For Opinion See 5 F.3d 658

Briefs and Other Related Documents

United States Court of Appeals,Third Circuit.
UNITED STATES OF AMERICA, Plaintiff-Appellee,
v.
BROWN UNIVERSITY, et al., Defendants.
Massachusetts Institute of Technology, Appellant.
No. 92-1911.
December 14, 1992.

Appeal from the United States District Court for the Eastern District of Pennsylvania Civil No. 91-CV-3274

Brief Amicus Curiae for the Association of Alumni and Alumnae of the Massachusetts Institute of Technology in Support of Appellant
Donald K. Joseph, Wolf, Block, Schorr and Solis-Cohen, S.E. Corner 15th and Chestnut St., Philadelphia, PA 19102-2678, (215) 977-2140, Attorney for the Amicus.
*1 The Association of the Alumni and Alumnae of the Massachusetts Institute of Technology submits this brief amicus curiae in support of the appellant, Massachusetts Institute of Technology.

Statement of Issues Presented

1. Whether coordination among non-profit educational institutions to allocate charitable dollars on the basis of need restrains “trade or commerce” within the meaning of the Sherman Act?

2. Whether quality enhancement is a legitimate justification that must be considered in a rule of reason analysis?

*2 The Amicus

The Association of Alumni and Alumnae of the Massachusetts Institute of Technology (“the Association”) is a separately incorporated non-profit, 501(c)(3) corporation. Organized originally in 1875, the Association membership consists of approximately 90,000 men and women who have attended the Massachusetts Institute of Technology (“MIT”). The Association is not legally affiliated with MIT.

The Association is governed by a 28 person board of directors, all of whom are graduates of MIT. Twenty-four directors are appointed by a National Selection Committee, which in turn is elected by the Association members. The Association has 90 full-time staff and its CEO and Executive Vice President serves in a full-time capacity. The president of the Association serves as a volunteer and is selected by the National Selection Committee. This brief is submitted upon a vote of the Association's board of directors.

The Association Board meets quarterly to help determine Association strategy and objectives, to review plans and policies and to approve Association budgets and financial plans. The Association has a wide range of responsibilities including but not limited to developing alumni/ae leaders, providing financial support to MIT, and providing selected services to alumni/ae.

Statement of Interest

Overlap involved a joint effort by a number of top private colleges and universities to regularize aid awards to commonly admitted applicants in order to *3 ensure that aid did not exceed need, and that all financial need was satisfied. The legality of this practice under the Sherman Act centers around the essential charitable nature of these institutions, and their important social mission of providing high quality education to today's youth and tomorrow's leaders.

It is beyond dispute that one important determinant of the quality of the educational program of a given university is the composition of that school's student body. The educational experience is significantly impacted by both the ability and the diversity of backgrounds and perspectives contained within the student body. Overlap was a rational mechanism for responsibly allocating limited charitable resources in a way which enabled the schools to maximize the educational values of merit and diversity.

The Association of Alumni and Alumnae of the Massachusetts Institute of Technology is in a unique position to comment on these issues. MIT's alumni/ae are substantial beneficiaries of the high quality of the educational program at MIT. As graduates of one of the premiere scientific and engineering schools in the world, the alumni/ae have had many doors opened to them as a result of their MIT education. MIT's alumni/ae are the principal donors which enable MIT to be charitable and to provide need-based scholarships and aid. As a group they are also the product of the diversity and quality the Overlap policy promoted.

MIT alumni/ae can be found among the ranks of nobel prize winners, renowned scientists and researchers, and in leadership positions throughout the *4 world. The benefits conferred by an MIT education, therefore, are not limited solely to those who have graduated from MIT, but also are bestowed upon the members of society, who benefit from the knowledge and training of MIT alumni/ae.

Having experienced an MIT education and applied it to the real world circumstances, the members of the Association are in a unique position to emphasize the factors that are important to sustaining a high quality education at MIT, and to discuss the role of admissions and financial aid in obtaining a student body that is characterized by its merit rather than by the financial resources of the students' parents. MIT has enrolled students based solely on merit and provided financial assistance solely on need. This policy had enabled meritorious but poor students to attend MIT and has resulted in a highly capable and diverse student body.

MIT's alumni/ae are a primary source of charitable funding for MIT's educational programs. It is their contributions, and the income derived therefrom, that enable MIT to subsidize tuition for all students, and to ensure financial aid for those requiring additional subsidies in order to attend. Last year, for example, the alumni/ae of MIT contributed $39,000,000 in individual gifts to MIT. Recognizing the importance of enrolling highly qualified students regardless of their financial circumstances, many of the alumni/ae target their charitable donations to support MIT's need-based financial aid programs.

Summary of Argument

The trial court held that MIT's participation in cooperative financial aid practices designed to preserve limited charitable aid dollars for those in need was sufficiently commercial to subject it to analysis under the Sherman Act. The court reached this conclusion after it characterized the distribution of financial aid as a commercial “discount.” Opinion at 26. In its assessment, however, the court erroneously ignored evidence regarding the essential nature of MIT and of the challenged practice. Had it not done so, it would have had to conclude that Overlap was not subject to the Sherman Act.

The court then applied the truncated rule of reason developed under the Act to determine whether Overlap was reasonable. In conducting this analysis, however, the court excluded from consideration MIT's justification that Overlap enhanced the quality of education for all students at participating schools.

It is the view of the Association that proper consideration of the educational and charitable nature of MIT, and of the goals that motivated it to participate in Overlap, can lead to only one conclusion: Overlap is a charitable practice and not a commercial activity, and thus it is not subject to the Sherman Act. Moreover, if the Sherman Act is applied to conduct engaged in by non-profit educational institutions which intend to achieve educational and social objectives, a court must consider the quality enhancing justifications for the conduct when assessing its reasonableness.

*6 ARGUMENT

A. The Sherman Act Does Not Reach Educationally Motivated Charitable Conduct Such As Overlap.

1. Case law requires an analysis as to whether the law applies.

Based upon the legislative history of the Sherman Act and the relevant case law, it appears to be an axiomatic principle that the Sherman Act was not intended to apply to conduct that is motivated by charitable and educational objectives and where the effect is upon the charitable component of the conduct. See Apex Hosiery Co.v. Leader, 310 U.S. 469, 493 n.15 (1940) & Parker v. Brown, 317 U.S. 341 (1943) (emphasizing that the antitrust laws are aimed against “business arrangements” designed to restrain “business competition”); Marjorie Webster Junior College, Inc. v. Middle States Ass'n of Colleges and Secondary Schools, Inc., 432 F.2d 650, 654 (D.C. Cir.), cert. denied, 400 U.S. 965 (1970) (Sherman Act does not apply to “the noncommercial aspects of the liberal arts”); Ass'n for Intercollegiate Athletics for Women v. NCAA, 588 F. Supp. 487, 494 (D.D.C. 1983), aff'd, 735 F.2d 577 (D.C. Cir. 1984) (“eleemosynary organizations .... are not engaged in the sort of trade or commerce the Sherman Act originally contemplated”). Accordingly, the Association will not repeat the legal arguments on which this proposition is based, but rather will focus its discussion on the noncommercial nature of MIT and of the challenged practice.

*7 2. Overlap focuses on educationally motivated charity not subject to the Sherman Act.

It is a matter of common sense that the activities being challenged in this case are readily distinguished from the kind of commercial activities engaged in by businesses which the Sherman Act was intended to govern. One need only look at the role which education plays in our society, and the manner in which non-profit educational institutions operate, to reach this conclusion.

Education is not a commercial commodity. It is well accepted that education serves an important social function in our society, and in many ways serves as a “public good.” The benefits of education are bestowed not only on the students who receive it, but on society as well, which benefits from the enhanced productivity of its members. Major research universities such as MIT play a unique role in this regard. Scientific research, for example, is critical to our national defense, and advancements in science and technology produced by research universities and their alumni/ae have made the United States a principal competitor in the world marketplace.

Moreover, the manner in which non-profit universities are funded distinguishes them from commercial enterprises. To apply unthinkably the commercial principles of the Sherman Act to the use of the charitable portion of such non-profit universities is a gross disservice to these non-profits and to the public at large. The monetary calculations of education at non-profit universities *8 are not made like they would be in the commercial marketplace. There is no goal of maximizing profits. Indeed, there is no profit. At such universities, for example, tuition is set significantly below cost in order to make the schools accessible to more students. (Gray Tr. 575: 6-12). Thus, a significant amount of revenues for the education extended, come, not from consumers, but from outside sources such as the alumni/ae, other benefactors, and even the government. The same cannot be said for commercial businesses.

Further, the spirit of cooperation that exists within and among universities is alien to the commercial world both as a value and because of the Sherman Act. As a result of their shared values, as well as the open nature of educational environments, colleges and universities historically have exchanged ideas and engaged in cooperative efforts regarding all aspects of their institutions. (Bowen Tr. 1028: 24-1031: 10; 1033:9-1034:8). For example, as Dr. William Bowen explained at trial, maintaining the vitality of the higher education research library system requires that schools coordinate acquisitions to ensure that limited resources will not be wasted on duplications. (Bowen Tr. 1029: 12-25; 1030: 17-24). As resources become even more scarce, such cooperation undoubtedly will become even more essential to maintaining excellence in education and in research for which major universities like MIT have become world renown.

The coordination of financial aid practices among Overlap schools being challenged in this case is another example. It demonstrates the way in which schools have worked cooperatively to allocate limited charitable resources to *9 maximize shared educational values and indeed values of the society at large. The goal to establish diversity based on talent and not ability to pay is in part a reflection of Congress' policy as seen in the Civil Rights laws, and even more dramatically in the federal statutes that govern the distribution of federal monies for financial aid. See Higher Education Amendments of 1986, Pub. L, No. 99-498 (1986).

As more fully described below, this practice had a significant effect on both the quality and diversity of the students who attended Overlap schools. Overlap was an educationally and charitably motivated practice and its effect was specifically on the charitable portion of the cost to students of education at these not-for-profit institutions: the scholarships and loans for which applicants were seeking aid. By failing to understand both the purpose and effect, the court erroneously characterized Overlap as commercial in nature and wrongly subjected it to the Sherman Act. See Marjorie Webster Junior College, Inc. v. Middle States Ass'n of Colleges and Secondary Schools, Inc., 432 F.2d 650 (D.C. Cir.), cert. denied, 400 U.S. 965 (1970).

B. The Trial Court Erred in Failing to Consider the Quality-Enhancing Effects of Overlap.

1. Case law requires such consideration.

After concluding that Overlap was subject to the Sherman Act, the court then proceeded to find that Overlap was unreasonable and therefore violated the Sherman Act. In doing so, the court erred by failing to consider all of the factors *10 that must be evaluated in a rule of reason analysis.

It is well-established that in applying the rule of reason a court must consider both the effects of the challenged conduct as well as the justifications for that conduct to determine whether it is reasonable.[FN1] Courts consistently have recognized quality enhancement as one of the many legitimate justifications that must be considered when making this determination. See, e.g., NCAA v. Board of Regents of the Univ. of Okla., 468 U.S. 85 (1984) (noting that NCAA regulations that preserve character and quality of the “product,” intercollegiate athletic competition, can be viewed as pro-competitive); Town Sound & Custom Tops, Inc. v. Chrysler Motors Corp., 959 F.2d 469 (3d Cir.), cert. denied, __ U.S. __ (1992) (noting that tie-in may serve procompetitive purpose such as quality control); Graphic Products Distributors v. Ilete Corp., 717 F.2d 1560 (11th Cir. 1983) (citing product safety and quality as examples of pro-competitive rationales for vertical restrictions on intraband competition).

FN1. The criteria for scrutinizing the legality of a restraint under the rule of reason was articulated by the Supreme Court in Chicago Board of Trade v. United States, 246 U.S. 232, (1918):
The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition. To determine that question the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, are all relevant fact.
Id. at 238 (emphasis added).

*11 If the trial court's decision is upheld, the result will provide an ultimate irony; it will confirm as a higher value, promoting athletics over quality and diversity of student bodies. For intercollegiate athletic competition, universities are encouraged to agree on competition, setting limits on the amounts of scholarship and aid for “scholar athletes;” yet, courts will have struck down the Overlap process designed to assist in promoting need-blind admissions and aid based on need.

1. Overlap improved quality at the participating schools.

At trial several leading educators testified that by improving the quality and diversity of the student body, Overlap improved the overall quality of education offered at the participating schools. Whether the quality-enhancing attributes of Overlap are viewed as pro-competitive justifications or as noneconomic justifications, they must be considered when assessing the reasonableness of Overlap. The trial court's failure to do so was clear error.

2. Overlap enabled MIT to enroll the most qualified and diverse student body.

The evidence at trial established a reputation of which this Court could probably take judicial notice: MIT is committed to excellence in education and research with its focus in the areas of science and technology. As one of the premier research and educational institutions in the world, MIT attracts the best and brightest students, see Opinion at 4, and has received national recognition for its research endeavors. The last time there was a ranking by the National Academy of Science and Engineering, MIT was represented in 17 of the 30 fields that the Academy appraised. Of these, MIT was ranked first in the nation in *12 seven of those categories and placed with the top ten in 16 out of the 17 categories. (Gray Tr. 867: 23 - 868: 6).

As in any university, the quality of MIT's academic and research programs are influenced by the quality and character of its student body. (Gray Tr. 868: 7-21). Leading educators, experts and students all agree that the quality of a student's educational experience is enhanced by both the academic ability and the diversity of views that are found in the student body. (Keohane Tr. 16-19; 972: 24 through 973: 7; Routh Tr. 361: 18 through 362: 1; Bowen 1046A: 18 through 1046B: 1; Widmer Tr. 1470: 11 through 1471: 8). Even the Supreme Court has taken notice that “the atmosphere of speculation, experiment and creation so essential to the quality of higher education is widely believed to be promoted by a diverse student body.” Regents of the University of California v. Bakke, 438 U.S. 265, 312 (1978). This well-established educational principle was accepted by the trial court which stated:
[It cannot] be denied, as the testimony of several witnesses attested, that cultural and economic diversity contributes to the quality of education and enhances the vitality of campus life.

Opinion at 46.

In an effort to maintain its reputation for excellence, MIT is committed to enrolling both an academically able and socioeconomically diverse student body. In the academic arena, for example, in the 1991-92 academic year, one-third of the 880 MIT freshman who had high school ranks were valedictorians and 83% were in the top 5% of their high school classes. Among the entering class, 50% *13 had math SAT scores above 750 (out of a possible 800) and 80% had math scores over 700. Opinion at 4. In the same year, approximately 44% of the undergraduates were from American minority groups. By contrast, three decades ago, little more than 3% or 4% of MIT's undergraduate student body were from American minority groups. Opinion at 5-6.

MIT's ability to attract and enroll such a diverse and high calibre student body is closely tied to its admissions and financial aid policies. Because “brains [are not] distributed solely on the basis of the affluence of the family,” (Fleming Tr. 807: 6-7), a need-blind admission system that does not consider the applicant's ability to pay is essential to identifying and admitting the most qualified applicants. (Keohane Tr. 959: 15-960: 13; Gray Tr. 876: 1-6; Widmer Tr. 1465: 11-20).

Need-blind admissions, however, is only the first step to enrolling the best and brightest students and maintaining a diverse student body. As high school counselors explained at trial, unless students are provided the financial means to attend an institution, they are effectively excluded from the institution even though they may have been offered admission. (Somerville Tr. 1562: 18-1563: 13; Sanchez Tr 1536: 6-1538: 2). The policy of providing admitted students with financial aid to the full extent of their need (full-need aid), is what makes the admissions process “real” to highly qualified but financially needy students. (Somerville Tr. 1562: 18-1563: 13). It is through this policy that poor but exceptionally bright students are able to accept an offer of admission at a high *14 quality institution that will challenge them to reach their highest potential.

Through its policies of need-blind admissions and full-need aid, MIT consistently has been able to enroll a highly qualified and diverse student body. This in turn has enhanced the quality of the educational experience for all students and thus enabled MIT to maintain its commitment to excellence in education and research, benefiting both the students it educates as well as society, which benefits from the advancements in science and technology.

The evidence at trial established that Overlap limited the distribution of scarce charitable resources to those in need. It forced competition to be on the merits of the participating institutions. In doing so, Overlap was helpful in enabling MIT and the other Overlap schools to continue their practices of need-blind admissions and need-based aid. Because of limited charitable resources at least one of the participating institutions, Brown University, was unable to follow need-blind admissions. (Widmer Tr. 1464: 3-25). Without Overlap there will be a further tendency to have these limited charitable resources misdirected away from those with need. Given that these policies undoubtedly improved the quality of education for all students who attended MIT by enhancing the quality and diversity of the student body, Overlap served a legitimate purpose that should have been considered by the trial court. When the quality enhancing attributes of Overlap are considered it will be evident that Overlap is reasonable.

*15 Conclusion

For the foregoing reasons, this Court should find in favor of MIT and reverse the decision below.

UNITED STATES OF AMERICA, Plaintiff-Appellee, v. BROWN UNIVERSITY, et al., Defendants. Massachusetts Institute of Technology, Appellant.
1992 WL 12132455 (C.A.3) 

Briefs and Other Related Documents(Back to top)

• 1993 WL 13120271 (Appellate Brief) Brief for Appellee United States of America (Jan. 20, 1993) Original Image of this Document (PDF)
• 1992 WL 12132453 (Appellate Brief) Brief Amicus Curiae for Twelve Non-Profit Higher Education Associations in Support of the Massachusetts Institute of Technology (Dec. 14, 1992)
• 1992 WL 12132454 (Appellate Brief) Brief for the Defendant-Appellant Massachusetts Institute of Technology (Dec. 14, 1992)
• 1992 WL 12132456 (Appellate Brief) Brief of Amici Curiae The School District of Philadelphia, et al. (Jan. 01, 1992) Original Image of this Document with Appendix (PDF)

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