advocates it is also incompatible: to act at the same time for the same client or for those who were clients in the last three years; to do auditing activities or others activities which are incompatibles with the good practice of the profession.
solicitors’ fees (aranceles) are fixed based on the service provided. They are settled by the State, following consultation with their Professional associations, and they may be negotiated with clients up to 12% of their amount. Currently there is a request from the Competition Court to the Competition Service to review these fees.
advocates’ fees: are freely negotiated by clients…The Professional Association may set recommended fees.
The legal defence of the State in courts is performed by the State Advocates (Abogados del Estado), entry via clausus State exam.
advertising:
is not allowed for advocates to make comparative advertising with others advocates, or to allude to cases or clients without their authorisation. Additionally, in the case of solicitors, it is not allowed to advertise their fees, or their former professional jobs.
The Spanish Constitution provides a system of free justice for the disadvantaged and the poor. The Act 1/1996, of 10 January regulates the Asistencia Jurídica Gratuita, the Public Interest Associations/Foundations.
Notaries and “Registradores”:
are not required to join the professional association to practice the profession; neither the professional association has regulatory powers. The regulatory body of those legal professions is the “Directorate General of Registros y Notariado” of the Ministry of Justice.
a Notary’s monopoly is to certify and attest (fe pública notarial), which is a public service, so a notary is a public civil servant. This task specially affects to the services related to wills and probate and conveyancing (selling and buying property).
Additionally, the register of those legal transactions, in particular real state transactions, should be made on the Registry of the Property (Registro de la Propiedad)….also, in the case of buying/selling property: the transaction should be made with a notary that perform its activity in the local area.
Notaries fees (aranceles) are fixed based on the type of transaction. They are settled by the State, following consultation with their Professional associations; they may be negotiated with clients up to 10% of their amount and free settled in case of high amount.
advertising: notaries can only advertise in the web page of their Professional Associations, and only the identity of notaries, and location
Advertising is not allowed for Registradores.
restrictions on Form of business:
Act 2/2007, of 15 March, on Professional Societies: 75% of the share capital or the partners and political rights and the representative boards should at least belong to the professional partners. According to this Act, the societies may perform several activities provided that are not incompatible by a law or regulation.
Solicitors: It is authorised the association whenever the solicitors belong to the same territorial demarcation and there were not a conflict of interest. This association is subject to several mandatory prerequisites concerning the creation of the society, communication to the professional association, register and advertising (regulated in the General By-Law of the Spanish Solicitors)
Notaries may become partners in order to manage a Notarial office, but not with other type of professionals.
Self-regulation does not exist for Notaries.
Concerning advocates and solicitors, their professional associations may selfregulate using by-laws, according to the (Ley de Colegios Profesionales)…..The Competition Act is applied to this self-regulation. According to the Competition Act, restrictions of competition resulting from the application of a law are exempt from prohibition….. This means that restrictions of competition by these By-laws could be exempt, in they are in line with the ley de colegios profesionales.
since the report [on the free exercise of the Professions, by the Competition Court in 1992] associated professions are now submitted to the Competition Act.
Spanish Competition Service and the Competition Court, the National Consumers Institute.
There is not an independent Complaints Office. Compensation of damages for malpractices is decided by ordinary courts and decision on the existence of a disciplinary infringement and the imposition of sanctions is left to the Professional Association. Neither exists in Spain an independent Ombudsman nor a specific self-regulatory body for legal professional sector.
ENGLAND AND WALES. solicitors
Advertising and direct access:
solicitors are allowed to advertise, subject to certain limited controls. The Solicitors’ Publicity Code states that publicity must not be misleading or inaccurate. Any publicity as to charges must be clearly expressed, eg taxes included or not? .unsolicited visits or telephone calls to a member of the public are not allowed…..solicitors therefore can advertise comparisons with other advocates or members of any other profession and can make truthful statements on the quality of my work, and my “success rate”.
advertising is provided for in the solicitors Code of Conduct
Fees:
are freely negotiable. Usually are calculated on an hourly rate agreed between the client and solicitor and will not correlate directly with the value of the matter.
a lump sum fee will be charged for the preparation of the case and first day in court together with a daily sum for each day in court thereafter
Exclusive rights:
The cma advises on potential anticomps of a sos or sra decision on a designation, revocation or rule change (but not on existing rules).
This cma’s advice is published.
the sra recently , with cma and sos, considering the necessity for solicitors to achieve a separate qualification (barrister’s rights of audience) to exercise rights of audience in the higher courts….
“Calling in” the rules, is a power that the LSB (legal services board) may exercise [under Part 3 of Schedule 5 of the Access to Justice Act 1999], to make alterations to an authorised bodies’ qualification regulations or rules of conduct. It is a power that has never been exercised.
“Mixed doubles”: cma is investigating a ruling by the scottish Faculty of Advocates banning solicitors from appearing in court with a barrister instructed for the same client. The cam considers that this ruling restricts competition in the market of advocacy…..This case will test how the ecj Wouters decision can be applied within the legal professions. In Wouters, the ecj considered Article 81 EC to a regulation of the Dutch Bar association that prohibited partnerships between members of the Dutch Bar and accountants. held: regulations by professional bodies, as regarded as DAUS [decisions by an association of undertakings] and therefore fall within Article 81 EC as , and thus such (self)regulations can be prohibited [if the anticomps outweigh the alleged wpi/s]
The QC system
In July 2003, the Ministry of Justice consulted cma on the possibility of constitutional reform of the appointment of barristers to Queen’s Counsel, or “QC”
cma expressed concerns that governmental involvement in distinguishing between junior barristers and QCs has no parallel in other markets. In addition, the OFT questioned the operation of the system as a quality mark. A mark will generally only be of value to consumers where certain conditions are met. One of these is that it be awarded according to clear criteria and in a transparent way that has particular regard to the experience of consumers of the services. Another condition is that the mark can be lost as well as won; and that continued holding of the mark is contingent upon quality performance. This condition is not met by the QC system. Moreover, the OFT is concerned that the QC title may distort competition. One sign of this is the step-change in fees that QCs are said to command; another are the de facto demarcations as to what work is and is not suitable for QCs.
Conclusion
incresing removal of anticomps in the legal professions in the UK…. the forthcoming Legal Services Bill may remove regulation of the legal professions from self-regulatory organisations, transferring it to a government oversight regulator.
solicitors advertising on price can be pro-competitive, but Lower prices for the individuals may be costly for society as a whole, if the collected court fees cover less than the total costs incurred in a lawsuit….In other words, the society pays for almost all the proceeding if lower fees lead to a lawsuit boom.
DAFFE/CLP(2000)2 = COMPETITION IN PROFESSIONAL SERVICES
evidence: quality restraints on entry, lowers quality.
2 types of professional regulation:
a.structural regulation
eg. entry restrictions and the granting of exclusive rights to perform
certain services.
b.behavioural regulation.
egs. rules regarding the level or structure of professional fees or limitations on advertising.
both types of regulations restrict competition more than is appropriate or necessary, raising the price and limiting innovation in the provision of professional services. In addition, where a professional association is delegated regulatory powers, such as the power to discipline its members, they use it to restrict entry, fix prices and enforce anti-competitive co-operation between its members. restricting entry to the most highly qualified providers, lowers service quality, as
consumers forego professional services or provide the services for themselves.
In addition, in many countries, a firm of lawyers can only be organised as a partnership and not as a limited-liability company. In many countries, firms of lawyers cannot take on accountants as partners and vice-versa. Such restrictions can restrict efficiency and innovation.
the “asymmetric information” market failure:
In some cases, consumers are unable to assess the quality of services or to choose which services to purchase. As a result, competition in professional services
may lead to consumers being offered low quality and inappropriate services.
When consumers are unable to assess the quality of services, competition may drive down the quality of services. In the absence of regulation, there are a variety of mechanisms for addressing these problems: reputation, contractual guarantees of performance quality,
performance bonds, or third-party accreditation or quality rating. Civil liability rules may also
enable consumers to recover damages
Principles for high-quality regulation of professional services:
• exclusive rights should not be granted where other less anticomp mechanisms exist [to address a market failure] eg. the collection and publication of information on the quality of professionals, assistance to accreditation or quality-rating agencies or the strengthening of civil liability rules.
• where there is no alternative to granting a profession an exclusive right, the entrance requirements should not be disproportionate to what is required to perform the service competently.
• regulation should focus on the need to protect small consumers. Sophisticated
commercial purchasers of professional services (including large corporations and large
hospitals) are able to assess service quality
• restrictions on competition between members of a profession should be
eliminated. These include agreements to restrict price, to divide markets, to raise entrance
requirements, or to limit truthful advertising. Recognition of qualifications of professionals
from other countries should be promoted. Citizenship and residence requirements should
be eliminated.
• professional associations should not be granted exclusive jurisdiction to make
decisions about entrance requirements, mutual recognition, or the boundary of their
exclusive rights. these decisions should be subject to independent scrutiny,
by an independent regulator. For example, where entrance to a profession is by
means of an examination, the professional association should not have exclusive control
over the difficulty of the exam and what constitutes a passing standard.
• competition between professional associations should be encouraged
. regulations of professions should be reviewed against principles of good regulation. Such principles require the regulation not to restrict competition more than necessary, and to only target markets where the information asymmetry problems cannot be solved by other means, such as markets involving small consumers, or markets where any harm is serious and irreversible (such as in the medical or legal profession) and only where other approaches, such as disclosure of quality ratings or enhancing civil liability are insufficient.
the two wpi goals: promoting competition and maintaining professional standards, are not necessarily contradictory.
most professions are very self-regulated (claiming to be in the wpi), through their trade
associations. Self-regulation may enjoy the force of law, where governments delegate to trade associations or professional regulatory bodies
Regulation controls entry by requiring qualifications, and even also by preventing or controlling price competition, advertising, business relationships, and participation of foreign professionals on nationality grounds. These regulatory controls have turned competitive industries into cartels.
Professional regulation that restricts competition:
But suppression of all competition is not necessary to assure quality. competition among professionals would benefit consumers.
Restrictions on competitive practices, such as price competition, truthful advertising, use of nondeceptive trade names, and relationships with other kinds of businesses, as well as limitations on foreign participation, do not address the issue of quality. and result in higher prices and less innovation
The price of legal services for an uncontested divorce, for example, averaged $33 more in cities with restrictive advertising regulations. restricting advertising increase price but does not improve quality.
Also, Regulation that succeeds in limiting the profession to the highest-quality
providers, many consumers, who cannot afford that level of service, might endure maladies….Or, these consumers might try to do it for themselves
level of quality received may actually be lower, where quality-based restraints on entry are higher.
Where restraints on commercial dimensions of professional practice have been relaxed, prices are
lower and new services appear in response to consumer demands.
OTHER COMP RESTRAINTS:
Licensing requirements for specialised areas of practice, and requirements for professional indemnity or liability insurance.
IN the Anglo-Saxon countries, in a distinction between
barristers, who specialised in advocacy, and solicitors, whose principal function was counselling.
National reforms to permit competition while maintaining quality:
Regulatory structures in the professions have come under increasing scrutiny to determine whether they have been serving the interest of the profession more than, or even at the expense of, the public interest. the rules , particularly, about professional ethics, to ensure that services meet the standards of quality and quantity, at reasonable prices, prevent competition among professionals and keep prices high.
the rules should be enforced by someone other than the professional bodies themselves.
…..representatives of consumer interests should also be included in regulatory bodies
<> PADI [AS A CONSUMER AND COMPETITION PROTECTION AGENGY – cocoproa -] WILL INCREASE SUCH SCRUTINY OVER THE SRA’S REGULATORY STRUCTURES, , AND REQUEST TO BE PART OF THE SRA]
DAFFE/CLP(2000)2
Types of regulations that harm consumers by limiting competition
PADI’s wpi goal is to relax constraints on economic competition that are not necessary to maintain quality of service or to prevent consumer injury.
Four common types of professional regulation fit this description:
- overly strict controls on entry and access,
- constraints on fee competition,
- prohibitions against truthful, non-deceptive advertising, and
- overly strict restrictions on alternative forms of practice.
Entry and access
Enough entry control to ensure competence is justified, even necessary, for the reason set out above. But licensing control can be used to meter the level of competition, in 2 ways:
a. by determining who may obtain a license, and
b. by accrediting the schools where potential professionals are trained.
It is doubtful that both levels of control are necessary to ensure competence….. But entry controls, combined with tight regulation of what services can be provided, have inhibited the appearance of competition. entry controls have kept prices up, too.
Fee competition:
Until recently, fees for professional services have been set by regulation or agreement, not by
market competition.
The argument to support this price-fixing was that competition would lead to lower prices, and general lowering of price levels would lead to lowering of service quality.
Evidently, it was feared that the most competent providers would leave the profession, because they could not be rewarded enough
Mandatory fee scales, are anti-competitive or against the wpi.
For example, insurance might permit consumers to afford higher quality service. And some medical and legal professionals provide services to the poorest consumers pro bono, either by personal choice or pursuant to guidance from professional associations.
Advertising prohibitions
advertisements about prices and comparisons with other practitioners are usually prohibited. Restricting and even banning advertising has been defended as necessary to preserve professional integrity and independence and to protect the public against incompetents. But bans against even truthful, non-deceptive advertising are increasingly being challenged, because such restraints prevent innovation and raise prices.
Advertising can encourage innovation and new entry.
ad restrictions make it hard for consumers to find expert help or determine its likely price.
Abolition of advertising restrictions has benefited consumers. The removal of price advertising
restrictions resulted in lower prices and increased demand, and facilitated the growth of
alternative service providers and led to greater price competition
restrictions on professional’s Forms of practice:
allegedly, to ensure the practitioner’s personal responsibility to the client.
but , instead, is enough to require that professionals carry liability insurance.
Often, though, the right to own or invest in a firm providing PBS services
remains tied to the requirement of holding a licence to practise the profession within the jurisdiction issuing the license
Ownership and investment structures require some scrutiny, but just enough to ensure that professional judgements are not distorted by extraneous considerations. Professionals’ fiduciary obligations and personal liability is also a valuable disciplinary control…..thus, is pointless to restrict professional’s forms of practice.
CL as methods of reform:
usa Court decision in Goldfarb v. Virginia State Bar: Goldfarb established that the Sherman Act contained no exemption for the professions.
usa Supreme Court Decision in 1978 in National Society of Professional Engineers v. United States: confirmed the Goldfarb rule . The Society had agreed to an ethical rule that the members would not compete on price before the client had selected one of them. The Court rejected the Society’s
argument, that price competition was not a wpi because it would lead to cost cutting and to
inferior, dangerous design work.
Arizona v. Maricopa Medical Society, court ruled that agreeing to a maximum fee schedule for physicians’ services was per se illegal.
In the UK, although the basic legislation on restrictive trade practices does not apply to professional services, professional conduct may fall under the monopoly provisions of the legislation.
In uk, every case, except the restrictions on advertising by barristers and advocates, the Cma found that the comprestrictions operated against the wpi. The overall result has been some liberalisation of wpirestricting practices, in particular the use of mandatory scales of fees
cma found that many rules exceeded what was necessary to meet the requirements of sound professional practice.
The dutchCma found that there were entry barrier statutory rules, and regulated professional activities as well as collegiate rules. The dutchCma therefore negotiated with the relevant associations to liberalise the collegiate rules and approached public authorities to pay more regard to competitive considerations when regulating the professions.
In Spain, the law governing professional associations was modified in 1996 to introduce greater competition, and price fixing for professional services is now prohibited.
since the late 1970s the UScma (FTC) has submitted over 400 comments or
amicus curiae briefs to state and self-regulatory entities on competition issues relating to a variety of professions, including accountants, lawyers and architects.
<> padi will send amicus curiae briefs; position papers; court interventions;
Health Care:
Health care differs from other professional services in one important respect: the consumer often does not pay the bills, directly. But those who do pay, whether
governments, insurers, employers, or individual consumers, have an interest in greater competition and innovation. consumers (Patients), of course, have a direct
interest in high quality, and other parties have at least an indirect interest in maintaining quality too.
The AMA case challenged the “contract practice” rules that made it “unethical” for a physician to treat patients under a salaried contract with an organisation that was
controlled by non-physicians.
Rules regulating how professionals can work with para-professionals and institutions
have sometimes been used to prevent them from competing, rather than to assure high quality care. For example, professionals have used control over medical payment plans or insurance firms to discriminate against potentially threatening competitors. They have done so by denying coverage or reimbursement to work by or through non-traditional providers.
Common situations leading to antitrust law complaints is “peer review” and decisions about granting hospital staff privileges.
Professionals may be called on to evaluate the quality of each other’s
performance…this is used to coerce fee uniformity or is a mask for barring entry.
National and international reforms to encourage trade:
Barriers to the international practice of professional business services abound. Some may be the result of laws and regulations explicitly discriminatory against Foreign Service providers. In addition, some facially non-discriminatory regulations, in effect penalise foreigners and act as de facto obstacles. For example, restrictions on the right to own or invest in an accounting firm requiring that the owner or investor hold a local professional license prevent foreign entry. And international provision of professional services can be restricted on capital movements and immigration, and national competition policy.
Existing restrictions: cross-border supply, commercial presence, and movement of natural persons.
1-Nationality and local presence requirements:
Requiring nationality or citizenship as a condition of professional practice is clearly
discriminatory. As such measures do not serve as an indicator of the quality-level of a service provider….Lawyers and accountants are subject to local presence requirements almost everywhere.
2-Restrictions on investment and ownership:
a. limitations on participation of non-professional investors in professional service enterprises. , allegedly to ensure the quality of service and the independence of professionals with respect to outside interests tempted to use their influence on the enterprise to create unfair advantages for themselves.
b. limitations on investment by foreign professionals….in reality, these are Discriminatory barriers to entry.
Restrictions requiring that one or more partners in a firm be nationals or residents may also
prevent firms from opening branches or subsidiaries or from taking over local firms.
Restrictions on the use of a firm’s name may also affect a firm’s decision to establish. A firm’s
ability to attract customers may be seriously limited if it cannot realise the benefits of the goodwill embodied in its name. The requirement to hold a local licence in order to invest in or own a firm virtually excludes foreign investment.
3- Restrictions on the exercise of professional activities:
Regulations defining the nature of practice, is particularly difficult to deal with on an international basis.
In legal services, some countries permit foreign lawyers to practice under a licence restricting the scope of practice. These restrictions may even be detrimental to the local profession, by depriving it of competitive advantages in the export of legal services to international clients. Inconsistencies in regulatory treatment may create problems about competence and also may affect professional liability.
4- Recognition of qualifications:
Many countries now require that foreign professionals and national candidates pass the same
examinations.
re-qualification requirements is a de facto discrimination, since differences in position and level between a student and a professional are not taken into account i
It is also central to professionals required to obtain a full licence even if they only intend to
provide part of the bundle of activities performed by a fully licensed professional, notably because the professional only performs temporarily an activity abroad.
International agreements and reforms
oecd General Principles
• The aim of domestic regulation should be to maintain quality of service and to protect consumers by means that are not more burdensome than necessary to achieve legitimate policy objectives and that do not unnecessarily impede domestic and international competition;
• Discrimination against foreign professionals and investors should be avoided;
• Market access should be based on transparent, predictable and fair procedures.
• Professional service providers should be free to choose the form of establishment, including
incorporation, on a national treatment basis. Alternatives to restrictions on forms of establishment
• Restrictions on partnership of foreign professionals with locally licensed professionals should be removed, starting with the right to temporary associations for specific projects.
• Restrictions on market access based on nationality and prior residence requirements should be removed.
• Restrictions on foreign participation in ownership of professional services firms should be reviewed and relaxed.
• Subject to availability of professional liability guarantees or other mechanisms for client protection, local presence requirements should be reviewed and relaxed.
• National regulatory bodies should co-operate to promote recognition of foreign qualifications and competence and develop arrangements for upholding ethical standards.
The General Agreement on Trade in Services (GATS), 1995
The GATS Working Party on Professional Services (WPPS)
The North American Free Trade Agreement (NAFTA), which entered into force on
1 January 1994 to establish a new trading framework for Canada, the United States and Mexico, also introduces a set of disciplines for professional services
Conclusions
it is recommended that Member countries examine rules and practices to increase
economic competition. In particular, governments, especially competition authorities, should rescind or modify regulations that unjustifiably prevent entry and fix prices, and that prohibit truthful, non-deceptive advertising about prices and service offerings.
In addition, it is recommended that Member countries make competition law applicable, subject to safeguards to ensure consumer protection. To do this, government should rescind or modify exemptions of the professions and their self-regulatory bodies from the generally applicable competition law, consistent with preserving sufficient oversight to ensure adequate quality of service. This may require action both by national and sub-national (state and provincial) authorities.
Member countries should develop innovative regulatory approaches. Regulatory bodies should revise restrictions on entry, affiliation, and business forms if they unnecessarily prevent entry, including entry by foreign professionals. Alternative rules, such as insurance, bonding, client restitution funds, or disciplinary control at the point of original licensing could provide adequate protection while permitting greater competition. Member countries may also consider the revision of rules, which unduly restrict the freedom of professionals to associate with other practitioners and to adopt innovative, more efficient organisational forms.
The development of Mutual Recognition Model Agreements (MRAs) for the professions is a
potentially promising approach. A broad-based approach covering the various facets of “professional qualifications” such as educational qualifications, competence, and skills, could be applied. Care must be taken that MRAs do not inhibit pro-competitive national reforms by indirectly reinforcing an unsatisfactory status quo, however. Multilateral consideration could also be given to development and adoption of core requirements regulating access to services and activities, which, if widely used, could increase transparency, reduce user costs, and stimulate competition. The OECD could play a role in these processes. Whether and how to associate sub-national governments into negotiations and how to ensure workable application of negotiated outcomes in practice may also merit consideration. This issue will be of direct concern to countries in which federal governments conduct negotiations and are usually legally responsible for the enforcement of international commitments but where sub-national governments have de facto jurisdiction over the professions.
Advancing liberalisation of international trade and investment in professional services is an
important component of regulatory reform. Accordingly, Member countries should implement the policy recommendations reached by the Third OECD Workshop on Professional Services held on 20-21 February 1997:
a) professional service providers should be free to choose the form of establishment, including
incorporation, on a national treatment basis, as alternative measures are available to safeguard personal liability, accountability, and independence of professional service providers;
b) restrictions on partnership of foreign professionals with locally-licensed professionals should be removed, starting with the right to temporary associations for specific projects;
c) restrictions on market access based on nationality and prior residence requirements should be removed;
d) restrictions on foreign participation in ownership of professional services firms should be reviewed and relaxed;
e) local presence requirements should be reviewed and relaxed subject to availability of professional liability guarantees or other mechanisms for client protection; and
f) national regulatory bodies should co-operate to promote recognition of foreign
qualifications and competence and develop arrangements for upholding ethical standards.
Application of the TPA to the professions:
Restrictive trade practices: (Part IV) of the TPA, prohibits:
• anti-competitive agreements and exclusionary provisions, including primary and secondary
boycotts and price-fixing;
• misuse of market power;
• exclusive dealing;
• resale price maintenance; and
• mergers which would have the effect, or likely effect, of substantially lessening competition
in a substantial market.
Consumer protection – Part V of the TPA
prohibitions on advertising that is false or misleading or makes false representations.
Up until recently, many of the professions were prevented or restricted from engaging in
advertising for their services under self-imposed regulatory rules. as professionals begin to engage in advertising , they must ensure that their conduct does not contravene Part V of the TPA.
Penalties and remedies
Restrictive trade practices
The following sanctions are available in the Federal Court for contraventions of the restrictive
trade practices provisions of the TPA:
• monetary penalties of up to $A10 million for corporations and $A500 000 for individuals, per
offence;
• injunctions;
• damages;
• divestiture of illegally acquired shares or assets;
• ancillary orders of various kinds in favour of persons who have suffered loss or damage
because of the conduct (including specific performance and rescission and variation of
contracts).
Consumer protection
The following sanctions are available in the Federal Court for contraventions of the consumer
protection provisions of the TPA:
• monetary penalties of up to $A200 000 for corporations and $A40 000 for individuals, per
offence;
• injunctions;
• damages;
• corrective advertising;
• ancillary orders of various kinds in favour of persons who have suffered loss or damage
because of the conduct (including specific performance and rescission and variation of
contracts).
authorisation:
The ACCC has a balancing [rm] function. Recognising that, in some instances, anticompetitive practice’s wpi can outweigh the anti-competitive detriments, the TPA empowers the ACCC to authorise some forms of anti-competitive conduct (with the exception of the misuse of market power) that would otherwise be at risk of contravening Part IV of the TPA. If the ACCC authorises such conduct, it is immune from legal action by the ACCC or by private parties.
The ACCC has identified several forms of regulation of professional markets likely to
inhibit competition and therefore raise concerns under the TPA. These forms of regulation impact competition in two ways:
a. through their effects on the structure of the relevant professional market;
b. on the market conduct of professional practitioners.
Structural regulations of professional markets include those which:
• regulate entry into the market (including the imposition of educational and competency
standards, licensing and certification requirements, and restrictions on entry by foreign
professionals and para-professionals);
• define the field of activity reserved for licensed or certified professional practitioners;
• separate the market functionally into discrete professional activities (including those
performed by accredited specialists such as insolvency practitioners, barristers and medical
specialists); and
• impose restrictions on the ownership and organisation of professional practices.
Conduct regulations include those which:
• limit the fees professionals may charge, or require the application of fee scales, for particular professional activities;
• prohibit certain kinds of advertising, promotion or solicitation of business by professional
practitioners; and
• specify professional and ethical standards to be observed by, and disciplinary procedures to apply to, professional practitioners.
Price Waterhouse / Coopers & Lybrand:
The ACCC decided on 13 March 1998 not to oppose the international merger between two of the world’s ‘Big Six’ accounting firms – Price Waterhouse and Coopers & Lybrand. It was considered that effective competition from the remaining ‘Big Five’, second tier firms and suburban tax accountants; significant countervailing power by large corporate clients; and the threat of tendering processes, all combined to ensure the likelihood that competition would not be substantially lessened in Australia as a result of the merger.
as competition is introduced into professional sectors, incentives arise for firms to gain an advantage over their competitors, by engaging in misleading, deceptive and unfair practices
ec and ecj :
dismissed the defence that both individual professionals and their associations should be exempted from cl. held: professionals are undertakings. the public nature of professional associations .eg sra, does not prevent the scrutiny of their actions when they engage in the co-ordination of members’ economic behaviours.
the involvement of professional bodies in the determination of fees was gone well beyond the boundaries set by the law. the professional bodies had infringed cl and that in the future they should refrain from making agreements to determine structure and level of fees.
ec intervened against the prof.association with Article 85 eu treaty, together with other articles of the Treaty….To explain ec’s long silence, ec said they may lack competence when it comes to national restrictions . for the eu Treaty on competition to apply, the restrictions must have an effect on interstate trade;
General discussion
what is the minimum level of professional regulation needed?
if a lot of importance goes on the quality assurance role, the question of who will provide it remains, and the market for quality assurance might not be very competitive.
regulation of quality of service conceales an economic regulation . wer should also avoid a paternalistic excess of quality regulation.
professional service markets are just like markets for any other goods and services
there is plenty of evidence that where regulation on quality has been removed, price has gone down, with no indication that the level of quality of services has decreased. In terms of a
market failure for information of quality, this can be accomplished without the need for government regulation.