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 in Providence in the State of Rhode Island and Providence Plantations, et al., Defendants,
Massachusetts Institute of Technology, Defendant-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 Twelve Non-Profit Higher Education Associations in Support of the Massachusetts Institute of Technology
Of Counsel: Sheldon E. Steinbach, American Council on Education, One Dupont Circle, N.W., Washington, D.C. 20036, (202) 939-9355.Eugene D. Gulland, Covington & Burling, 1201 Pennsylvania Avenue, N.W., P.O. Box 7566, Washington, D.C. 20044, (202) 662-5504, Counsel for the Amici.

*i TABLE OF CONTENTS

STATEMENT OF ISSUES PRESENTED ... 1

PRELIMINARY STATEMENT ... 2

INTEREST OF THE AMICI ... 3

STATEMENT OF FACTS ... 5

ARGUMENT ... 7

I. THE DISTRICT COURT ERRED IN CONCLUDING THAT AGREEMENTS CONCERNING THE AWARD OF CHARITABLE FINANCIAL AID RESTRAIN “TRADE OR COMMERCE” UNDER THE SHERMAN ACT ... 7

 A. The Plain Language of the Sherman Act Does Not Regulate Charitable Financial Aid. ... 8

 B. The Sherman Act Does Not Apply to Noncommercial Activities of Non-Profit Organizations Having “Incidental” Effects on Commerce. ... 9

  1. The District Court Ignored that the Sherman Act Does Not Apply to Non-Profit Entities that Combine to Achieve Noncommercial Objectives. ... 9

  2. The District Court Misread the Judicial Decisions on Which it Relied ... 15

  3. The District Court's Decision Improperly Requires Non-Profit Organizations to Justify Noncommercial Conduct by Reference to Competitive Market Standards. ... 18

II. APPLICATION OF THE SHERMAN ACT ON THE FACTS FOUND BY THE DISTRICT COURT INFRINGES MIT'S FIRST AMENDMENT RIGHTS OF ACADEMIC FREEDOM ... 22

 A. The First Amendment Protects the Exercise of Academic Freedom, Which Embraces The Right of Schools to Select Those Who Are to Be Admitted to Study. ... 22

*ii  B. The District Court's Application of the Sherman Act Infringed MIT's Academic Freedom on the Facts of This Case. ... 23

CONCLUSION ... 25

APPENDIX A: DESCRIPTION OF THE AMICI

APPENDIX B: WRITTEN CONSENTS OF THE PARTIES TO THE FILING OF THIS BRIEF

*iii TABLE OF AUTHORITIES

Cases

American Society of Mechanical Engineers v. Hydrolevel Corp., 456 U.S. 556 (1982) ... 16

Apex Hosiery Co. v. Leader, 310 U.S. 469 (1940) ... passim

Association for Inter. Ath. for Women v. NCAA, 735 F.2d 577 (D.C. Cir. 1984) ... 18

Cantwell v. Connecticut, 310 U.S. 296 (1940) ... 25

College Athletic Placement Service v. NCAA, 1975-1 Trade Cases (CCH) ¶  60,117 (D.N.J. 1974), aff'd, 506 F.2d 1050 (3d Cir. 1975) ... 11

Donnelly v. Boston College, 558 F.2d 634 (1st Cir.), cert. denied, 434 U.S. 987 (1977) ... 11

Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961) ... 23, 24

FTC v. Indiana Federation of Dentists, 476 U.S. 447 (1986) ... 17, 19

FTC v. Superior Court Trial Lawyers' Ass'n, 493 U.S. 411 (1990) ... 13

Gaines v. NCAA, 746 F. Supp. 738 (M.D. Tenn. 1990) ... 18

Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975) ... 15, 16, 17

Hennessey v. NCAA, 564 F.2d 1136 (5th Cir. 1977) ... 18

Justice v. NCAA, 577 F. Supp. 356 (D. Ariz. 1983) ... 18

Keyishian v. Board of Regents, 385 U.S. 589 (1967) ... 23

Klor's. Inc. v. Broadway-Hale Stores, 359 U.S. 207 (1959) ... 10

Marjorie Webster Junior College, Inc. v. Middle Schools Ass'n of Colleges & Secondary Schools, 432 F.2d 650 (D.C. Cir.), cert. denied, 400 U.S. 965 (1970) ... passim

McCormack v. NCAA, 845 F.2d 1338 (5th Cir. 1988) ... 16, 18

Missouri v. National Organization for Women, 620 F.2d 1301 (8th Cir.), cert. denied, 449 U.S. 842 (1980) ... 13, 24

*iv NAACP v. Alabama, 377 U.S. 288 (1964) ... 25

NAACP v. Button, 371 U.S. 415 (1963) ... 24

NAACP v. Claiborne Hardware Co., 458 U.S. 886 (1982) ... 13, 17, 22, 24

NCAA v. Board of Regents of the University of Oklahoma, 468 U.S. 85 (1984) ... 18, 19, 21

National Org. for Women v. Scheidler, 968 F.2d 612 (7th Cir. 1992) ... 12, 14

National Society of Professional Engineers v. United States, 435 U.S. 679 (1978) ... 17, 19

Parker v. Brown, 317 U.S. 341 (1943) ... 10

Proctor v. General Conference of Seventh-Day Adventists, 651 F. Supp. 1505 (N.D. Ill. 1986) ... 13, 16

Regents of the University of California v. Bakke, 438 U.S. 265 (1978) ... 23

Regents of the University of Michigan v. Ewing, 474 U.S. 214 (1985), U.S. 438 ... 23

Schenck v. United States, 249 U.S. 47 (1919) ... 25

Selman v. Harvard Medical School, 494 F. Supp. 603 (S.D.N.Y.), aff'd, 636 F.2d 1204 (2d Cir. 1980) ... 12, 16

Sweezy v. New Hampshire, 354 U.S. 234 (1957) ... 23

Tunis Bros. Co. v. Ford Motor Co., 952 F.2d 715 (3d Cir. 1991), cert. denied, 112 S. Ct. 3034 (1992) ... 21, 24

United Mine Workers v. Pennington, 381 U.S. 657 (1965) ... 24

United States v. Ron Pair Enterprises, Inc., 489 U.S. 235 (1989) ... 8

Welch v. American Psychoanalytic Ass'n, 1986-1 Trade Cases (CCH), ¶  67,037 (S.D.N.Y. 1986) ... 16, 18

Statutes

Sherman Act, §  1, 15 U.S.C. §  1 ... passim

*v Miscellaneous

Byrne, “Academic Freedom: A ‘Special Concern of the First Amendment,’ ” 99 Yale L.J. 251, 333 n.325 (1989) ... 24

21 Cong. Rec. 2457, 2459, 2561, 2562 (1890) ... 9

*1 Twelve higher education organizations submit this brief amicus curiae in support of the appellant, Massachusetts Institute of Technology ((“MIT”).[FN1] This brief is filed with the written consent of all parties. (See Appendix “B”.)

FN1. The twelve amici are: the American Council on Education; the Association of American Medical Colleges; the Association of American Universities; the Association of Catholic Colleges and Universities; the Association of Jesuit Colleges and Universities; the College Board; the Council of Independent Colleges; the National Association of Independent Colleges and Universities; the National Association of State Universities and Land-Grant Colleges; the National Association of Student Financial Aid Administrators; the National Association of Student Personnel Administrators; and the United Negro College Fund. (See Appendix “A” for a description of the amici.)
STATEMENT OF ISSUES PRESENTED

1. Whether agreements among non-profit educational institutions to award charitable financial aid on the basis of particular criteria of demonstrated need restrain “trade or commerce” within the meaning of Section 1 of the Sherman Act, 15 U.S.C. §  1.

2. Whether the First Amendment's protection of academic freedom precludes Section 1 of the Sherman Act from forbidding such agreements concerning financial aid (i) whose purpose is demonstrably educational rather than commercial and (ii) where there is no finding that they have raised prices or diminished output.

PRELIMINARY STATEMENT

The district court held that MIT violated the Sherman Act by agreeing with eight other universities on common standards and practices for awarding charitable financial aid to undergraduate students. Each school agreed that assistance should be awarded strictly on the basis of a student's demonstrated need. In this way, MIT and the others implemented during the past 35 years a remarkably successful policy of “need-blind admissions” under which qualified applicants were not turned away because of their inability to pay tuition.

The district court's unprecedented decision recognized no distinction between the non-profit colleges' agreement about charitable financial assistance, and illegal price fixing (or similar) agreements implemented by such for-profit enterprises as law firms, construction engineers, or dental practitioners. The court rejected as “irrelevant” the evidence showing that participating colleges neither sought nor received any financial benefit from the “revenue neutral” financial aid agreements, even though that evidence proved their charitable purpose and effect. The court instead accepted the Government's conclusory characterization that such assistance is merely a “discount” off the “market price” for a college education. (Op. 26 [App. 475].)

Because it treated the charitable activities of non-profit educational institutions as if they were simply another form of commercial conduct governed by the antitrust laws, the district court necessarily invoked the principle that “restraints” on business competition can never be justified by “non-economic designs.” (Op. 43 [App. 492].) This shows how fundamentally the decision below distorted the antitrust laws. It transformed the Sherman Act from a regulation of “trade or commerce” into a command that eleemosynary institutions must conduct their collective charitable and educational activities under the rules that have been tailored to regulate for-profit “trade or commerce.”

The twelve amici who submit this brief challenge the district court's decision because it misapplies the antitrust laws and stifles legitimate and important non-commercial goals such as those promoted by financial aid agreements.

INTEREST OF THE AMICI

The twelve amici are leading non-profit organizations committed to the advancement of higher education in the United States. They represent the interests of students, faculty, administrators and educational institutions themselves. Appendix “A” to this brief identifies the amici and describes the role they play in college admissions, financial aid, and higher education.

If allowed to stand, the district court's decision would outlaw one of the most successful educational achievements of the last generation: the opening of some of the nation's leading private colleges and universities to talented students without regard to their ability to *4 pay tuition fees. As the district court found, MIT and other members of the “Ivy Overlap Group” agreed that awards of financial assistance should be based strictly upon need. (Op. 18 [App. 467].) MIT was accordingly able to use its available aid funds -- which themselves come from charitable donations -- to implement a need-blind admissions policy under which the school would meet the “full financial aid needs of attending students.” (Op. 5. [App. 454].) Because no one was denied admission because of inability to pay, MIT (like other schools) succeeded in building a diverse and talented student body. Some 44 percent of MIT's 1991-92 undergraduate enrollment consisted of minorities, by contrast with fewer than five percent thirty years ago. (Op. 5-6 [App. 454-55].)

Amici are aware of no non-profit college or university in the United States whose tuitions cover the full cost of educating under-graduates. MIT and other private institutions rely heavily on charitable donations (largely from alumni(ae)) and must generally charge higher tuitions than their state-sponsored counterparts. Yet by focusing their financial aid resources upon need-based assistance, MIT and like-minded schools have opened their doors to all qualified applicants and thereby broadened the opportunities of poor and disadvantaged youth.

During the trial below (and in its brief on appeal), MIT showed persuasively why its conduct has been entirely consistent with the antitrust laws under a traditional “rule of reason” analysis. While amici endorse MIT's argument, they believe that this Court need not reach that issue because the antitrust laws simply have no role in regulating the noncommercial conduct at issue in this case. To interpret the antitrust laws in the manner urged by the Government and accepted by the district *5 court is to apply economic jargon and theories of economic efficiency to activities that were never meant to be regulated as “trade or commerce” under the Sherman Act. Those who collectively engage in charitable, educational or other noncommercial activities must not be compelled to defend their legitimate noneconomic goals -- such as promoting educational diversity through “need-blind admissions” -- by reference to conceptions of economic efficiency. Nor should MIT be expected to present some econometric calculation of the social benefits of democratizing colleges that traditionally drew their students from a narrow stratum and denied them the educational and other benefits of learning and living with peers from different backgrounds.

STATEMENT OF FACTS

MIT is a private, non-profit educational institution that qualifies as a charitable, tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code. MIT's tuitions defray less than half the associated costs of its educational activities, which are conducted at a substantial operating loss. (App. 767.) To cover this deficit, and to provide financial assistance to the many students who cannot afford to pay the full amount of its tuition, MIT relies on charitable donations and income from its endowment. (Id.)

MIT's “need-blind” financial aid policy is not used to fill empty seats or to maximize revenues, because MIT receives six applications for every available space and could draw full classes without offering any financial aid. (App. 833, 973-74.) Rather, the financial assistance program has allowed MIT to recruit students who could otherwise never have *6 attended MIT, and has enabled MIT to draw students from many different social and economic backgrounds. (Op. 5-6 [App. 454-55].) MIT operates its financial assistance program on the tenets that both the quality of the educational process and society itself benefit when the student body is so diverse and talented. (App. 836-37.)

Since the late 1950's, MIT and eight Ivy League colleges have jointly subscribed to the principle that “ ‘the primary purpose of a college financial aid program is to provide financial assistance to students who without such aid would be unable to attend that institution.’ ” (Op. 11 [App. 460].) These schools are among the handful of private universities in the nation that have been able to couple need-blind admissions with the promise that the school will underwrite the financial aid needs of each student who is admitted. (App. 975, 985-89.) These institutions follow a common policy of awarding financial aid only on the basis of demonstrated criteria of need; not providing athletic or other merit scholarships; and engaging in periodic meetings and other communications to foster the uniform interpretation and application of the agreed financial aid need criteria. (Op. 12-13 [App. 461-62].)

At “Overlap” meetings each Spring, MIT and other participating schools discussed and usually agreed upon the application of their financial aid needs criteria to particular students admitted to two or more of the institutions. (Op. 15-17 [App. 464-66].) In this way, the participants concurred about the amount each student (and his or her family) could afford to pay before receiving need-based financial aid. (Id.) The schools never agreed on tuition levels or upon the amount and *7 composition of any financial aid packages to be offered. (Op. 18 [App. 467].)

ARGUMENT

First we show that the district court erred in holding that the agreement among MIT and other schools concerning the award of charitable financial assistance was a restraint of “trade or commerce” embraced by the Sherman Act. Then we demonstrate that, on the facts of this case -- which involve agreements having noncommercial objectives and no impact on prices or output -- the interest in academic freedom protected by the First Amendment precludes application of the Sherman Act.

I.

THE DISTRICT COURT ERRED IN CONCLUDING THAT AGREEMENTS CONCERNING THE AWARD OF CHARITABLE FINANCIAL AID RESTRAIN “TRADE OR COMMERCE” UNDER THE SHERMAN ACT

The antitrust law question presented by this case is straightforward and narrow: does the Sherman Act regulate agreements concerning charitable financial aid awarded to needy students by non-profit institutions of higher education? The only reasonable answer to this question is “no.” The Sherman Act forbids agreements “in restraint of trade or commerce.” 15 U.S.C. §  1. Charitable financial aid -- which is the exclusive focus of this case[FN2] -- is not “trade or commerce” *8 embraced by the Sherman Act. That conclusion emerges from the plain meaning of the statute and the cases construing it, and is reinforced by the district court's own findings of fact about the purposes and effects of the challenged financial aid practices.

FN2. There is no contention that MIT and the other schools agreed upon tuitions or other charges. The district court confirmed that the single issue presented by the Government's case is whether MIT and other schools “unlawfully conspired to restrain trade ... by collectively determining the amount of financial assistance awarded to students.” (Op. 1-2 [App. 450-51].)
A. The Plain Language of the Sherman Act Does Not Regulate Charitable Financial Aid.

We need not quote from the dictionary to say that “trade” and “commerce” are commonly understood as business activities conducted with an eye to profit (or at least “revenue maximization”). No reasonable interpretation of “trade or commerce” includes charitable activities by non-profit institutions. Charity is not a commodity or service that is bought or sold; it cannot be an article of “trade or commerce” regulated by the Act. Were it otherwise, non-profit hospitals caring for indigent patients would violate the antitrust laws by agreeing on the poor neighborhoods within which each will operate clinics (“territorial restrictions”). Or the United Way could be sued for treble damages by a disgruntled charity that was excluded from the city-wide fund drive (“group boycott” or “monopolization”).

This point alone is dispositive and requires reversal: “where, as here, the statute's language is plain, ‘the sole function of the courts is to enforce it according to its terms.’ ” United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 241 (1989) (citations omitted).

The Government can be expected to argue that MIT's financial aid is not charity, but a “discount” off the “list price” for “educational services.” (See Op. 26 [App. 475].) But as we show below, this is merely a characterization that is belied by the record. The evidence -- and the *9 district court's other findings -- establish that the financial aid offered by MIT and other schools was not offered for the purpose of increasing their revenues or filling empty seats. Their financial aid is bona fide charity awarded for noncommercial educational purposes.

B. The Sherman Act Does Not Apply to Noncommercial Activities of Non-Profit Organizations Having “Incidental” Effects on Commerce.

Beyond the district court's failure to recognize that charitable financial assistance is not “trade or commerce,” it overlooked that the Sherman Act was never meant to apply to noncommercial activities jointly undertaken by nonprofit institutions such as MIT, even if those activities have some incidental effects on “trade or commerce.”

1. The District Court Ignored that the Sherman Act Does Not Apply to Non-Profit Entities that Combine to Achieve Noncommercial Objectives.

That the Sherman Act was intended to reach only business or commercial combinations has been clear since Senator Sherman explained his proposal in the Senate more than 100 years ago. He repeatedly stressed that the law would target “business combinations” rather than noncommercial organizations such as the “Farmers' Alliance.” 21 Cong. Rec. 2562 (1890); see also 21 Cong. Rec. 2457, 2459, 2461. He assured his colleagues that there was no need to amend the proposed law to protect organizations seeking to boycott or discourage commerce in alcoholic beverages because the legislation was not intended to reach “temperance societies any more than churches or school-houses or any other kind of moral or educational associations that may be organized.” Id. at 2658-59. And he disavowed any interpretation of the bill that would regulate “a *10 combination, not of a business character,” that might have incidental effects on trade or commerce. Id. at 1458-59.

The district court's opinion gives short shrift to the principle, argued at length below, that the Sherman Act “is aimed primarily at combinations having commercial objectives and is applied only to a very limited extent to organizations ... which normally have other objectives.” Klor's, Inc. v. Broadway-Hale Stores, 359 U.S. 207, 213 n.7 (1959). This rule applies even where a noncommercial combination incidentally affects trade or commerce. Thus, in affirming one of this Court's decisions, the Supreme Court held that the Sherman Act does not regulate labor union organizational strikes aimed at blocking interstate shipments of products because collective efforts to organize workers are not among the Sherman Act's purpose of preventing “restraints to free competition in business and commercial transactions.” Apex Hosiery Co. v. Leader, 310 U.S. 469, 493 (1940). Similarly, the Supreme Court turned aside an antitrust challenge to a California statute creating agricultural marketing cartels by emphasizing Senator Sherman's statements that the Act was meant to reach “ ‘business combinations,’ ” not states. Parker v. Brown, 317 U.S. 341, 351 (1943).

Until the district court's decision, every court that has considered the question has ruled that the Sherman Act does not reach the activities of non-profit colleges and universities that associate for educational purposes. A leading case is Marjorie Webster Junior College. Inc. v. Middle Schools Ass'n of Colleges & Secondary Schools, 432 F.2d 650 (D.C. Cir.), cert. denied, 400 U.S. 965 (1970), in which the court of appeals rejected a proprietary college's challenge to the refusal of a *11 group of non-profit schools to accredit for-profit schools such as itself. The court explained that “accreditation is an activity distinct from the sphere of commerce; it goes rather to the heart of the concept of education itself.” 432 F.2d at 655. The court accordingly found that the antitrust laws were inapplicable even though the schools' noncommercial agreement might have adverse “incidental effects” on the school denied accreditation:
[T]he proscriptions of the Sherman Act were ‘tailored * * * for the business world,’ not for the noncommercial aspects of the liberal arts and the learned professions. In these contexts, an incidental restraint of trade, absent an intent or purpose to affect the commercial aspects of the profession, is not sufficient to warrant application of the antitrust laws. 432 F.2d at 654 (footnotes omitted).

Other cases not mentioned by the district court recognize the same principles. This Circuit followed Marjorie Webster in a case holding that colleges did not violate the Sherman Act when they agreed, through the NCAA, that student athletes who hired professional business agents would be banned from interscholastic competition. The incidental effect of this restriction on professional business agents and athletes “was motivated not by any anticompetitive motive or purpose to eliminate or damage [business agents], but to ensure that the academic admissions standards of the member institutions are not compromised.” College Athletic Placement Service v. NCAA, 1975-1 Trade Cases (CCH) ¶  60,117 at 65,266 (D.N.J. 1974), aff'd, 506 F.2d 1050 (3d Cir. 1975).

Similarly, in Donnelly v. Boston College, 558 F.2d 634, 635 (1st Cir.), cert. denied, 434 U.S. 987 (1977), the court of appeals observed in dicta that an antitrust challenge to exclusionary admissions *12 criteria established by a group of law schools seemed “otherwise deficient since defendants' law school activities do not have ‘commercial objectives.’ ” An analogous antitrust claim (alleging that medical schools conspired to deny admission to students who attended competing foreign institutions) was dismissed because admissions decisions are “distinctly non-commercial” and the Sherman Act is limited to “ ‘restraints to free competition in business and commercial transactions which tended to restrict production, raise prices or otherwise control the market.’ ” Selman v. Harvard Medical School, 494 F. Supp. 603, 621 (S.D.N.Y.), aff'd, 636 F.2d 1204 (2d Cir. 1980), quoting Apex Hosiery, 310 U.S. at 493.

Nor did the district court consider analogous cases, not involving academic institutions, that apply the same principle. The Seventh Circuit recently dismissed antitrust claims filed against persons who allegedly conspired to use illegal means to shut down clinics offering to perform abortions. Even though defendants' unlawful conduct was not protected by the First Amendment, the court of appeals held that the Sherman Act “did not intend to reach every activity that might affect business,” but rather “was intended to prevent business competitors from making restraining arrangements for their own economic advantage.” National Org. for Women v. Scheidler, 968 F.2d 612, 620 & 621 (7th Cir. 1992) (emphasis added).

Similarly, the Eighth Circuit held that the Sherman Act did not forbid a boycott of Missouri convention facilities organized by women's groups to protest that State's failure to ratify the proposed Equal Rights Amendment to the U.S. Constitution. Despite the substantial adverse effects of the boycott on commercial activities in Missouri, the *13 court found that the objective of the challenged conduct “is not one of profit motivation” and that “the crux of the issue is that NOW was politically motivated to use a boycott.” Missouri v. National Organization for Women, 620 F.2d 1301, 1312, 1314 (8th Cir.), cert. denied, 449 U.S. 842 (1980). Another case holds that the Sherman Act does not apply to alleged restraints imposed by religious organizations upon the sale of their religious literature because “Congress intended the Sherman Act to apply to business combinations with commercial objectives.” Proctor v. General Conference of Seventh-Day Adventists, 651 F. Supp. 1505, 1524 (N.D. Ill. 1986).

A recent Supreme Court decision aptly summarizes the rule that the district court overlooked. FTC v. Superior Court Trial Lawyers' Ass'n, 493 U.S. 411 (1990), held that the antitrust laws forbade lawyers from collectively refusing to accept court-appointed cases unless the hourly rate of compensation were increased. The Court emphasized the commercial motives underlying the concerted activity: “the undenied objective of their boycott was an economic advantage for those who agreed to participate,” and “their immediate objective was to increase the price that they would be paid for their services.” 493 U.S. at 426 & 427. The lawyers' for-profit business motivation distinguished their illegal combination from lawful collective boycotts undertaken to achieve noncommercial purposes, where the participants seek “no special advantage for them-selves.” Id. at 426, citing NAACP v. Claiborne Hardware Co., 458 U.S. 886 (1982). This language is virtually identical to the Seventh Circuit's formulation that the Sherman Act does not apply unless business *14 competitors restrain trade for “their own economic advantage.” NOW v. Scheidler, 968 F.2d at 621.

Here, the district court made no finding that MIT or other participants harbored any commercial objective or sought (much less received) any “economic advantage.” To the contrary, the district court applied the Sherman Act “[e]ven accepting MIT's premise that Overlap was revenue neutral” -- i.e., even assuming that financial aid bore no relation to any attempt to “maximize revenues” and did not result in reduced output or increased prices. (Op. 41 [App. 490].) Nor did the district court question the evidence that MIT could have filled its classes without offering financial aid, which is powerful proof that financial assistance is genuinely offered for charitable and educational purposes, not for “revenue maximization” or other commercial gain.

The district court focused instead on the financial aid agreement's incidental effect that students who do not satisfy the needs criteria cannot qualify for financial aid. (Op. 39 [App. 488].) But that does not transform the otherwise legitimate, noncommercial agreement into a “business combination” subject to the antitrust laws. The district court sought to gloss over this shortcoming by equating charitable financial aid with “competitive tuition reductions,” a mischaracterization which ignores that there was no proof that the schools ever agreed upon tuitions, discounts from tuitions, or the amount or composition of financial aid that would be offered to students.[FN3]

FN3. While the colleges agreed that “ ‘any financial aid should be awarded only on the basis of need,’ ” (see Op. 11 [App. 460], quoting from the agreement), the district court based its ruling on the bald mischaracter-ization that the schools agreed to “deprive[] students, needy or not, of the opportunity to receive competitive tuition reductions.” (Op. 39 [App. 488], emphasis added.)
*15 2. The District Court Misread the Judicial Decisions on Which it Relied.

The district court misapplied the Sherman Act because it misread Supreme Court decisions construing the Act. None of the cases on which the district court relied involved non-profit entities that associated to achieve non-commercial purposes.

The district court started off on the wrong foot by saying that Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975), rejects Marjorie Webster's holding that the Sherman Act is not meant to regulate joint activities undertaken with noncommercial motivations. (See Op. 24.) Goldfarb does no such thing. In that case lawyers practicing their profession in order to make a profit had fixed minimum fees in schedules issued through their bar association.[FN4] The issue before the Supreme Court was not whether the lawyers' motives were noncommercial, but whether for-profit legal services are “trade or commerce.” The Supreme Court held that they are. 421 U.S. at 787-88 (“the examination of a land title is a service; the exchange of such a service for money is ‘commerce’ ”). Since Goldfarb was decided, other courts have continued to require a showing of *16 “commercial motivation” in Sherman Act cases, without perceiving that Goldfarb forecloses that issue.[FN5]

FN4. The Supreme Court observed that the Virginia State Bar's “Minimum Fee Schedule Report” explained that “ ‘lawyers have slowly, but surely, been committing economic suicide as a profession.’ ” 421 U.S. at 786 n.16.

FN5. See, e.g., Selman v. Harvard Medical School, 494 F. Supp. at 621; Proctor v. General Conference of Seventh-Day Adventists, 651 F. Supp. at 1524; cf. McCormack v. NCAA, 845 F.2d 1338, 1343 (5th Cir. 1988); Welch v. American Psychoanalytic Ass'n, 1986-1 Trade Cases (CCH), ¶  67,037 at 62,372 (S.D.N.Y. 1986).

The district court's opinion fails to appreciate that Goldfarb involved a price fixing agreement among persons practicing law as a for-profit business. This oversight led the district court to propound a faulty syllogism: (i) Goldfarb applies the antitrust laws to “learned professions; (ii) the antitrust laws should likewise “apply with equal force to the field of education;” and (iii) the antitrust laws therefore apply to MIT, which is a “significant commercial entity” with an annual operating budget exceeding $1 billion. (Op. 25-26 [App. 474-75].) This syllogism overlooks the critical point that the “restraints” in this case concerned charitable financial aid provided for noncommercial purposes by non-profit institutions of higher education.

The same misconception taints the district court's analysis of other leading cases. Thus it observes that MIT's non-profit status is irrelevant because “ ‘nonprofit organizations can be held liable under the antitrust laws.’ ” (Op. 22 n.3 [App. 471], quoting American Society of Mechanical Engineers v. Hydrolevel Corp., 456 U.S. 556, 557 (1982).) But Hydrolevel merely holds that a non-profit professional society can be liable for antitrust violations committed by its for-profit members who misuse the society's power to set standards as part of an anti-competitive scheme to advance their own businesses. 456 U.S. at 571-74. The same *17 circumstances are presented in other cases cited by the district court, in which non-profit organizations served as vehicles by which for-profit businesses restricted competition. Goldfarb is such a case. So is National Society of Professional Engineers v. United States, 435 U.S. 679 (1978), in which engineers in the business of designing buildings and other structures agreed through their professional association not to bid against one another. Indeed, the Supreme Court has confirmed that Professional Engineers addresses the efforts of “business entities to ‘associate’ to suppress competition.”[FN6] In the same category is FTC v. Indiana Federation of Dentists, 476 U.S. 447 (1986), in which persons engaging in the practice of dentistry for profit agreed through their trade organization upon restrictions in the services they would offer to patients covered by certain insurance plans.

FN6. NAACP v. Claiborne Hardware, 458 U.S. 886, 912 (1982) (emphasis added).

In this case, by contrast, the financial aid agreement challenged by the Government concerned charitable aid, not “trade or commerce.” None of the participating schools was engaged in providing financial aid or educating undergraduates in order to earn profit or to maximize revenues. The cases on which the district court relied each involve competitive restrictions imposed by for-profit, commercially motivated businesses. None of those cases calls into question the “commercial motivation” element of “trade or commerce” recognized in Apex Hosiery, Marjorie Webster, and the other cases that so restrict the application of the Sherman Act. The district court erred by failing to focus on the critical question “whether [MIT] is driven by a ‘commercial *18 motive,’ which might bring its ... admissions policies within the ambit of the Sherman Act, or whether the commercial motive was incidental to a primarily educational purpose.” Welch v. American Psychoanalytic Ass'n, 1986-1 Trade Cases (CCH) ¶  67,037 at 62,372 (S.D.N.Y. 1986) (emphasis added).

NCAA v. Board of Regents of the University of Oklahoma, 468 U.S. 85 (1984), does not call this conclusion into question. That case simply confirms that colleges and universities are subject to the Sherman Act when they agree to restrict for-profit business competition among themselves.[FN7] Indeed, many cases have rejected antitrust challenges to restrictions imposed through the NCAA that do not involve any commercial, for-profit motive.[FN8]

FN7. The Court specifically found that the schools “compete against each other to attract television revenues.” 468 U.S. at 99. Unlike the financial aid agreement in this case, the television broadcasting restrictions in NCAA were found to “restrain[] price and output.” Id. at 104.

FN8. See, e.g., McCormack v. NCAA, 845 F.2d 1338 (5th Cir. 1988); Association for Inter. Ath. for Women v. NCAA, 735 F.2d 577 (D.C. Cir. 1984); Hennessey v. NCAA, 564 F.2d 1136 (5th Cir. 1977); Gaines v. NCAA, 746 F. Supp. 738 (M.D. Tenn. 1990); Justice v. NCAA, 577 F. Supp. 356 (D. Ariz. 1983).
3. The District Court's Decision Improperly Requires Non-Profit Organizations to Justify Noncommercial Conduct by Reference to Competitive Market Standards.

The district court's interpretation of the Sherman Act has a perverse and entirely unacceptable consequence: nonprofit entities can justify joint noncommercial conduct that incidentally affects trade or commerce only by showing that it promotes economic efficiency or enhances *19 business competition. That is the necessary consequence of scrutinizing noncommercial conduct according to antitrust standards, under which competitive “restraints” may not be “justified by non-economic designs.” (Op. 43 [App. 492].) See, e.g., NCAA v. Board of Regents, 468 U.S. at 114 (need to prove “procompetitive efficiencies which enhanced the competitiveness of college football television rights”). The district court's focus on the “free forces of the market” (Op. 40 [App. 489]) ignores that MIT and other eleemosynary institutions exist precisely for the purpose of providing services that the for-profit marketplace does not offer.

Because its conduct was not commercially motivated, MIT could scarcely show that the financial aid agreements aimed to promote economic efficiency or business competition. The district court rejected as irrelevant leading educators' powerful and undisputed testimony showing the ways in which the financial aid agreements improved educational quality. (See e.g., App. 856-62, 863-83.) The court dismissed MIT's noncommercial goal of using charitable financial aid to help needy students because it thought the schools could instead have used the money donated by alumni to underwrite “competitive tuition reductions” for students who do not need charity. (Op. 41-43, 39 [App. 490-92, 488].) The quest for educational diversity -- i.e., a student body representing many different socio-economic backgrounds -- was likewise not the kind of “economic” justification that the district court would accept. (Id.) The court believed that the non-economic justifications motivating MIT are “indistinguishable from the defenses offered [by organizations of for-profit entities] in Professional Engineers and Indiana Federation of Dentists.” (Op. 45 [App. 494].)

*20 This view turns the antitrust laws upside down. It transforms the Sherman Act from a regulation of “trade or commerce” into a rule that non-profit eleemosynary institutions must behave as if they are for-profit entities whenever their collective, noncommercial activities could incidentally affect trade or commerce. All activities are presumed to occur in a competitive “market” and to be motivated by the desire for “profit” or “revenue maximization.” Charitable motives and justifications become evidence of guilt, rather than badges of honor!

In this strange regime in which all human conduct can be justified only by its promotion of economic conceptions of “efficiency,” charitable financial aid is merely a “ ‘discount’ off the price of college offered to financial aid recipients.” (Op. 26 [App. 475].) It does not matter that this “discount” is offered for the noncommercial purpose of helping needy students, rather than maximizing revenues; or that MIT could fill its classes without offering financial aid; or that the “undiscounted price” does not cover MIT's costs; or that MIT's alumni(ae) and other donors make the charitable gifts that enable MIT to charge unremunerative tuitions and to provide financial aid. Despite all these undisputed facts, the district court's “economic” analysis transformed an agreement to use charitable funds for charitable purposes into a “conspiracy” not to use those same funds to lower the tuitions charged to students who are not needy.

This is precisely the sort of perverse application of the antitrust laws that Justice Stone abjured when he wrote that the Sherman Act stops at the “prevention of restraints to free competition in business and commercial transactions which tend[] to restrict production, raise *21 prices, or otherwise control the market.” Apex Hosiery Co. v. Leader, 310 U.S. at 493; see also NCAA v. Board of Regents, 468 U.S. at 110. Stated another way, “[a]n antitrust plaintiff must show that challenged conduct affected the prices, quantity or quality ‘of goods or services.’ ” Tunis Bros. Co. v. Ford Motor Co., 952 F.2d 715, 728 (3d Cir. 1991), cert. denied, 112 S. Ct. 3034 (1992). Here, the district court found no increased prices, no restriction in production, no diminished quality, and no control of any market.[FN9] The only “restraint” involved charitable financial aid -- not tuition or other charges -- which had the incidental effect of discouraging financial aid funds from being diverted to unneedy students. But “[i]n these contexts, an incidental restraint of trade, absent an intent or purpose to affect the commercial aspects of [higher education], is not sufficient to warrant application of the antitrust laws.” Marjorie Webster, 432 F.2d at 654.

FN9. The district court refused to consider the economic evidence addressing these issues, and assumed for purposes of the decision that the financial aid agreements were revenue neutral and had no adverse effects on prices, output, and quality. (Op. 36-39, 41 [App. 485-88, 490].)

The district court said that MIT and the other schools should decide individually and independently how to dispense charitable financial aid. (Op. 46-48 [App. 495-97].) The court did not pass on MIT's proof that the termination of the financial aid agreement would undermine the need-blind admissions policies that MIT and other schools have success-fully instituted during the last 35 years. But that speculation is irrelevant to this case. The relevant points are that an agreement concerning charitable financial aid does not concern “trade or commerce,” *22 and the incidental effects of noncommercial agreements among non-profit educational institutions are not subject to the Sherman Act.

II.

APPLICATION OF THE SHERMAN ACT ON THE FACTS FOUND BY THE DISTRICT COURT INFRINGES MIT'S FIRST AMENDMENT RIGHTS OF ACADEMIC FREEDOM

The district court's opinion must be set aside for another reason: it prohibits conduct that lies within the recognized First Amendment protection for academic freedom. There are, of course, many circumstances in which the Sherman Act properly restricts “[t]he right of business entities to ‘associate’ to suppress competition.” NAACP v. Claiborne Hardware, 458 U.S. at 912. There may even be circumstances in which the Sherman Act might conceivably restrict collective activities of noncommercial entities where necessary to prevent a substantial, adverse impact on competition. But where, as here, the court makes no finding that joint conduct by noncommercial entities has brought about the evils addressed by the Sherman Act -- raised prices or restricted output -- there can be no justification for restricting associational exercises of academic freedom.

A. The First Amendment Protects the Exercise of Academic Freedom, Which Embraces The Right of Schools to Select Those Who Are to Be Admitted to Study.

There is no dispute that the goal of the financial aid agreements was to promote need-blind admissions and distribution of assistance that would simultaneously benefit talented, needy students and promote educational diversity for all students. (See, e.g., App. 717-19, *23 840-43, 859-62, 876-78, 879-80.) This objective lies within the heart of the First Amendment protection for academic freedom that is recognized in decisions of the Supreme Court.

Academic freedom is a “special concern of the First Amendment.” Keyishian v. Board of Regents, 385 U.S. 589, 603 (1967). That freedom embraces not only the right to teach and to learn what one chooses, but also the “freedom of a university to make its own judgments as to ... the selection of student body.” Regents of the University of California v. Bakke, 438 U.S. 265, 312 (1978). In other words, academic freedom protects “autonomous decisionmaking by the academy itself,” including “[d]iscretionin to determine, on academic grounds, who may be admitted to study.” Regents of the University of Michigan v. Ewing, 474 U.S. 214, 226 n.12 (1985), citing Sweezy v. New Hampshire, 354 U.S. 234, 263 (1957).

B. The District Court's Application of the Sherman Act Infringed MIT's Academic Freedom on the Facts of This Case.

The courts have consistently refused to apply the Sherman Act (and similar state laws) to associational conduct protected by the First Amendment, even where the purpose and intent of that conduct is to bring about specific commercial consequences. The leading case is Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961), in which the Supreme Court observed that serious First Amendment questions would be presented by applying the Sherman Act to a publicity campaign mounted by an association of railroads against the trucking industry. Thus, the Court refused to apply the antitrust laws even though *24 the trial court had found that it was the railroads' “ ‘purpose and intent * * * to hurt the truckers in every way possible even though they secured no legislation.’ ” 365 U.S. at 142 (emphasis and ellipsis in original). Similar decisions hold that federal (and state) antitrust laws should not be applied to associational activities such as boycotts undertaken for political, rather than economic, goals -- even if the immediate effect of the activity is to cause economic harm to third persons. E.g., NAACP v. Claiborne Hardware Co., 458 U.S. 886; United Mine Workers v. Pennington, 381 U.S. 657, 669-70 (1965); Missouri v. NOW, 620 F.2d at 1317-19.

Here, MIT and other schools associated to achieve common educational goals. See NAACP v. Button, 371 U.S. 415, 420-31 (1963) (discussing the right to associate in order to exercise First Amendment freedoms). This fact alone should rule out any application of the Sherman Act that would stifle the collective exercise of academic freedom. See Byrne, “Academic Freedom: A ‘Special Concern of the First Amendment,’ ” 99 Yale L.J. 251, 333 n.325 (1989) (criticizing the Government's investigation into university financial aid practices).

But the facts of this case do not go so far as to pose the question whether the Sherman Act may ever be used to prohibit associational exercises of academic freedom. Rather, this case involves an application of the Sherman Act to an associational exercise of academic freedom even though the district court assumed that the economic consequences were “revenue neutral” and thus made no finding of raised prices or reduced output. See Apex Hosiery v. Leader, 310 U.S. at 493; Tunis Bros. Co. v. Ford Motor Co., 952 F.2d at 728. The district court's decision accordingly runs afoul of a basic constitutional principle: laws *25 impinging upon First Amendment associational rights must be applied narrowly, and only where necessary to prevent specific evils that the law may permissibly address:
“This Court has repeatedly held that a governmental purpose to control or prevent activities constitutionally subject to state regulation may not be achieved by means which sweep unnecessarily broadly and thereby invade the area of protected freedoms .... The power to regulate must be so exercised as not, in attaining a permissible end, unduly to infringe the protected freedom.' ” NAACP v. Alabama, 377 U.S. 288, 307 (1964), quoting Cantwell v. Connecticut, 310 U.S. 296, 304 (1940) (other citations omitted).

Here, the district court adjudicated a violation of the antitrust laws -- and issued a sweeping injunction banning MIT from engaging in future associational activity -- even though it assumed MIT's conduct had no affect on prices and output. The First Amendment does not permit such wholesale suppression of noncommercial associational conduct where the restriction of freedom is not calculated to prevent the “substantive evils that Congress has a right to prevent.” Schenck v. United States, 249 U.S. 47, 52 (1919) (Justice Holmes).

*26 CONCLUSION

For the foregoing reasons, the judgment of the district court should be reversed.

Appendix not available.

UNITED STATES OF AMERICA, Plaintiff-Appellee, v. BROWN UNIVERSITY in Providence in the State of Rhode Island and Providence Plantations, et al., Defendants, Massachusetts Institute of Technology, Defendant-Appellant.
1992 WL 12132453 (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 12132454 (Appellate Brief) Brief for the Defendant-Appellant Massachusetts Institute of Technology (Dec. 14, 1992)
• 1992 WL 12132455 (Appellate Brief) Brief Amicus Curiae for the Association of Alumni and Alumnae of the Massachusetts Institute of Technology in Support of Appellant (Dec. 14, 1992) Original Image of this Document (PDF)
• 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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