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 for the Defendant-Appellant Massachusetts Institute of Technology
Of Counsel: André L. Dennis, Stradley, Ronon, Stevens & Young, 2600 One Commerce Square, Philadelphia, PA 19103-7098, (215) 564-8034.Thane D. Scott, Michael T. Gass, Jane M. Guevremont, Palmer & Dodge, One Beacon Street, Boston, MA 02108, (617) 573-0100.

*i TABLE OF CONTENTS

TABLE OF AUTHORITIES ... v

STATEMENT OF SUBJECT MATTER AND APPELLATE JURISDICTION ... 1

STATEMENT OF ISSUES ... 1

STATEMENT OF THE CASE ... 1

 Pretrial Proceedings ... 1

 The Trial ... 2

 The Decision and Order ... 3

STATEMENT OF FACTS ... 4

I. The Defendants ... 4

II. The Economics of Charity ... 4

III. The Educational Policy Objective: Equal Opportunity Through Need-Blind Admission, Full Funding of Need ... 5

IV. Preserving College Access in an Educationally-Competitive Environment ... 6

 A. The Federal System ... 6

 B. The Defendants' System Parallels that of the Federal Government ... 7

V. The Ivy/MIT Overlap Program ... 8

VI. The Economic Effects of Overlap: Revenue Neutrality ... 10

VII. The “Economic Segregation” of Higher Education ... 11

STATEMENT OF RELATED CASES AND PROCEEDINGS ... 12

STATEMENT OF THE STANDARD OR SCOPE OF REVIEW ... 12

SUMMARY OF ARGUMENT ... 12

 A. Charitable Cooperation To Achieve Social Welfare Goals Is Not “Trade or Commerce” ... 13

*ii  B. Coordinated Distribution of Charitable Funds Is Not Unlawful Under The Rule of Reason ... 13

ARGUMENT ... 15

I. Overlap Does Not Violate Section One Of The Sherman Act When Assessed Under the Appropriate Standard ... 15

 A. The Court Erroneously Selected the Harshest Standard Under Which to Evaluate Overlap ... 15

 B. Overlap Is Reasonable Under the Rule of Reason Analysis ... 16

  1. The Division's failure to show harm to consumer welfare is fatal to its Case ... 17

   a. Price, output, and quality are the sole indicators of anticompetitive effect under the Rule of Reason ... 18

   b. In a charitable setting, isolated price effects do not signify harm to consumer welfare ... 19

    (1) The Rule of Reason addresses only harm to the competitive system and not isolated consumer harm ... 19

    (2) The heart of the Sherman Act --- consumer welfare --- is properly measured in the aggregate ... 21

    (3) Economic principles dictate that price effects be measured in the aggregate ... 22

   c. The allocative effects of Overlap do not give rise to a cognizable anticompetitive effect ... 23

  2. The lower court improperly refused to consider any justification of Overlap ... 26

   a. Procompetitive justifications must be, but were not, considered in evaluating the reasonableness of Overlap ... 26

   b. The Court's outright refusal to entertain fundamental educational policy justifications cannot stand ... 29

    (1) The importance of socioeconomic diversity in student bodies has been recognized by the Supreme Court ... 30

    (2) Congressional policy promotes educational access and opportunity through need-based aid ... 31

*iii     (3) The Court misread Professional Engineers and Indiana Federation of Dentists as prohibiting any consideration of educational policy and other non-economic justifications ... 33

    (4) The Court's suggestion that Overlap may not be necessary to the pursuit of educational opportunity and diversity is contrary to the evidence and internally inconsistent ... 35

     (a) The unopposed evidence established that Overlap promoted educational opportunity and diversity ... 35

     (b) The Court's failure to appreciate the significance of revenue neutrality allowed the Court to speculate that Overlap might not be necessary to the schools' important educational goals ... 38

   c. Absolute necessity is not the standard by which to measure whether conduct is reasonable ... 39

 C. The “Truncated Rule of Reason” Would Not Apply in this Case ... 41

  1. The truncated Rule of Reason applies only to conduct which, unlike Overlap, manifestly has an adverse effect on price, output, or quality ... 41

  2. The Court applied the per se rule ... 42

II. Overlap Does Not Constitute “Trade or Commerce” Within the Meaning of the Sherman Act ... 42

 A. The Sherman Act Does Not Apply to Conduct Such As Overlap Which Is Noncommercial in Its Intent and Primary Effect ... 42

  1. The legislative history of the Sherman Act makes clear that it was not intended to address noncommercial conduct such as Overlap ... 43

  2. Courts consistently have declined to extend the reach of the Sherman Act to noncommercial conduct ... 44

 B. Overlap Was Noncommercial in Its Intent and Effect ... 46

  1. The trial court's conclusion that Overlap restrained “trade or commerce” is based upon defective reasoning ... 46

*iv   2. Overlap promoted educational objectives without benefitting the schools financially ... 48

CONCLUSION ... 49

CERTIFICATE OF BAR MEMBERSHIP

CERTIFICATE OF SERVICE

SERVICE LIST

ATTACHMENT A

*v TABLE OF AUTHORITIES

FEDERAL CASES

American Motor Inns, Inc. v. Holiday Inns, Inc., 521 F.2d 1230 (3d Cir. 1975) ... 40

Apex Hosiery Co. v. Leader, 310 U.S. 469 (1940) ... 44

Association for Intercollegiate Athletics for Women v. NCAA, 735 F.2d 577 (D.C. Cir. 1984) ... 34

Bhan v. NME Hospitals, Inc., 929 F.2d 1404 (9th Cir.), cert. denied, 112 S. Ct. 617 (1991) ... 40

Bob Jones University v. United States, 461 U.S. 574 (1983) ... 24

Bravman v. Bassett Furniture Industries, Inc., 552 F.2d 90 (3d Cir.), cert. denied, 434 U.S. 823 (1977) ... 40

Broadcast Music, Inc. v. CBS, Inc., 441 U.S. 1 (1979) ... 27

Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977) ... 28

Business Electronics Corp. v. Sharp Electronics Corp., 485 U.S. 717 (1988) ... 20, 22

Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101 (7th Cir. 1984), cert. denied, 470 U.S. 1054 (1985) ... 18

Chicago Board of Trade v. United States, 246 U.S. 231 (1918) ... 15, 16, 20, 37

College Athletic Placement Service, Inc. v. NCAA, 1975-1 Trade Cas. (CCH) ¶  60,117 (D.N.J.), aff'd, 506 F.2d 1050 (3d Cir.1974) ... 45, 46

Continental TV., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977) ... 16, 20, 22, 28

Donnelly v. Boston College, 558 F.2d 634 (1st Cir.), cert. denied, 434 U.S. 987 (1977) ... 45

Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961) ... 44

*vi F.T.C. v. Indiana Federation of Dentists, 476 U.S. 447 (1986) ... 25, 33, 41, 42

F. T. C. v. Superior Court Trial Lawyers Association, 493 U.S. 411 (1990) ... 18

Jetro Cash & Carry Enterprises, Inc. v. Food Distribution Center, 569 F. Supp. 1404 (E.D. Pa. 1983) ... 20

United States v. Joint Traffic Association, 171 U.S. 505 (1898) ... 15

Jones v. NCAA, 392 F. Supp. 295 (D. Mass. 1975) ... 45

Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207 (1959) ... 44

Lie v. St. Joseph Hospital, 964 F.2d 567 (6th Cir. 1992) ... 16

Marjorie Webster Junior College, Inc. v. Middle States Association of Colleges & Secondary Schools, Inc., 432 F.2d 650 (D.C. Cir.), cert. denied, 400 U.S. 965 (1970) ... 44, 45, 46

Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574 (1986) ... 23

Missouri v. National Organization for Women, Inc., 620 F.2d 1301 (8th Cir.), cert. denied, 449 U.S. 842 (1980) ... 45

NAACP v. Claiborne Hardware Co., 458 U.S. 886 (1982) ... 45

NCAA v. Board of Regents of the University of Oklahoma, 468 U.S. 85 (1984) ... 13, 16, 18, 28, 29, 34, 41, 42

National Organization for Women, Inc. v. Scheidler, 968 F.2d 612 (7th Cir. 1992), petition for cert. filed, 61 U.S.L.W. 3371 (U.S. Nov. 2, 1992) (No. 92-780) ... 45

National Society of Professional Engineers v. United States, 435 U.S. 679 (1978) ... 18, 22, 29, 33, 34, 41

Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co., 472 U.S. 284 (1985) ... 16, 27

Proctor v. General Conference of Seventh-Day Adventists, 651 F. Supp. 1505 (N.D. Ill. 1986) ... 45

Regents of the University of California v. Bakke, 438 U.S. 265 (1978) ... 27, 30

*vii Reiter v. Sonotone Corp., 442 U.S. 330 (1979) ... 15, 21

Sitkin Smelting & Refining Co. v. FMC Corp., 575 F.2d 440 (3d Cir.), cert. denied, 439 U.S. 866 (1978) ... 18

United States v. South-Eastern Underwriters Association, 322 U.S. 533 (1944) ... 44

Standard Oil Co. v. United States, 221 U.S. 1(1911) ... 15, 18

Sweezy v. New Hampshire, 354 U.S. 234 (1957) ... 30

Tunis Brothers Co. v. Ford Motor Co., 952 F.2d 715 (3d Cir. 1991), cert. denied, 112 S. Ct. 3034 (1992) ... 16, 19

UNR Industries, Inc. v. Continental Insurance Co., 623 F. Supp. 1319 (N.D. Ill. 1985) ... 21

Weiss v. York Hospital, 745 F.2d 786 (3d Cir. 1984), cert. denied, 470 U.S. 1060 (1985) ... 15

FEDERAL STATUTES & REGULATIONS

15 U.S.C. §  1 (Supp. II 1990) ... passim

15 U.S.C. §  4 (1988) ... 1, 2

20 U.S.C.A. § §  1087oo (1990 & Supp. 1992) ... 7

20 U.S.C.A. § §  1087pp (1990 & Supp. 1992) ... 7

20 U.S.C.A. § §  1087qq (1990 &Supp. 1992) ... 7

28 U.S.C. §  1291 (1988) ... 1

I.R.C. §  501(c)(3) (1988) ... 24, 48

34 C.F.R. §  673.26 (1991) ... 7

34 C.F.R. §  674.14 (1991) ... 6, 31

34 C.F.R. §  675.14 (1991) ... 6, 31

34 C.F.R. §  676.14 (1991) ... 6, 31

Higher Education Amendments of 1992, Pub. L. No. 102-325, §  1544, 106 Stat. 448, 837 ... 32

*viii National Defense Education Act of 1958, Pub. L. No. 85-864, 72 Stat. 1580 (codified as amended in scattered sections of 20 U.S.C.) ... 6, 7

OTHER AUTHORITIES

7 Phillip Areeda, Antitrust Law (1986) ... 17, 40

Anthony B. Atkinson & Joseph E. Stiglitz, Lectures on Public Economics (1980) ... 25

Black's Law Dictionary (6th ed. 1990) ... 49

Roger D. Blair & David L. Kaserman, Antitrust Economics (1985) ... 48

Robert H. Bork, The Antitrust Paradox (1978) ... 15, 22, 26

Robert H. Bork, Legislative Intent and the Policy of the Sherman Act, 9 J.L. & Econ. 7 (1966) ... 43, 50

21 Cong. Rec. 2658-59 (1890) ... 43

Peter M. Gerhart, The Supreme Court and Antitrust Analysis: The (Near) Triumph of the Chicago School, 1982 Sup. Ct. Rev. 319 ... 18

Harry S. Gerla, A Micro-Microeconomic Approach to Antitrust Law: Games Managers Play, 86 Mich. L. Rev. 892 (1988) ... 18

Henry B. Hansmann, The Role of Nonprofit Enterprise, 89Yale L.J. 835(1980) ... 24

H.R. Rep. No. 1860, 75th Cong., 3d Sess., reprinted in 1939-1 C.B. 772 (Part II) ... 24

Robert H. Lande, Chicago's False Foundation: Wealth Transfers (Not Just Efficiency) Should Guide Antitrust, 58 Antitrust L.J. 631 (1989) ... 23

The Legislative History of the Federal Antitrust Laws and Related Statutes (Earl W. Kintner ed., 1978) ... 43

Michael S. McPherson & Morton O. Schapiro, Keeping College Affordable: Government and Educational Opportunity (1991) ... 25

Richard A. Posner, Antitrust Law: An Economic Perspective (1976) ... 22, 25

*ix Senate Labor and Public Welfare Committee, Report to Accompany Higher Education Act of 1965, S. Rep. No. 673, 89th Cong., 1st Sess. (1965), reprinted in 1965 U.S.C.C.A.N. 4027 ... 7

2A Sutherland Statutory Construction (5th ed. 1992) ... 43

2B Sutherland Statutory Construction (5th ed. 1992) ... 43

*1 STATEMENT OF SUBJECT MATTER AND APPELLATE JURISDICTION

The District Court had subject matter jurisdiction pursuant to 15 U.S.C. §  4. This Court has jurisdiction over this appeal from a final judgment in accordance with 28 U.S.C. §  1291.

STATEMENT OF ISSUES

Needy students are unable to obtain a college education without significant amounts of financial assistance. Private colleges and universities have finite charitable resources with which to meet student financial need. For more than thirty years, groups of private colleges and universities have promoted educational access and opportunity by agreeing to limit the award of their scarce charitable resources to meeting the needs of students who otherwise would be unable to attend without financial aid. Do such agreements violate Section One of the Sherman Act?

Do the agreements described above restrain “trade or commerce” within the meaning of the Sherman Act, where the colleges engage in such intercollegiate cooperation to achieve social welfare and educational policy objectives, and obtain no financial benefit from their participation?

Do the First Amendment rights of academic freedom and associational freedom protect colleges in their cooperative pursuit of educational policy and social welfare goals?

STATEMENT OF THE CASE

Pretrial Proceedings

On May 22, 1991, the Antitrust Division of the United States Department of Justice (the “Antitrust Division”) brought this civil antitrust action against nine private colleges and universities in the United States District Court for the Eastern District of Pennsylvania. In its one-count complaint for injunctive relief, the Antitrust Division alleged that an intercollegiate agreement to award financial aid only to needy students, and various procedures used to implement such an agreement, constituted an unlawful restraint of trade in violation of Section One of the Sherman Act, 15 U.S.C. §  1 (Supp. II 1990).[FN1]

FN1. Section One of the Sherman Act provides in pertinent part: “Every contract, combination in the form of trust of otherwise, or conspiracy, in restraint of trade or commerce among the several States ... is declared to be illegal.” 15 U.S.C. §  1 (Supp. II 1990).
Simultaneously with the filing of its complaint, the Antitrust Division filed a proposed final judgment to which eight of the nine schools had consented.[FN2] On September 20, 1991, pursuant to 15 U.S.C. §  4, Chief Judge Louis C. Bechtle entered the proposed final judgment without modification.

FN2. The eight non-litigating defendants are Brown University, Columbia University, Cornell University, Dartmouth College, Harvard College, Princeton University, Yale University, and the University of Pennsylvania. These eight schools comprise the full membership of an athletic conference known as the Ivy League Athletic Conference. The Massachusetts Institute of Technology, which is not a member of the Athletic Conference, declined to sign the proposed final judgment and proceeded to test the Antitrust Division's claims at trial.
The Trial

In a ten-day, non-jury trial commencing June 25, 1992, the Antitrust Division contended that the defendant colleges, along with many other non-party colleges, had agreed to use their financial aid resources only to promote college access for needy students, rather than using these resources for “no-need” financial aid (such as athletic or academic achievement scholarships). To implement this agreement, for more than thirty years the schools met periodically to define and assess student financial need. The Division argued that such coordination of financial aid policies constituted a “per se” violation of the Sherman Act.

MIT did not dispute the existence of the challenged intercollegiate agreement or its participation. However, MIT maintained that the purpose of the agreement was to promote educational access and opportunity for needy students, and that the schools had neither sought nor obtained any economic benefit from the agreement. MIT and a number of amici[FN3] asked the Court to hold that the Sherman Act does not extend to collective efforts of charities to advance social welfare and educational policy objectives from which the participants derive no economic benefit. If the Sherman Act were found to be applicable, MIT asked the Court to apply the “Rule of Reason” standard to hold that the challenged conduct was reasonable. Both parties presented extensive testimony from expert economists regarding the economic effects of the agreement.

FN3. During the time permitted by the Court for post-trial briefing, a large number of amicus curiae, including the School District of Philadelphia, the Urban League of Philadelphia, the American Council on Education, the Rockefeller Brothers Fund, and the United Negro College Fund sought leave to file amicus briefs. The District Court refused to accept these briefs for filing.
The Decision and Order

On September 2, 1992, the District Court issued its decision. The Court first recognized that Supreme Court precedent barred use of the per se rule to evaluate the challenged agreement. Decision at 33, App. at 482. However, rather than turning to the traditional Rule of Reason as the appropriate legal standard, at the urging of the Antitrust Division the Court decided that the challenged conduct was “so inherently suspect” that only a truncated evaluation was needed. Decision at 39, App. at 488.

The Court discarded the economic testimony as “[doing] nothing more than distract” and as “not germane.” Decision at 37, 38, App. at 486, 487. Although the Antitrust Division had failed to convince the Court that the agreement had either increased overall price or limited output, the Court concluded that even if the average price of an education had been unaffected, the agreement nevertheless was presumptively illegal. Decision at 4041, App. at 489-90. The Court then imposed upon the schools “a heavy burden of establishing an affirmative defense which competitively justifies” the agreement. Decision at 4041, App. at 489-90.

The Court held that the only way the schools could justify their coordinated aid policies was by showing that such coordination had enhanced commercial competition. Decision at 4041, App. at 489-90. The Court therefore refused to consider the educational policy and social welfare justifications offered by the schools to explain their policies. Decision at 4546, App. at 494-95. Even though it was uncontroverted that the coordinated aid policies had improved the quality of the education provided by the schools, had increased consumer choice by expanding the pool of able “buyers,” and had helped to achieve socially desirable results by making education available to a broader socioeconomic group, the Court never performed the balancing test required to determine reasonableness under the Rule of Reason.

After setting aside the economic testimony, establishing a presumption of illegality, imposing a heavy burden upon the schools to justify their policies, excluding non-economic justifications and failing to consider economic justifications, the District Court found the agreement to be unjustified. It then entered the sweeping order and permanent injunction from which MIT appeals.

STATEMENT OF FACTS[FN4]

FN4. A detailed statement of facts is set forth in MIT's Proposed Findings of Fact and Conclusions of Law contained in the Record.
I. The Defendants

MIT is a private, nonprofit educational institution founded in 1861. [Gray Tr., App. at 825; Ex. D-2, App. at 1362; Decision at 2, App. at 451]. It is fully qualified as a charitable, tax-exempt organization under section 501(c)(3) of the Internal Revenue Code. [Gray Tr., App. at 825]. The Institute is held in public trust by a governing body comprised of distinguished leaders in science, engineering, industry, education and public service, including the Chief Justice of the Massachusetts Supreme Judicial Court, the Governor of the Commonwealth of Massachusetts, and the Massachusetts Commissioner of Education. [Gray Tr., App. at 826, 827].

MIT's charitable mission is to serve the public interest by maximizing the development and transmission of knowledge through education and research, and to provide to its students an education of the highest possible quality. [Gray Tr., App. at 828-30, 831-32; Ex. D-2, p.1, App. at 1362].

II. The Economics of Charity

Like every nonprofit university, MIT operates its educational program at a significant financial loss. [Gray Tr., App. at 767, 839; Ex. D-6, D-38, D-39, D-40, App. at 1365, 1458, 1459, *5 1460]. MIT's educational program is funded principally from private charitable donations and the investment income generated by those donations. [Gray Tr., App. at 767]. In 1991, it cost approximately $280,000,000 to educate MIT's students; more than $141,000,000 of these expenses were defrayed by charitable funds. Less than half of the expense of operating MIT's educational program is defrayed by tuition payments. [Gray Tr., App. at 767, 839; Ex. D-6, D-38, App. at 1365, 1458].

MIT receives more than six applications for each space in its entering class. [Gray Tr., App. at 833; Behnke Tr., App. at 973]. If they wished to do so, MIT and the other Overlap schools could fill their entire classes without offering any financial aid. [Routh Tr., App. at 671; Widmer Tr., App. at 996; Behnke Tr., App. at 973; Gray Tr., App. at 833]. MIT and the other schools offer financial aid to achieve certain educational policy and social welfare objectives that are more important than maximizing revenues. [Gray Tr., App. at 833-34, 836; Bowen Tr., App. at 876-77, 879-80, 882-83; Keohane Tr., App. at 862].

III. The Educational Policy Objective: Equal Opportunity Through Need-Blind Admission, Full Funding of Need

MIT practices “need-blind admissions,” through which it admits undergraduate students without regard to their ability to pay. [Gray Tr., App. at 833-34; Behnke Tr., App. at 974; Decision at 5, App. at 454]. This ensures that the admission decision for each student will turn solely on the student's merit [Gray Tr., App. at 833-34], and therefore the relative benefit society stands to gain from that student's receiving an MIT education. As a result, rich and poor students are treated equally in the admissions office, and able but needy students frequently are preferred over wealthier but less able students. [See Gray Tr., App. at 833-34; Behnke Tr., App. at 974].

Need-blind admission is of little consequence unless each needy admitted student is awarded sufficient financial aid to attend. For needy students, the admission decision only authorizes attendance; the financial aid decision enables attendance. Unless every admitted student is guaranteed *6 sufficient aid to meet demonstrated financial need (a commitment known as “full funding of need”), limited means will still inhibit educational access. [Sanchez Tr., App. at 1013; Somerville Tr., App. at 1019-20; Bowen Tr., App. at 877; Martin Tr., App. at 922-23; Gray Tr., App. at 836-37]. MIT is committed to funding all of the need presented by its need-blind admittees. [Gray Tr., App. at 836-37].

These dual commitments are both exceedingly rare and financially draining. [Fleming Tr., App. at 811; Martin Tr., App. at 921-22]. Only in rare instances have private colleges outside of the Overlap group been able to achieve this ideal. [Behnke Tr., App. at 975; Martin Tr., App. at 921-22].

The magnitude of the financial commitment is best illustrated by the results. In the last academic year before trial, 57% of MIT's admitted class needed and received financial aid from MIT. [Hudson Tr., App. at 949, 950]. The institutional grant aid awarded by MIT from its charitable resources exceeded $20,000,000, and was approximately seven times the amount of federal grant aid awarded to MIT students. [Hudson Tr., App. at 949].

IV. Preserving College Access in an Educationally-Competitive Environment

A. The Federal System

Virtually every type of intercollegiate competition among the 2000 four-year colleges in the United States is subject to external regulation (principally by government) and self-regulation by the academic community (such as athletic associations, accrediting organizations, and a multitude of ad hoc academic groups). [See, e.g., Ex. D-10, D-11, D-12, App. at 1375, 1384, 1426; Martin Tr., App. at 908-12; Bowen Tr., App. at 871, 872-73; 34 C.F.R. § §  674.14, 675.14 & 676.14 (1991)]. The type of competition which is at issue in this case --- intercollegiate competition for students --- is subject to both external and self-regulation. [See McCullough Tr., App. at 513-14, 515; National Defense Education Act of 1958, Pub. L. No. 85-864, 72 Stat. 1580  (codified as amended in scattered sections of 20 U.S.C.); Ex. D-8, D-10, p. 1.1-1.2, App. at 1368, 1375, 1382-83].

*7 Over the last three decades, the federal government has developed a pervasive and comprehensive regulatory regime to prohibit colleges from using federal money to engage in price competition for students. This regime is based upon: (1) Congressional intent to maximize the use of public money to open college doors to needy students, and (2) the legislative realization that publicly-funded “bidding wars” for non-needy students would diminish limited financial resources and thereby impede educational access for needy students. [Fleming Tr., App. at 802, 804-05, 808; McCullough Tr., App. at 513, 515; National Defense Education Act of 1958, Pub. L. No. 85-864, 72 Stat. 1580  (codified as amended in scattered sections of 20 U.S.C.); Senate Labor and Public Welfare Committee, Report to Accompany Higher Education Act of 1965, S. Rep. No. 673, 89th Cong., 1st Sess. (1965), reprinted in 1965 U.S.C.C.A.N. 4027, 4057]. Thus, with only de minimis exceptions, federal statutes prohibit colleges from awarding aid beyond need to recipients of federal financial aid, and a variety of statutes and regulations define need. [Hudson Tr., App. at 951; McCullough Tr., App. at 515. See, e.g., 20 U.S.C.A. § §  1087oo, 1087pp & 1087qq (1990 & Supp. 1992); 34 C.F.R. §  673.26 (1991)]. As a result, under the federal regime similarly situated students should be treated similarly by each school to which they are admitted (a concept called “horizontal equity”), and wealthier students should receive less aid than their poorer peers (“vertical equity”). [McCullough Tr., App. at 511, 512; Martin Tr., App. at 915-16, 924; Decision at 8, App. at 457].

B. The Defendants' System Parallels that of the Federal Government

Like the federal government, the defendants long ago embraced the goal of enhanced educational access and opportunity for needy students but possessed limited means to accomplish these goals. [Bowen Tr., App. at 711, 878; Sanchez Tr., App. at 1014-16; Gray Tr., App. at 840-43]. They realized that in the absence of self-regulation, intercollegiate rivalry for desirable but non-needy students would be expressed in awards of unneeded financial aid (sometimes called “no-need aid” or “merit aid”). [Bowen Tr., App. at 712-15; Gray Tr., App. at 841-42; Keohane Tr., App. at 860-61]. Such awards would divert limited charitable resources from needy to non-needy students, and thereby *8 diminish the colleges' ability to fully fund need-based aid. [Gray Tr., App. at 84243; Keohane Tr., App. at 860-62; Bowen Tr., App. at 718].

Many schools, including the defendants, developed self-regulatory programs to achieve the Congressional goal of enhancing educational access and opportunity, the public policy objective of increasing socioeconomic diversity within student bodies, and their educational policy objective of admitting students without regard to ability to pay. [Ex. D-8, D-10, App. at 1368, 1375; Bowen Tr., App. at 717-19, 876-78, 879-80; Keohane Tr., App. at 859, 860-62; Gray Tr., App. at 84043; Martin Tr., App. at 908-09, 913-14]. The defendants' program of cooperative need-based aid came to be known as the “Ivy/MIT Overlap” program.

V. The Ivy/MIT Overlap Program

In 1954 the College Scholarship Service (“CSS”) was formed as an adjunct of the College Entrance Examination Board to facilitate the development of a uniform and equitable national system of assessing student financial need. [McCullough Tr., App. at 505; Fleming Tr., App. at 803-04; Martin Tr., App. at 903-04]. Before the decade was out, the defendants and other schools had mounted complementary efforts toward the same goal. Through intercollegiate cooperation and consultation, these groups sought to ensure that similarly situated students were treated similarly in the need-analysis determination. Thus, either informally in pairs or formally in groups of two or more schools, colleges would compare the preliminary determination of student financial need for any student who had been admitted to more than one school in a group (an “overlapping” student). [Fleming Tr., App. at 811-13; Martin Tr., App. at 904, 920; Case Tr., App. at 936-37; Routh Tr., App. at 634; Ex. D-10, p. 1.1-1.2, D-35, p. 1.4-1.6, D-36, G-372, App. at 1375, 1382-83, 1445-47, 1453, 1349]. By the mid-1970's, CSS was performing data processing services for 24 different overlap groups comprised of almost 150 public and private schools from Maine to California. [Ex. D-36, App. at 1453].

*9 The group at issue in this case was comprised of the Ivy League schools plus MIT. For more than two decades, the financial aid directors of the Ivy/MIT Overlap group would meet three or four times annually to pursue their common goals of providing educational opportunity and utilizing scarce charitable resources in a wise and responsible manner. [Routh Tr., App. at 634, 635; Gray Tr., App. at 837, 840-41; Bowen Tr., App. at 711, 876-77]. To better achieve these goals the schools agreed to base their aid decisions solely on the demonstrated financial need of each student. [Gray Tr., App. at 84041; Bowen Tr., App. at 712-13].

Recognizing that this joint commitment to promoting educational opportunity through need-based aid might be eroded without a common definition of “need,” the group periodically developed protocols for assessing need in ambiguous circumstances. [Bowen Tr., App. at 710; Routh Tr., App. at 639, 644-45]. These protocols ranged from simple issues such as the exchange rate to be applied to Canadian funds, to complex and difficult situations such as the factors to be considered in assessing the need of students whose natural parents were separated or divorced. [Ex. G-101, App. at 1278; Routh Tr., App. at 64445, 658-59; Hudson Tr., App. at 957-58].

The final step in the implementation of the group's cooperative need-based aid program was the exchange and comparison of preliminary need determinations for overlapping students. [Bowen Tr., App. at 711-12]. For those students whose preliminary need assessments differed significantly, the schools met to determine whether: (1) different data was being used to calculate need (such as where only one school possessed information about a recent change in family circumstances); or (2) consideration was being given to factors other than need (such as athletic talents or other student attributes). [Routh Tr., App. at 657-58; Hudson Tr., App. at 953-55; see Bowen Tr., App. at 714-15]. Where possible the schools would reconcile these differences either by recognizing that one school's thinking was obviously correct, or by calculating a new award that reflected the relative merits of each school's approach. [Routh Tr., App. at 657-58; Hudson Tr., App. at 953-55, 956-57; Gray Tr., App. at 84142]. This process usually produced consensus among the schools, but each *10 school remained free to go its own way on any particular student. [Hudson Tr., App. at 957; Routh Tr., App. at 659].

VI. The Economic Effects of Overlap: Revenue Neutrality

At trial, the parties disagreed over whether Overlap had raised the price of an education at the participating schools. Through the testimony of its expert economist, the Antitrust Division unsuccessfully attempted to establish that the overall effect of Overlap was to increase the amount the average student paid for his or her education (an amount characterized by economists for both parties as “average net revenue per student”). See Decision at 36, App. at 485. In its decision, however, the Court remained unconvinced that Overlap had any effect on average net revenue per student, and instead concluded that the only effect on price was that some students had paid more and other students had paid less than they would have in the absence of Overlap. See Decision at 36-39, App. at 485-88.

MIT's expert economist agreed that under Overlap some students had paid more and others less, but the overall result was “revenue neutrality.” Revenue neutrality exists where a higher price paid by one student is entirely offset by a lower price paid by his or her classmate. [Carlton Tr., App. at 202, 245-46, 247]. The decision below assumes that Overlap was revenue neutral. Decision at 41, App. at 490.

Since Overlap was revenue neutral, the schools derived no financial benefit from participating. [Carlton Tr., App. at 247]. Additionally, just as the schools were not economically benefitted by Overlap, the group of students attending these institutions paid no more as a result of Overlap. [Carlton Tr., App. at 202]. Thus, the decision below rests solely on a finding of scattered price effects within an environment of overall revenue neutrality.

*11 VII. The “Economic Segregation” of Higher Education

Need-blind admissions and full-need financial aid programs improve the overall quality of the educational program and increase the socioeconomic diversity of student populations. [Fleming Tr., App. at 805-07, 822; Bowen Tr., App. at 877-78, 879-80; Keohane Tr., App. at 859-60]. Before Overlap, little more than 3% or 4% of MIT's undergraduate population were from American minorities. By contrast, in 1991-92 approximately 44% of MIT's undergraduates were from American minority groups. [Behnke Tr., App. at 977; Decision at 5-6, App. at 454-55]. It is undisputed that by improving diversity among the student bodies at Overlap institutions, and by admitting students based solely on merit, the quality of education was improved for all students at the Overlap schools. [Widmer Tr., App. at 997, 1012; Bowen Tr., App. at 877-78; Keohane Tr., App. at 859-60; Decision at 46, App. at 495].

By removing the financial barrier to admissions for poor students, Overlap increased the number of qualified students able to compete for freshmen seats at the Overlap schools and thus enhanced competition in the admissions office. [Bowen Tr., App. at 717-19, 876-77, 879-80; Keohane Tr., App. at 862]. While increasing choice for needy students, Overlap did not limit choice among non-needy students, who did not require financial assistance to attend. [Keohane Tr., App. at 862; Fleming Tr., App. at 822; Bowen Tr., App. at 718].

As MIT's expert on the economics of higher education concluded, Overlap helped the participating colleges advance beyond the “economic segregation” which not long ago characterized private higher education. [Bowen Tr., App. at 881-83]. The Overlap agreements had no overall price effect and did not limit output, but furthered the goals of educational access and opportunity and thereby improved the quality of the education afforded to all students.

The Court below found that these educational policy and social welfare justifications were completely irrelevant and that the economic testimony of the three expert economists was “distract[ing].” Decision at 38, 41-43, App. at 487, 490-92. As a result, the Court concluded that *12 Overlap violated the Sherman Act and entered an order permanently barring MIT from any intercollegiate cooperation which might financially affect students. Order at 1-2, App. at 499-500.

STATEMENT OF RELATED CASES AND PROCEEDINGS

Neither this case, nor any matter related to this appeal or involving the same issue, has been or now is before this Court. Two private treble-damage class actions relating to Overlap have been brought in courts outside of this circuit and are described in the Civil Appeal Information Statement earlier filed in this case.

STATEMENT OF THE STANDARD OR SCOPE OF REVIEW

The principal questions presented for review involve the application of law to undisputed fact; upon these questions MIT seeks de novo review. Where resolution of legal issues turns upon disputed factual issues and the lower court actually resolved the factual dispute, the clearly erroneous standard will apply to the facts as found below.

SUMMARY OF ARGUMENT

A coordinated system for ensuring that charitable aid reaches those in need does not restrain “trade or commerce” under the antitrust laws. Even if the ill-fitting, commercially-based rules of the Sherman Act could be applied, no court applying the correct standard could conclude that Overlap violated the Sherman Act's “Rule of Reason.” These two separate but related points are summarized below.[FN5]

FN5. MIT's principal claims of error are also summarized graphically in the chart provided as an attachment to this brief.
A. Charitable Cooperation To Achieve Social Welfare Goals Is Not “Trade or Commerce.”

This case illustrates the anomalies created by applying the Sherman Act to institutions that are both educational and charitable. There is no doubt that the Sherman Act reaches the commercial activities of such institutions. NCAA v. Board of Regents of the Univ. of Oklahoma, 468 U.S. 85, 100 (1984). But to apply the Act to the core educational and charitable functions of universities is to deform both the statute and those functions. It is also to frame a rule that will have destructive results in this case and in the future.

At trial MIT proved, and in its opinion the District Court assumed, that Overlap was revenue neutral. Thus, Overlap constitutes nothing more than a joint venture through which colleges implemented more effectively their jointly held educational and charitable commitments. But for Overlap, and the exchange of information and establishment of criteria for assessing need that are integral parts of Overlap, two adverse consequences would follow.

First, individual universities, because of poor information or inadequate criteria, would make mistakes in pursuing the need-based aid policies which enable them to practice need-blind admissions. Second, some universities would be tempted to bid for particularly desirable students who had no financial need; this would force other universities to bid as well. There is nothing inherently wrong with such bidding, but neither is there anything wrong, legally or morally, with universities reinforcing through an agreement like Overlap the need-based policies each of them wishes to follow. Such an agreement lies beyond the statutory boundary but within the constitutionally protected zone of academic and associational rights established by the First Amendment.

B. Coordinated Distribution of Charitable Funds Is Not Unlawful Under the Rule of Reason.

The awkwardness of using the Sherman Act to evaluate agreements advancing social welfare goals is best demonstrated by actually attempting such an exercise. Thus MIT's brief begins by showing how a court would analyze Overlap if Congress had intended to use the Sherman Act to forbid all but unilateral advancement of social welfare objectives.

In analyzing Overlap as if it had occurred in a profit-maximizing context, the lower court committed two fundamental errors. First, the lower court erred by purporting to adopt a little-used legal standard --- the “truncated” Rule of Reason --- under which the Division was excused from proving that consumers as a group were economically harmed by Overlap. Second, the Court misapplied this legal standard by failing to consider whether the justifications proffered by the schools were sufficient to offset any harm to consumers. By creating a presumption of harm to consumers and ignoring any offsetting benefits, the lower court fashioned a per se standard which must inevitably prove fatal to any agreement scrutinized under it.

If the lower court had used the correct legal standard --- the Sherman Act's traditional Rule of Reason --- the case would have faltered at the outset when the Division, despite its extensive efforts, was unable to establish that consumers as a group had paid more as a result of Overlap. Even if the Division's case had been permitted to linger as a result of being allowed to substitute presumed for proven injury to consumers, ultimately it still would have failed because the schools' justifications for Overlap, largely undisputed by the Division and wholly ignored by the lower court, established that Overlap's net effect was to improve consumer welfare. Nevertheless, through excusing the Division of its proof obligations and improperly shifting these burdens to MIT, and then ignoring all justifications proffered by the schools, the lower court arrived at a result unlike any other in more than a century of antitrust jurisprudence.

*15 ARGUMENT

I. Overlap Does Not Violate Section One of the Sherman Act When Assessed Under The Appropriate Standard.

A. The Court Erroneously Selected the Harshest Standard Under Which to Evaluate Overlap.

While the language of Section One of the Sherman Act is absolute in its prohibition, careful judicial interpretation has produced an extensive body of case law ensuring that the Act does not become an impediment to social and commercial development. Thus, the Supreme Court determined early in the history of the Sherman Act that Section One prohibits only those restraints that “unreasonably” restrain trade or commerce. Standard Oil Co. v. United States, 221 U.S. 1, 60 (1911); United States v. Joint Traffic Ass'n, 171 U.S. 505, 567 (1898).

Under Section One, “reasonableness” is a term of art that has assumed meaning through nearly a century of judicial decisions evaluating conduct in light of the Act's very specialized purpose. That purpose is to protect and promote the economic welfare of consumers. See Robert H. Bork, The Antitrust Paradox 61 (1978) (“the clear and exclusive policy intention of [the Sherman Act was to] promot[e] consumer welfare”); Reiter v. Sonotone Corp., 442 U.S. 330, 343 (1979) (the Sherman Act is a “consumer welfare prescription”).

Courts have developed three different standards to evaluate the reasonableness of conduct under Section One. The traditional Rule of Reason requires an assessment of all relevant effects --- good and bad --- of the challenged conduct on the economic welfare of consumers. Chicago Board of Trade v. United States, 246 U.S. 231, 238 (1918); Weiss v. York Hosp., 745 F.2d 786, 817 (3d Cir. 1984), cert. denied, 470 U.S. 1060 (1985).

While the traditional Rule of Reason standard governs most conduct challenged under Section One, two narrow exceptions exist: (1) the “truncated Rule of Reason” and (2) the per se rule. The truncated Rule of Reason applies only where the challenged conduct is so likely to be economically harmful to consumers that the plaintiff is excused from proving such harm, and the burden then shifts *16 to the defendant to justify its conduct. NCAA v. Board of Regents of the Univ. of Oklahoma, 468 U.S. 85, 109-10 (1984). The per se rule applies only in a narrow class of cases involving the most egregious and unjustified restraints which are conclusively presumed to harm consumer welfare. Such restraints are deemed unlawful “per se,” without any analysis of their actual economic effects. Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co., 472 U.S. 284, 289 (1985).

The trial court facially held that the per se rule was an inappropriate legal standard, but proceeded to create a variant of the Rule of Reason that differed from the per se rule only in name. Using this incorrect standard, the Court then excused the Division from proving economic harm to consumers, ignored the justifications provided by the schools, and permanently banned all intercollegiate agreements falling within the impermissibly broad scope of its injunction.

As shown below, however, if the lower court had correctly analyzed Overlap under the Rule of Reason, the Division's case would have failed.

B. Overlap Is Reasonable Under the Rule of Reason Analysis.

The Supreme Court first defined the bounds of the Rule of Reason inquiry in Chicago Board of Trade v. United States, 246 U.S. 231, 238 (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 facts.

The contours of the market inquiry first articulated in Chicago Board of Trade remain unchanged in contemporary cases. See, e.g., Continental T. V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49 (1977); Tunis Bros. Co. v. Ford Motor Co., 952 F.2d 715, 722-28 (3d Cir. 1991), cert. denied, 112 S. Ct. 3034 (1992); Lie v. St. Joseph Hosp., 964 F.2d 567, 569 (6th Cir. 1992). These more recent cases, however, have more precisely described the types of economic harm that trigger antitrust scrutiny *17 under the Sherman Act, and the offsetting justifications and effects that must be considered in determining whether the challenged conduct is, on balance, reasonable. The result is a two-step analysis under which the plaintiff must first satisfy its burden of establishing that the challenged conduct has produced economic effects which are recognized as economically harmful to consumer welfare. See 7 Phillip Areeda, Antitrust Law ¶  1507b, at 397 (1986). If the plaintiff can satisfy this burden, the court then must weigh the established harmful effects against any beneficial effects of the challenged conduct in order to determine the net effect on the economic welfare of consumers. See id. The errors below tainted both steps of this analysis.

1. The Division's failure to show harm to consumer welfare is fatal to its case.

As discussed above, see supra, at 10, the District Court identified in its opinion a single economic effect of Overlap which, in its view, constituted a sufficient showing of harm to consumer welfare to place upon MIT a “heavy burden” of justifying Overlap. Decision at 39-41, App. at 488-90. The economic foundation upon which the decision rests, and ultimately fails, is the fact that Overlap shifted financial aid from wealthier students to poorer students, thereby increasing price to some students and reducing price to others.

The fatal deficiency in the lower court's legal analysis is that it rests on commercial case law in which diminished rivalry among producers always results in increased price to consumers. This predictable consequence of diminished commercial rivalry, however, cannot be presumed to exist among nonprofit firms; diminished rivalry among colleges does not necessarily result in increased price to college students. [Carlton Tr., App. at 160-61]. Colleges, unlike commercial firms, have numerous incentives which extend beyond, and are often inconsistent with, maximizing revenues. [Carlton Tr., App. at 164-65]. Thus, it is entirely possible, and was proven below, that diminished rivalry among nonprofit firms may lead to increased price to some consumers which are entirely offset by lower prices to other consumers. Such isolated and offsetting price effects, however, are not and never have been recognized as harmful to overall consumer welfare.

*18 a. Price, output, and quality are the sole indicators of anticompetitive effect under the Rule of Reason.

In the search for anticompetitive effects, economic principles have become the primary tools of antitrust analysis. Harry S. Gerla, A Micro-Microeconomic Approach to Antitrust Law: Games Managers Play, 86 Mich. L. Rev. 892, 892 (1988); Peter M. Gerhart, The Supreme Court and Antitrust Analysis: The (Near) Triumph of the Chicago School, 1982 Sup. Ct. Rev. 319, 331-32. Using these economic tools, courts have established a litmus test for determining the presence (or absence) of consumer welfare harm. That test is the effect of the challenged conduct on the price, output, and quality of the goods or services in the relevant market. That is, consumer welfare harm is established if the challenged conduct demonstrably increases price and/or reduces output, or reduces quality, in the relevant market. See, e.g., NCAA v. Board of Regents of the Univ. of Oklahoma, 468 U.S. 85, 110 (1984); National Soc'y of Professional Eng'rs v. United States, 435 U.S. 679, 693-94 (1978); Sitkin Smelting & Ref. Co. v. FMC Corp., 575 F.2d 440, 447 (3d Cir.), cert. denied, 439 U.S. 866 (1978); see also Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1109-10 (7th Cir. 1984), cert. denied, 470 U.S. 1054 (1985).[FN6]

FN6. The price/output/quality measure of consumer harm was first articulated by Chief Justice White in the landmark decision in Standard Oil Co. v. United States, 221 U.S. 1, 52 (1911) (emphasis supplied):
The evils which led to the public outcry against monopolies ... [were]: 1. The power which the monopoly gave to the one who enjoyed it to fix the price and thereby injure the public; 2. The power which it engendered of enabling a limitation on production; and, 3. The danger of deterioration in quality of the monopolized article which it was deemed was the inevitable resultant of the monopolistic control over its production and sale.
Most recent cases have recognized that price and output generally are associated in economic analysis. That is, output generally falls as price increases, and vice versa. See F. T.C. v. Superior Court Trial Lawyers Ass'n, 493 U.S. 411, 423 (1990); NCAA v. Board of Regents of the Univ. of Oklahoma, 468 U.S. 85, 107 (1984).

Thus, it is a fundamental tenet of antitrust jurisprudence that under the Rule of Reason, “[a]n antitrust plaintiff must prove that challenged conduct affected the prices, quantity or quality ‘of goods *19 or services.’ ” Tunis Bros. Co. v. Ford Motor Co., 952 F.2d 715, 728 (3d Cir. 1991), cert. denied, 112 S. Ct. 3034 (1992). As explained below, the Antitrust Division was unable to prove a deleterious effect on price, output or quality, and was able to proceed with its case only because the lower court applied the wrong standard and excused the Division from making such a showing.

b. In a charitable setting, isolated price effects do not signify harm to consumer welfare.

Without support from a single case, the Antitrust Division claims that it has established economic harm to consumers where price increases to some consumers, decreases to others, and is on average unaffected. The law, however, requires a plaintiff to demonstrate economic harm to consumers as a whole. Thus, in this case the existence (or absence) of a cognizable harmful effect turns on whether any price effect produced by Overlap is measured with respect to each individual consumer or with respect to consumers as a group. This issue can be analyzed from three perspectives: (1) the general legal principles under which the Rule of Reason determines legality; (2) the Sherman Act's policy objective of promoting consumer welfare; and (3) the economic principles used to measure the state of consumer welfare. As set forth below, each of these perspectives produces the same conclusion -- that aggregate price effect is the only appropriate measure of economic harm to consumers.

(1) The Rule of Reason addresses only harm to the competitive system and not isolated consumer harm.

There does not exist an abundance of antitrust precedent which directly addresses the question of whether price effects must be measured in the aggregate in applying the Rule of Reason. The reason for this is simple ---neither the enforcement agencies nor private plaintiffs have made a practice of suing charitable nonprofit institutions, the only type of entity which may be expected to pursue social welfare objectives by redistributing wealth among consumers but keeping none of it themselves.

*20 Nonetheless, it is clear that the Rule of Reason is a measure of aggregate consumer harm which forecloses a finding of unreasonableness based solely upon isolated adverse effects, just as it forecloses a finding of reasonableness based solely upon isolated beneficial effects. Every Rule of Reason case involves at least one consumer that has been harmed more than benefitted by the challenged collective action, but ever since Chicago Board of Trade the Rule of Reason has required a balancing of all anticompetitive effects and all procompetitive justifications to determine whether the challenged conduct has produced a net anticompetitive harm to consumers as a group. See Business Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 724 (1988); Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49 (1977); Jetro Cash & Carry Enterprises, Inc. v. Food Distribution Ctr., 569 F. Supp. 1404, 1413 (E.D. Pa. 1983). No court or commentator has suggested that in order to survive scrutiny under the Rule of Reason, each individual consumer harmed by the challenged conduct must personally experience an offsetting benefit. By definition, a price increase to one consumer or group of consumers is only one effect which, if evaluated under the Rule of Reason, must be assessed along with other effects in order to determine whether the aggregate effect is, on balance, harmful to all consumers. The lower court's termination of the inquiry once a single such individual or group has been located, where bona fide offsetting effects exist, eviscerates the Rule of Reason analysis and provides an incomplete and misleading picture of the effect of the challenged practice on consumers as a group.

Superficial analysis which leaps to conclusions upon finding an isolated price effect is particularly inappropriate in the context of nonprofit charities. Unlike charities, profit-maximizing commercial firms exist for a single reason --- to maximize profits for their owners. [Leffler Tr., App. at 93; Bowen Tr., App. at 868; Carlton Tr., App. at 157, 158]. Because actors in the commercial world are presumed to act solely to promote their economic self-interest, collective action by profit-*21 maximizers is often presumed to be economically harmful to consumers.[FN7] [See Carlton Tr., App. at 157-58, 164]. In the commercial context, then, evidence of price increases to some consumers may support a reasonable inference of an aggregate price increase, because profit-maximizers have no incentive to raise price to some consumers merely to lower prices to others. In a nonprofit setting, however, where redistribution is a plausible explanation, a court cannot infer an aggregate price effect from an isolated effect, nor can it use diminished rivalry as a substitute for a finding of increased price. In short, it was legal and economic error for the lower court to substitute commercially-based intuition for hard factual analysis. [See Carlton Tr., App. at 158-61, 164-65, 167].

FN7. Of course, collective price-setting by profit-maximizers may trigger the per se rule, under which it becomes unnecessary to determine the actual aggregate effect. No argument advanced by MIT questions application of the per se rule to naked restraints among profit maximizers.

The lower court's substantive short-cut saved time by quickly producing the wrong result.

(2) The heart of the Sherman Act --- consumer welfare --- is properly measured in the aggregate.

Although “[t]he Sherman Act does not protect the well-being of any particular consumer ....” UNR Indus., Inc. v. Continental Ins. Co., 623 F. Supp. 1319, 1328 (N.D. Ill. 1985), the Court below failed to recognize that consumer welfare is a concept that addresses the condition of consumers as a class, not on an individual basis. Even the Division's expert economist conceded that if firms were to engage in a practice, the effects of which were to increase the price to one consumer by $20,000, and to decrease price to four other consumers by $5,000 each, then from that information alone one could reach no conclusion regarding the effect on consumer welfare. [Leffler Tr., App. at 140-43]. But the lower court did precisely that which all economic experts said could not be done.

The lower court's order does not improve consumer welfare but rather improves the financial well-being of some consumers by injuring the economic interests of other consumers. Far from being a “consumer welfare prescription,” Reiter v. Sonotone Corp., 442 U.S. 330, 343 (1979), this result *22 simply protects one group of consumers at the expense of another, and deprives society of the benefits that result from charitable needs being evaluated and met by charities and not by antitrust enforcement agencies.

(3) Economic principles dictate that price effects be measured in the aggregate.

Principles of economic theory now provide the basic tools for developing antitrust policy. See Business Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 735 (1988); National Soc'y of Professional Eng'rs v. United States, 435 U.S. 679, 690-91 n.16 (1978); Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 54-57 (1977). While economics, like any discipline, enjoys various schools of thought, no school of thought maintains that isolated price increases to some consumers which are offset by price decreases to other consumers present economic harm that the Sherman Act should or does address. The two leading schools of economic thought on this subject are discussed below.

Under the economic philosophy which has had the greatest antitrust influence in recent years (generally referred to as the Chicago school), the sole legitimate objective of antitrust policy is to promote economic efficiency. See Richard A. Posner, Antitrust Law: An Economic Perspective 4 (1976). Under this view, price effects of a given practice on any particular consumer or group of consumers do not prove or even suggest economic inefficiency, and therefore neither establish nor provide any basis for inferring economic harm to consumers as a group.[FN8] As one noted proponent of the Chicago school has written: “[a]ntitrustut has a built-in preference for material prosperity, but it has nothing to say about the ways prosperity is distributed or used. Those are matters for other laws.” Robert H. Bork, The Antitrust Paradox 90 (1978).

FN8. It is an accepted maxim of economic theory that the distribution of wealth is a separate consideration from economic efficiency. Economic efficiency is defined in terms of the sum total of consumer and producer welfare. Any state of affairs that increases the total of consumer and producer welfare increases efficiency. Thus, one cannot reach any conclusion about the effects of a given behavior on economic efficiency by looking only at the effects on isolated consumers, See Posner, supra, at 10.

*23 A contending economic view maintains that the purpose of the Sherman Act is to prevent wealth transfers from consumers to producers. See generally Robert H. Lande, Chicago's False Foundation: Wealth Transfers (Not Just Efficiency) Should Guide Antitrust, 58 Antitrust L.J. 631 (1989). This theory argues that Congress passed the Sherman Act to address wealth transfers from consumers to producers that arose from output restrictions and consequent price increases effected through the exploitation of market power. Id. at 636-37.

While Professor Lande's theory differs somewhat from the Chicago school approach, it is in complete harmony with the Chicago school with respect to the salient issue in this case --- it views isolated price effects as irrelevant. That is, price increases to one consumer group that are offset by price reductions to another consumer group do not result in a wealth transfer to producers, and therefore are not the concern of the Sherman Act.[FN9]

FN9. Lande explicitly recognizes in his article that distributive goals are an inappropriate consideration in applying the Sherman Act: “Congress did not pass the antitrust laws in an attempt to achieve the optimal distribution of wealth in our economy.” Lande, supra, at 632 n.5.

In sum, isolated and offsetting price effects are irrelevant from an economic and antitrust standpoint, regardless of which economic approach is used to analyze the issues in this case.[FN10]

FN10. Indeed, the teachings of economics are so much a part of contemporary antitrust jurisprudence that the Supreme Court instructs that courts must dismiss claims that make “no economic sense.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Effecting wealth transfers from one group of consumers to another without enhancing profits would make no economic sense in the commercial world, but may be an effective means of accomplishing a social welfare objective. It makes no legal sense to regulate such conduct under a statute that presumes that the conduct never occurs. An antitrust challenge to such wealth transfers makes no economic sense, but may be an effective means of frustrating social welfare objectives with which the challenger disagrees.
c. The allocative effects of Overlap do not give rise to a cognizable anticompetitive effect.

The Division asserted that the individualized price effects described above were harmful because some students enrolled in schools different from those they would have attended in the absence of Overlap. While the Division's expert economist characterized this effect as “misallocation,” it is more fairly understood as one of many possible “allocations;” the ultimate *24 question is whether this particular allocation is economically and educationally better or worse for consumers.[FN11] The mere fact that Overlap produced a particular allocation of students, however, does not inform the analysis of the effects of Overlap on consumer welfare. The Division's argument, adopted by the trial court, that the allocation resulting from Overlap was a cognizable anticompetitive effect in and of itself is plainly wrong in this context, for three reasons.

FN11. The Division's economist frankly conceded that he would describe as “misallocation” any allocation of students other than that which a competitive regime would produce. [Leffler Tr., App. at 17]. Using the Division's curious reasoning, even if it were undisputed that Overlap had substantially reduced price, it should still be condemned for “misallocating” students. As a matter of educational policy, it was undisputed that Overlap improved the allocation of students. [Bowen Tr., App. at 876-77]. While this was a significant goal of Overlap and cannot be overlooked, as it was by the lower court, this section of the brief addresses only the disputed issue --- whether under Overlap the economic welfare of consumers was better or worse.

First, and most fundamentally, the concept of a “free market” allocation of resources is utterly foreign to the charitable nonprofit world in which Overlap existed. It is a well-accepted principle of economics that the economic justification for conferring a distinct legal status on nonprofit charitable institutions is that they effect a socially desirable allocation of resources that would not be achieved through the operation of a competitive market. Henry B. Hansmann, The Role of Nonprofit Enterprise, 89 Yale L.J. 835, 845 (1980). Obviously, a competitive market will not always allocate resources in ways which are socially desirable; that is why charities exist. Higher education would be drastically different if it operated as a commercial enterprise. [See Bowen Tr., App. at 869-73, 874-75]. Indeed, a major policy justification for supporting private charitable efforts with foregone tax revenues under I.R.C. §  501(c)(3) is that in the absence of private charities, the burden of providing such services would fall entirely on the government. H.R. Rep. No. 1860, 75th Cong., 3d Sess., reprinted in 1939-1 C.B. 772 (Part II); Bob Jones Univ. v. United States, 461 U.S. 574, 591 (1983). In short, bringing about an improved allocation of resources through the use of charitable donations is MIT's proper function as a public charity, and cannot provide a basis for assessing liability under the Sherman Act. Where cooperation among charities assists those charities *25 in their pursuit of a legitimate charitable goal, they should not be condemned simply because they cooperated.

Second, the Court seems to have assumed that in the absence of Overlap “price” would be established by a “free market” mechanism. This assumption is demonstrably incorrect. Over 75% of students enrolled at postsecondary institutions attend public colleges and universities, which are operated by the government and state-subsidized; an additional 17% of college students attend private schools, which are prohibited from making profits. See Michael S. McPherson & Morton O. Schapiro, Keeping College Affordable: Government and Educational Opportunity 3 (1991). Moreover, there was abundant and undisputed evidence at trial that with only de minimis exceptions, the federal financial aid system disburses federal funds only on the basis of demonstrated financial need, and prohibits schools from awarding private funds to any recipient of federal aid on any basis other than need. [McCullough Tr., App. at 513, 515; Hudson Tr., App. at 951]. Approximately 4 million students participate annually in federal financial aid programs, which oversee $20 billion in need-based loan and grant aid. See McPherson & Schapiro, supra, at 3, 26, 140. Accordingly, even in the absence of Overlap, the allocation of students in this country's higher education system is not determined by traditional market forces, but rather is determined, as a matter of educational policy, by the same principles advanced by Overlap.

Finally, the traditional principles underlying the presumption that an unfettered market will produce the “right” allocation simply do not apply in this case. In the commercial marketplace in which the Sherman Act traditionally is applied, collective use of price to achieve optimal allocation “impairs the ability of the market to advance social welfare by ensuring the provision of desired goods and services to consumers at a price approximating the marginal cost of providing them.” F.T.C. v. Indiana Fed'n of Dentists, 476 U.S. 447, 459 (1986).[FN12] In this case, however, it is *26 undisputed that MIT's tuition for all students, including those receiving no financial aid, is set well below its production cost. Thus, the principle that market forces serve to constrain price increases above marginal production costs simply has no meaning in the heavily-subsidized world of nonprofit, post-secondary educational institutions.

FN12. Indeed, under basic economic theory, an inefficient allocation of resources is associated with a restriction of output. Anthony Atkinson & Joseph Stiglitz, Lectures on Public Economics 5-6 (1980); Richard A. Posner, Antitrust Law: An Economic Perspective 8 (1976). That is, when firms with market power restrict output, resources are diverted from satisfying consumers' primary preferences. In this case, however, there was no evidence that overall enrollment was affected, the Antitrust Division conceded that output was difficult to define, see Government's Trial Brief at 42; Leffler Tr., App. at 145-46 (discussing output), and its expert did not even attempt to define it at trial. MIT's expert, Dr. Carlton, confirmed that a “misallocation” of resources has no meaning without a well-defined concept of output. [Carlton Tr., App. at 403-04].
2. The lower court improperly refused to consider any justification of Overlap.

Even if the Division had been able to establish a cognizable anticompetitive effect, under either version of the Rule of Reason such an effect must be weighed against any cognizable procompetitive benefits produced by Overlap to determine whether it is, on balance, economically harmful to consumers and therefore unreasonable. See supra, at 16-17. In addition, because the conduct challenged in this case involves the pursuit of government-recognized educational and social policy goals by bona fide charitable institutions, the educational and social welfare objectives of Overlap must also be considered in the Rule of Reason analysis. The trial court's failure to consider properly the “redeeming virtues” of Overlap was error.

a. Procompetitive justifications must be, but were not, considered in evaluating the reasonableness of Overlap.

At trial, MIT offered several procompetitive[FN13] justifications for Overlap, each of which presents a cognizable defense under the Rule of Reason. MIT demonstrated that Overlap: *27 (1) improved the quality of the educational program enjoyed by all students at the Overlap schools; (2) increased consumer choice by expanding the pool of able “buyers;” (3) enhanced merit-based competition in the admission process; and (4) strengthened competition in academic and extracurricular areas among participating institutions. The trial court erred by failing to consider any of these procompetitive benefits when evaluating the reasonableness of Overlap.

FN13. The economic benefits that must be considered in a Rule of Reason analysis typically are referred to as “procompetitive.” Competition, in the antitrust sense, does not refer merely to atomistic rivalry; competition in the antitrust context is a shorthand expression for consumer welfare. “ ‘Competition’ [is] a shorthand expression, a term of art, designating any state of affairs in which consumer welfare cannot be increased by moving to an alternative state of affairs through judicial decree.” Robert H. Bork, The Antitrust Paradox 61 (1978). Thus, in this brief the term “procompetitive” is used to describe those redeeming virtues of Overlap that improved consumer welfare.

First, it is undisputed that Overlap increased the quality of the educational program by promoting socioeconomic diversity within student bodies, a benefit which, as the Supreme Court has recognized, plays a vital role in the educational process.[FN14] Such improvement in the quality of a product or service traditionally has been recognized by the Supreme Court as a legitimate procompetitive justification. See Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co., 472 U.S. 284, 295 (1985) (cooperative purchasing and storage arrangement which allows retailers to maintain greater variety of goods renders market more competitive); Broadcast Music, Inc. v. CBS, Inc., 441 U.S. 1, 21-22 (1979) (blanket license, which provides consumer great flexibility in choice of musical material without negotiating numerous individual licenses, is not per se illegal).

FN14. In Regents of the University of California v. Bakke, 438 U.S. 265 (1978), the Supreme Court noted that “[t]he 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.” Id. at 312. In support of this finding, the Supreme Court cited an earlier statement by one of MIT's expert witnesses, Dr. William Bowen. Id. at 312 n.48. Ironically, because he spoke of pressing issues of equality and diversity instead of the enhancement of commercial competition, the trial court afforded no weight at all to Dr. Bowen's testimony on the very same subject the Supreme Court found so compelling in Bakke.

Second, Overlap enhanced consumer choice. As the trial court found, many economically disadvantaged students do not have the choice to attend an Overlap institution without access to supplemental economic resources. Decision at 5, App. at 454. By ensuring that limited charitable aid dollars would be allocated solely on the basis of need, and thereby increasing the financial aid funds available for needy students, many such students were provided the opportunity to attend an *28 Overlap school. Enhancement of consumer choice is a recognized objective of the antitrust laws, and has been viewed by the Supreme Court as a procompetitive benefit. NCAA v. Board of Regents of the Univ. of Oklahoma, 468 U.S. 85, 102 (1984).

While enhancing educational access and consumer choice among needy students, Overlap did not limit the choices available to qualified non-needy students. By definition, wealthy students do not require financial assistance to attend the Overlap institutions. Thus, with or without financial aid, wealthy students retain the choice to attend these universities. [Keohane Tr., App. at 862; Fleming Tr., App. at 822; Bowen Tr., App. at 718].

Third, Overlap increased merit competition in the admissions offices of the Overlap schools. Overlap enabled all students to compete equally for seats on their own academic merit, regardless of their financial means. Thus the schools regulated competition in the financial aid office to enhance competition in the admissions office.[FN15] [Bowen Tr., App. at 717-19, 876-77, 879-80; Keohane Tr., App. at 862]. Overlap also increased competition among participating schools in areas such as curriculum, campus life and student-faculty interaction. [See Bowen Tr., App. at 725-26]. Regulation of one type of competition in order to enhance another type of competition also has been recognized by the Supreme Court as a procompetitive benefit to be weighed in the balance, NCAA, 468 U.S. at 103 (restraint in one dimension of market may enhance marketwide competition); Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 54-58 (1977) (vertical restriction not per se illegal because reduced intrabrand competition offset by enhanced interbrand competition), but was not recognized below. The trial court's failure to consider these justifications in evaluating the reasonableness of Overlap was error.

FN15. As a result of increased competition among students, some students of greater wealth but lesser talents may have been denied the seats that they would have inherited had Overlap not enfranchised the poor. However, this is not a benefit of competition that the antitrust laws seek to promote. As a matter of law, competitors that are “harmed” as a result of increased competition have suffered no antitrust injury. See Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488 (1977).
*29 b. The Court's outright refusal to entertain fundamental educational policy justifications cannot stand.

In addition to ignoring the procompetitive benefits of Overlap, the trial court expressly refused to consider the educational and social policy justifications behind Overlap recognized by other branches of government. These policies were not invented by the schools, but rather are government-articulated social welfare objectives which charitable organizations embraced and implemented using tax-deductible contributions.

The necessity of considering educational policy was articulated by Justices White and Rehnquist in their dissent in NCAA v. Board of Regents of the University of Oklahoma, 468 U.S. 85, 135 (1984) (citation omitted and emphasis supplied):
The primarily non-economic values pursued by educational institutions differ fundamentally from the ‘overriding commercial purpose of [the] day-to-day activities' of engineers, lawyers, doctors, and businessmen, and neither Professional Engineers nor any other decision of this Court suggests that associations of nonprofit educational institutions must defend their self-regulatory restraints solely in terms of their competitive impact, without regard for the legitimate noneconomic values they promote.[FN16]

FN16. The view of Justices White and Rehnquist that Professional Engineers should not be read to foreclose noncommercial justifications proffered by nonprofit educational institutions is fully consistent with the majority opinion. The dissent recognized the absurdity of interpreting Professional Engineers as positing a test in which, once challenged, non-economic educational behavior can only be justified by demonstrating its commercial benefits. After finding the NCAA to be a commercial enterprise organized to maximize revenues, and to have limited output in order to increase revenues, see NCAA, 468 U.S. at 99-100 & n.22, the majority's application of Professional Engineers was entirely consistent with the dissent's view.

Overlap is a classic case in which to apply this principle. There was no dispute that Overlap served to effectuate legitimate and well-recognized educational objectives. To afford no weight whatsoever to these objectives when evaluating the reasonableness of Overlap is error, particularly where, as explained below, the objectives have been endorsed by Congress, have been recognized as having a constitutional dimension by the Supreme Court, and were found to be laudable objectives by the court below. Decision at 46, 48, App. at 495, 497.

*30 (1) The importance of socioeconomic diversity in student bodies has been recognized by the Supreme Court.

Justices White and Rehnquist's recognition of the propriety of considering non-economic values in evaluating the conduct of nonprofit educational institutions under the Sherman Act echoes a long-standing principle under which courts have given wide latitude to educational institutions in light of the important and unique position they hold in our society. See Sweezy v. New Hampshire, 354 U.S. 234, 250 (1957). In his concurring opinion in Sweezy, Justice Frankfurter summarized the “four essential freedoms” of colleges and universities:
It is the business of a university to provide that atmosphere which is most conducive to speculation, experiment and creation. It is an atmosphere in which there prevail ‘the four essential freedoms' of a university --- to determine for itself on academic grounds who may teach, what may be taught, how it shall be taught, and who may be admitted to study.

Id. at 263 (Frankfurter, J., concurring) (citation omitted and emphasis supplied). The freedom to determine on academic grounds who may be admitted to study is illusory if schools are denied the practical ability to develop a system to eliminate ability to pay as a factor the admissions office must consider.

Recognizing the importance of academic freedom, the Supreme Court has acknowledged that academic decisions clearly connected to the educational mission of an institution embody constitutional values protected under the First Amendment. As the Supreme Court stated in Regents of the University of California v. Bakke, 438 U.S. 265 (1978):
[The goal of] attain[ing] ... a diverse student body ... clearly is a constitutionally permissible goal for an institution of higher education. Academic freedom, though not a specifically enumerated constitutional right, long has been viewed as a special concern of the First Amendment. The freedom of a university to make its own judgments as to education includes the selection of its student body.

Id. at 311-12. Encompassed within these constitutional freedoms are the First Amendment right of free association[FN17] as well as the right of academic freedom.

FN17. These constitutional questions are a pressing concern both to MIT and to the academic community in general. MIT endorses and adopts the arguments advanced on these issues in the brief amicus curiae submitted by the American Council on Education, et al.

*31 By promoting socioeconomic diversity through merit-based admissions and need-based aid, Overlap directly affected “who may be admitted to study” at MIT. The principles of academic freedom endorsed in Bakke extend also to universities which make their own judgment as to economic mechanisms which enable them to better achieve their educational objectives in selecting a student body. The fundamental values underlying the challenged agreement are values of equality of educational access and opportunity, values which have been developed, advanced and embraced by the courts. The lower court erred in ruling that these considerations were entitled to no weight whatsoever in assessing the reasonableness of Overlap.

(2) Congressional policy promotes educational access and opportunity through need-based aid.

The educational policy goals that MIT sought to promote through Overlap have been expressly endorsed by Congress for over twenty-five years. As the trial court acknowledged, but then ignored, for decades the cornerstone of our national educational policy has been the advancement of equality of educational access and opportunity. Decision at 48, App. at 497.

Congress has sought to further these policies through its federal financial aid programs. For nearly three decades, federal financial aid programs have been almost exclusively need-based, providing federal aid only on the basis of demonstrated need, and prohibiting private aid in excess of need to any student receiving federal aid. [Fleming Tr., App. at 804-05; Hudson Tr., App. at 951; McCullough Tr., App. at 513, 515; 34 C.F.R. § §  674.14, 675.14 & 676.14 (1991)]. As the trial court found:
49. If a student receives any federal need-based aid, he or she may not receive additional aid from an institution which would exceed his or her need .... Such aid is considered an ‘overaward.’
50. If a student receives one dollar from a federal need-based aid program, all financial aid funds provided to that student must be awarded on the basis of need.

Decision at 10, App. at 459.

*32 In focusing on need-based aid, federal financial aid programs seek to achieve horizontal and vertical equity in order to enhance the actual and perceived fairness of the financial aid system. [McCullough Tr., App. at 511-12; Martin Tr., App. at 915-16, 924]. Thus,
Federal financial aid policy aims to ensure that similarly situated students are treated the same regardless of which institution, or aid officer within that institution, reviews their applications, and that students with less financial need do not receive more aid than those students with more financial need.

Decision at 8, App. at 457. This is precisely the public policy the schools cooperatively were pursuing through Overlap, yet the lower court held that it could not even consider this fact. Ironically, it is only by undermining this policy, treating similarly situated students differently and minimizing the influence of financial need in making aid awards, that the Division's “correct” allocation of students could be approached.[FN18]

FN18. The Division's “correct” allocation of students can only be achieved through a misallocation of charitable resources. This may explain why only days after the trial began, Congress acted on an interim basis to preserve the most critical attributes of intercollegiate need-based aid agreements. See Higher Education Amendments of 1992, Pub. L. No. 102-325, §  1544, 106 Stat. 448, 837. While the legislation states that it does not apply to cases pending on the date of enactment, it is hard to ignore Congress' expression of concern.

Through Overlap, the participating schools sought to achieve the same educational objectives endorsed by Congress, using the same approaches utilized by federal financial aid programs. By linking aid to demonstrated need, the Overlap schools sought to maximize educational access and opportunity through dedicating their limited charitable dollars to the most effective use ---meeting need. By developing a uniform method for need analysis, they sought to promote equity such that similarly situated students did not receive substantially different aid awards. The cooperative pursuit of these government-endorsed educational objectives, through government-utilized means, by government-certified nonprofit institutions expressly charged with pursuing charitable educational objectives, certainly must be weighed in the balance in determining the “reasonableness” of Overlap.

*33 (3) The Court misread Professional Engineers and Indiana Federation of Dentists as prohibiting any consideration of educational policy and other non-economic justifications.

The trial court's candid refusal to consider educational policy objectives was based upon its misreading of National Society of Professional Engineers v. United States, 435 U.S. 679 (1978) and F.T.C. v. Indiana Federation of Dentists, 476 U.S. 447 (1986). The Court concluded that these cases prohibited it from considering educational policy objectives because in both cases the Supreme Court declined to consider non-economic, social policy justifications as a defense to revenue-enhancing agreements among profit-maximizing actors. The trial court's reliance on these cases was misplaced, because Professional Engineers and Indiana Federation of Dentists simply do not extend to the pursuit of recognized social policy objectives by bona fide nonprofit institutions which do not benefit financially as a result of their actions.

Both Professional Engineers and Indiana Federation of Dentists involved profit-seeking professionals --- engineers and dentists --- who engaged in anticompetitive behavior intended to enhance their own profits by increasing prices to consumers. The agreement challenged in Professional Engineers was a rule intended to maintain price by prohibiting competitive bidding among engineers. Professional Eng'rs, 435 U.S. at 683-84. At issue in Indiana Federation of Dentists was an agreement among competing dentists to increase to insurers the difficulty of obtaining x-rays, thereby obstructing the insurers' cost-containment measures. Indiana Fed'n of Dentists, 476 U.S. at 449-51. In both cases, the court refused to entertain ostensible social policy justifications proffered by those who reaped the economic benefits of such agreements. Those two cases are fairly read to stand for the unremarkable proposition that those who have injured consumer welfare by collectively extracting higher prices cannot justify this result by claiming that collective action was necessary to produce a costlier, higher quality product than the commercial market otherwise would sustain.

*34 Such concerns are not present, however, in a case involving charitable institutions, which do not act like profit-maximizers, which are not extracting greater revenues from consumers, which are afforded special tax status to facilitate their pursuit of socially desirable objectives, and which engage in joint behavior for the purpose of achieving government-supported welfare objectives. In their opinion in NCAA, Justices White and Rehnquist explicitly recognized this fundamental distinction as it relates to educational institutions, and the inapplicability of Professional Engineers in such cases. See NCAA v. Board of Regents of the Univ. of Oklahoma, 468 U.S. 85, 135 (1984). Similarly, the D.C. Circuit has acknowledged that:
some practices by nonprofit organizations may produce anticompetitive effects but still be essential to the organization's achieving its legitimate noncommercial objectives. In such a case, we do not foreclose the possibility that achieving the essential noncommercial objective may justify some anticompetitive impact.

Association for Intercollegiate Athleticsfor Women v. NCAA, 735 F.2d 577, 584 n.8 (D.C. Cir. 1984) (citations omitted).

In sum, this is not a case in which the defendants increased average price and used the excess revenues to produce an education higher in quality than the “market” would support. It is a case in which collective action produced no change in average price and no reduction in measurable output, and it helped to achieve social goals which led to an improvement in quality. Under such circumstances, evidence of the government-supported, constitutionally-recognized educational and social policies that MIT sought to promote through Overlap are particularly relevant to determining whether the conduct challenged in this case was “reasonable” under the Sherman Act. The Court's refusal to place these justifications onto the balance in determining reasonableness was error.

*35 (4) The Court's suggestion that Overlap may not be necessary to the pursuit of educational opportunity and diversity is contrary to the evidence and internally inconsistent.

(a) The unopposed evidence established that Overlap promoted educational opportunity and diversity.

After accepting the premise of revenue neutrality, the lower court nevertheless expressed doubt over MIT's assertion that Overlap helped to preserve need-blind admissions and need-based aid. The Court's unexplained skepticism must rest upon one of two assumptions, both of which are unsupported by the record. The Court assumed that, even without an intercollegiate agreement, (1) the schools unilaterally would have decided to limit aid to demonstrated need, or (2) there would have been sufficient charitable resources available to the Overlap schools that they would have increased their financial aid budgets in order to fund both no-need aid and need-blind admissions/need-based aid. The first assumption, however, is directly contrary to the evidence submitted by both parties; the second assumption has been foreclosed by the Court's acceptance of revenue neutrality.

If the Antitrust Division believed that without Overlap the schools independently would have sustained their commitment to need-based aid, then it has wasted a great deal of time and money on an abstract, theoretical exercise of no practical significance. However, the Division's expert economist predicted that in the absence of Overlap the schools would provide no-need aid, and this was not disputed by MIT. [Leffler Tr., App. at 118]. Given the revenue neutrality proved by MIT and assumed by the Court, every dollar of no-need aid would be funded from money previously used for need-based aid. Moreover, the Division's economist conceded that even in the absence of revenue neutrality, if merit aid is given to non-needy students, there will be fewer funds available for need-based aid. [Leffler Tr., App. at 119]. Thus, both parties are in agreement that the post-Overlap financial aid environment hoped for by the lower court --- no-need aid plus full need-based aid --- will not occur.

The Court's faulty assumptions have no connection with the evidence. After two years of a nationwide investigation, more than one year of trial preparation, dozens of depositions and unlimited *36 national subpoena power, the Division did not produce a single witness at trial who identified any college or university which currently maintains policies of true need-blind admissions, need-based aid, and a commitment to meeting the full need of every admitted student without participating in Overlap. MIT, on the other hand, produced a number of distinguished witnesses from the educational community, including Dr. William Bowen, Dr. Paul Gray, and Dr. Nannerl Keohane. Each of these college presidents testified that preventing schools from working together to develop standards and procedures for measuring need, sharing information and making assessments concerning the determination of need will make it more difficult to assess need accurately, and will make it more difficult to allocate financial aid resources based upon actual need, ultimately forcing schools away from a purely need-based system. All agreed that while schools independently may resolve not to give merit aid, it will be difficult to maintain that resolve in the absence of a consistent definition of need, and in the face of constant pressure from various segments of the university to use school resources to attract the most desirable students. [Bowen Tr., App. at 712-15, 717-18, 880-81; Gray Tr., App. at 841-43; Keohane Tr., App. at 858-62].

Moreover, based upon their experience and personal knowledge as senior policymakers who approved their respective schools' participation in Overlap, these presidents testified that Overlap was intended to advance educational objectives, and not to benefit the schools financially. [Keohane Tr., App. at 859; Bowen Tr., App. at 711; Gray Tr., App. at 840-43]. Again, the Division produced no fact witnesses with first-hand knowledge of Overlap who testified that Overlap was intended to limit aid expenditures.

The lower court proposed that the schools “should be willing to dedicate the necessary resources to ensure the continuation of [need-blind admissions],” and recognized that this “will have a financial impact in other areas of the schools' operations ....” Decision at 47-48, App. at 496-97. But it is wrong to suggest that in a budgetary competition between a needy student and a leaking roof *37 the needy student will always win; it is unwise to force needy students into this arena knowing that some will lose, and it is incorrect to hold that the Sherman Act requires that such a struggle occur.

Brown University provides a case in point. Brown's Dean of Admissions and Financial Aid testified that due to limited financial aid resources, Brown cannot admit all members of each class on a need-blind basis. Once the financial aid budget has been expended, Brown must consider each subsequent applicant's ability to pay in making its admissions decisions. That is, once the financial aid funds run out, regardless of how qualified a needy student may be, that student will be passed over in favor of a less qualified but wealthier applicant. [Widmer Tr., App. at 993-95].

Further, Dr. Dallas Martin, President of the National Association of Student Financial Aid Administrators (NASFAA), who has worked in the financial aid community and has in-depth knowledge of federal financial aid programs and the practices of NASFAA's 3200 financial aid professionals, testified that it is very rare for a school to practice true need-blind admissions and need-based aid, and that the Overlap schools have distinguished themselves for their diligence in pursuing and success in achieving these objectives. [See Martin Tr., App. at 921-22; see also Fleming Tr., App. at 811; Behnke Tr., App. at 975].

Finally, the effect of Overlap in promoting educational access and diversity can be best understood by performing antitrust's traditional “before and after” test. See Chicago Board of Trade v. United States, 246 U.S. 231, 238 (1918). Prior to the commencement of Overlap, schools such as MIT and the Ivy League tended to draw students mostly from wealthy or well-established families [Fleming Tr., App. at 806], and little more than 3% or 4% of MIT's undergraduate population were from American minorities. This number increased dramatically while Overlap was in existence. During the 1991-92 academic year approximately 44% of the undergraduate student body were from American minority groups. [Behnke Tr., App. at 976-77].

*38 In light of this uncontroverted evidence, any thought that Overlap bore no relationship to the ability of its member schools to provide educational access and opportunity to economically disadvantaged students is simply wrong.

(b) The Court's failure to appreciate the significance of revenue neutrality allowed the Court to speculate that Overlap might not be necessary to the schools' important educational goals.

The empirical findings of MIT's expert witness, Dr. Dennis Carlton, strengthen the conclusion that the purpose of Overlap was to promote educational access and socioeconomic diversity and not to increase revenues. As discussed above, see supra, at 10, there was substantial evidence presented at trial that Overlap did not affect the schools' revenues. While the Court acknowledged that the economic analysis of the effects of Overlap on revenues was the subject of much focus at trial, the Court held that the resolution of this matter was “not germane” to the resolution of this case and did nothing more than “distract” the Court. Decision at 37, App. at 486. After hearing the evidence at trial, the Court was willing to assume that Overlap was revenue neutral for purposes of rendering its decision. Decision at 41, App. at 90.[FN19]

FN19. In its decision, the Court expressly acknowledged the weakness of much of the Division's economic analysis. Decision at 38 n.10, App. at 487.

The evidence, and the Court's assumption, that Overlap was revenue neutral is significant for two reasons. First, it demonstrates that the Overlap institutions did not participate in Overlap for financial gain. Second, it reveals that the schools would not have increased financial aid expenditures in the absence of Overlap. As explained by Dr. Keith Leffler, the Division's expert economist, “Revenue neutrality is ... a fancy [way of saying that] the amount of financial aid, is a single fixed amount, unchanged and unvaried.” [Leffler Tr., App. at 119]. The detailed empirical studies of MIT's economic expert, Dr. Dennis Carlton, concluded that Overlap was revenue neutral, and were supported by the evidence showing that the schools' commitment to financial aid had stretched to, and in some cases beyond, the breaking point. [Carlton Tr., App. at 253; Widmer Tr., App. at 994-95].

*39 If financial aid expenditures remain constant with or without Overlap, as MIT proved and the trial court assumed, and no-need aid increases without Overlap, as the Division predicted and MIT concurred, need-based aid will decrease. As Dr. Leffler explained, assuming revenue neutrality, if no-need aid breaks out, “We're just taking dollars out of one [student's] pocket and putting it into other [students'] pockets.” [Leffler Tr., App. at 119].

The uniformity in the testimony of both expert economists regarding the meaning of revenue neutrality highlights the trial court's economic error in first accepting revenue neutrality but then suggesting that when Overlap is prohibited schools will suffer a decrease in revenue caused by an increase in their financial aid budgets. Thus the Court's suggestion that the schools can engage in “merit aid” without cannibalizing need-based aid and undermining need-blind admissions is an unsupported message of hope which is inconsistent with the economic proof and educational reality. Decision at 42, 4648, App. at 491, 495-97.

c. Absolute necessity is not the standard by which to measure whether conduct is reasonable.

In surmising that without cooperation the schools might continue to promote educational access and socioeconomic diversity, albeit in an “imperfect” way, Decision at 47, App. at 96, the Court expressly placed upon MIT the burden of proving that Overlap was necessary to accomplish these legitimate objectives. In doing so, the Court erred by: (1) imposing the same standard it would apply to profit-maximizers; (2) using an incorrect standard of absolute necessity with which to determine the reasonableness of Overlap; and (3) improperly placing the burden of proof on MIT.

The Sherman Act's preference for competition over cooperation is based on commercial experience showing that cooperation among profit-maximizers adversely affects consumer welfare. Thus, in order to override the Act's preference for competition, profit-maximizers must show that cooperation is necessary to the achievement of some legitimate objective. In the nonprofit world, however, it is inappropriate merely to assume that cooperation adversely affects consumer welfare. Therefore, before the Division can hold the schools to the commercial standard of “necessity,” it must *40 first show that cooperation among the schools is likely to produce the same harms consumers experience when commercial firms cooperate. This it has not done.

Moreover, even among commercial firms, as long as a practice is “fairly necessary” to achieve a legitimate objective, it is not unlawful under the Rule of Reason. Bravman v. Bassett Furniture Indus., Inc., 552 F.2d 90, 102 (3d Cir.), cert. denied, 434 U.S. 823 (1977); American Motor Inns, Inc. v. Holiday Inns, Inc., 521 F.2d 1230, 1248 (3d Cir. 1975). The mere fact that there may be an alternative way to achieve the objective does not render the existing arrangement unlawful. American Motors Inns, 521 F.2d at 1248.

Determining whether a practice is “fairly necessary,” entails a two-part inquiry: first, does the challenged practice serve the legitimate objective; and second, are there other “less restrictive alternatives by which the collaborators can achieve their legitimate objective with fewer harms to competition.” 7 Phillip Areeda, Antitrust Law ¶  1505, at 383-84 (1986). Once a defendant demonstrates that a challenged practice furthers a legitimate objective, the burden shifts to the plaintiff to show that the objectives can be as effectively achieved through a significantly less restrictive alternative. Id. ¶  1507b, at 397; Bhan v. NME Hosps., Inc., 929 F.2d 1404, 1413 (9th Cir.), cert. denied, 112 S. Ct. 617 (1991).

Had MIT been a commercial firm, after the schools established that Overlap assisted in furthering legitimate objectives, the burden would have shifted to the Division to introduce evidence demonstrating that the Overlap schools could accomplish these objectives through less cooperative means. The Division, however, offered only conjecture, contradicted by both the evidence and by the Court's assumption of revenue neutrality, that the Overlap schools acting independently might fully fund both need-blind/full-need aid and no-need aid. Given the fact that the Division did not even attempt to meet its burden of proof on this issue, it was error for the lower court to reach any conclusion other than that Overlap was reasonably necessary to preserve need-based aid and need-blind admissions.

*41 C. The “Truncated Rule of Reason” Would Not Apply in this Case.

The truncated Rule of Reason is appropriate only where the evidence makes clear that the challenged practice, unlike Overlap, manifestly has an adverse effect on price, output, or quality and thus economic harm to consumers may be presumed. Here, the trial court erred in resorting to this version of the Rule of Reason in analyzing Overlap, based upon its faulty reasoning that Overlap was “so inherently suspect, that even under the Rule of Reason ‘no elaborate industry analysis [was] required to demonstrate [its] anticompetitive character.’ ” See Decision at 39, App. at 488. Moreover, even if the truncated Rule of Reason were the right standard, by ignoring Overlap's beneficial effects the lower court applied it incorrectly.

1. The truncated Rule of Reason applies only to conduct which, unlike Overlap, manifestly has an adverse effect on price, output, or quality.

The Supreme Court has applied the truncated Rule of Reason in just three cases. In each case, the Court expressly found that the challenged conduct was such a naked restraint on price, output, or quality that no protracted analysis of the market was required to conclude that the conduct had harmful effects. See F.T.C. v. Indiana Fed'n of Dentists, 476 U.S. 447, 460 (1986) (in “economic war” between providers and insurers, in which the “name of the game is money,” dentists' obstruction of insurers' cost-containment programs was sufficiently likely to disrupt functioning of commercial market's normal price-setting mechanism that actual proof of higher prices was not required); NCAA v. Board of Regents of the Univ. of Oklahoma, 468 U.S. 85, 110 (1984) (television broadcast plan that competed in commercial market on its face and in fact increased price and decreased output, thus requiring some competitive justification of adverse economic effect); National Soc'y of Professional Eng'rs v. United States, 435 U.S. 679, 692 (1978) (where engineers' ban on competitive bidding resulted in increased revenues, Court concluded that “no elaborate industry analysis is required to demonstrate the anticompetitive character of [an agreement that restrains trade on its face]”). Unlike this case, two of these three decisions rest on a specific finding of actual price increase or output reduction, see NCAA, 468 U.S. at 113; Professional Engineers, 435 U.S. at 693, *42 and one decision relies on “common sense and economic theory” to condemn providers' collective efforts to impose higher costs on insurers. See Indiana Fed'n of Dentists, 476 U.S. at 450, 456. Significantly, economic harm to consumers --- higher prices or diminished output --- existed in each of these three decisions but does not exist in the present case. The trial court thus would have erred in analyzing Overlap under the truncated Rule of Reason.

2. The Court applied the per se rule.

While the truncated Rule of Reason abbreviates the “elaborate industry analysis” typically required to search for adverse economic effects in Rule of Reason cases, it does not permit the court to disregard procompetitive effects of, or other legitimate justifications for, the challenged conduct. See Indiana Fed'n of Dentists, 476 U.S. at 459-60; NCAA, 468 U.S. at 113. Thus, even if the truncated Rule of Reason had been the appropriate standard, the Court still would have been required to balance any adverse economic effects of Overlap against the justifications proffered by MIT. The lower court erred when it made no attempt to do so. Decision at 41-46, App. at 490-95.

By excusing the Division from proving economic harm to consumer welfare, and refusing to

consider the schools' justifications, the lower court did that which it had already held to be erroneous --- it applied the per se rule. As the lower court recognized, however, Decision at 33, App. at 482, Supreme Court precedent precludes such an approach, and cannot be avoided merely by affixing new labels to the per se approach.

I. Overlap Does Not Constitute “Trade or Commerce” Within the Meaning of the Sherman Act.

A. The Sherman Act Does Not Apply to Conduct Such As Overlap Which Is Noncommercial in Its Intent and Primary Effect.

The antitrust laws provide no basis for enforcement agencies to impede collective efforts to pursue social or political objectives that are not to their liking. As explained below, the Division has trespassed beyond the statutory boundary of “trade or commerce” in attempting to regulate coordination among nonprofit organizations, which act to achieve the fairest allocation of private *43 charitable funds, in order to more effectively attain social welfare goals embraced by the government --- in a “market” in which the final “product” is subsidized below cost for all “buyers,” given outright to some who cannot afford it, and withheld from others who could and would pay a great deal for it if only the “sellers” would sell to them.

1. The legislative history of the Sherman Act makes clear that it was not intended to address noncommercial conduct such as Overlap.

The legislative history reveals that Congress did not intend to subject the charitable functions of nonprofit entities to the proscriptions of the Sherman Act. In response to a proposed amendment that explicitly would have exempted temperance unions, Senator Sherman stated:
I do not see any reason for putting in [an exclusion for] temperance societies any more than churches or school-houses or any other kind of moral or educational associations that may be organized. Such an association is not in any sense a combination or arrangement made to interfere with interstate commerce .... I do not think it is worth while to adopt the amendment [relating to] temperance societies. You might as well include churches and Sunday schools.

The Legislative History of the Federal Antitrust Laws and Related Statutes 252 (Earl W. Kintner ed., 1978) (quoting 21 Cong. Rec. 2658-59 (1890) (emphasis supplied)). This history explains the intention of Congress, embodied in the “trade or commerce” requirement, to limit the Act's reach to conduct that is fundamentally commercial, and exclude conduct that is motivated by noncommercial objectives.[FN20]

FN20. Judge Bork has observed that the “trade or commerce” limitation was intended to eliminate non-commercial (i.e. social or political) conduct from the purview of the Act, based upon the understanding in 1890 that, given the limitations of the Commerce Clause, Congress did not have the constitutional authority to regulate non-commercial endeavors. Robert H. Bork, Legislative Intent and the Policy of the Sherman Act, 9 J.L. & Econ. 7, 31-33 (1966).

It is a fundamental principle of statutory interpretation that in interpreting and applying legislation, courts should identify the intent of the drafters and apply the statute consistent with the intent. 2A Sutherland Statutory Construction §  48.01, at 302 (5th ed. 1992); 2B Sutherland Statutory Construction §  49.01, at 1 (5th ed. 1992). The Sherman Act is no exception, and on the subject of “trade or commerce” the Supreme Court consistently has relied on the principle of original intent in *44 applying the Sherman Act. See, e.g., Eastern R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 141 (1961) (“the proscriptions of the [Sherman] Act, tailored as they are for the business world, are not at all appropriate for application in the political arena”); United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 553-60 (1944) (application of the Sherman Act to interstate sale of insurance “is in harmony with the spirit and impulses of the times which gave [the Act] birth”); Apex Hosiery Co. v. Leader, 310 U.S. 469, 489 (1940) (in determining whether it applies to union activity, the Sherman Act should be interpreted “in the light of its legislative history and of the particular evils at which [it] was aimed”).

By extending the reach of the Sherman Act to Overlap even though Overlap was motivated by noncommercial objectives and did not enhance revenues, the trial court impermissibly trespassed beyond the explicit boundaries established by the framers of the Sherman Act.

2. Courts consistently have declined to extend the reach of the Sherman Act to noncommercial conduct.

The Supreme Court repeatedly has recognized the limitations of the Sherman Act embodied in the “trade or commerce” requirement and has refused to extend the Sherman Act to conduct which is essentially noncommercial. See Apex Hosiery Co., 310 U.S. at 493 (the purpose of the Sherman Act is “the prevention of restraints to free competition in business and commercial transactions”); Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 213 n.7 (1959) (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”).

Applying this long-settled principle in Marjorie Webster Junior College, Inc. v. Middle States Ass'n of Colleges & Secondary Schools, Inc., 432 F.2d 650 (D.C. Cir.), cert. denied, 400 U.S. 965 (1970), the court held that an intercollegiate agreement to refuse to certify a profit-making competitor was motivated by noncommercial objectives, and therefore was not susceptible to scrutiny under the Sherman Act. The court found that the defendants' accreditation program did not constitute commerce within the meaning of the Sherman Act because it was intended to promote educational *45 quality. Id. at 654-55. It explained that the Sherman Act must be applied “in light of its legislative history and of the particular evils at which the legislation was aimed,” and that the conduct at issue was not within the intended aim of the statute: “[T]he proscriptions of the Sherman Act were ‘tailored ... for the business world,’ not for the noncommercial aspects of the liberal arts ...” Id. at 654 (footnote omitted).

The court also found that the schools' motivations were relevant to determining the “commercialness” of the conduct:
It is possible to conceive of restrictions on eligibility for accreditation that could have little other than a commercial motive; and as such, antitrust policy would presumably be applicable. Absent such motives, however, the process of accreditation is an activity distinct from the sphere of commerce; it goes rather to the heart of the concept of education itself. We do not believe that Congress intended this concept to be molded by the policies underlying the Sherman Act.

Id. at 654-55 (footnotes omitted).[FN21]

FN21. Relying on parallel principles, courts have declined to extend the antitrust laws to behavior that is clearly motivated by non-commercial objectives, particularly where the actors do not stand to benefit economically from the challenged activity. See, e.g., NAACP v. Claiborne Hardware Co., 458 U.S. 886, 913-15 (1982) (Supreme Court refused to apply the Sherman Act to a buyers' boycott motivated by social rather than commercial goals, despite the fact that the boycott was intended to have an adverse economic effect); National Org. for Women, Inc. v. Scheidler, 968 F.2d 612, 617-21 (7th Cir. 1992) (conspiracy to close women's health centers that perform abortions by co-conspirators which had established competing pregnancy testing and counseling facilities was not covered by the Sherman Act, because “the [Sherman] Act was not intended to reach the activities of organizations espousing social causes” but rather “was intended to prevent business competitors from making restraining arrangements for their own economic advantage”), petition for cert. filed, 61 U.S.L.W. 3371 (U.S. Nov. 2, 1992) (No. 92-780); Missouri v. National Org. for Women, Inc., 620 F.2d 1301, 1309 (8th Cir.) (boycott of convention facilities in states that had not ratified the ERA was beyond the scope and intent of the Sherman Act because the Act was meant to cover “competitive activities by competitors with some self-enhancement motivation,” and not social or political activities), cert. denied, 449 U.S. 842 (1980). See also Donnelly v. Boston College, 558 F.2d 634, 635 (1st Cir.) (law school admissions activities are non-commercial and not covered by the Act), cert. denied, 434 U.S. 987 (1977); Proctor v. General Conference of Seventh-Day Adventists, 651 F. Supp. 1505, 1524 (N.D. Ill. 1986) (distribution of religious literature is non-commercial and not within the purview of the Act); Jones v. NCAA, 392 F. Supp. 295, 303 (D. Mass. 1975) (NCAA eligibility rules are non-commercial and not within the Act's coverage).

This Circuit has adopted the principles articulated in Marjorie Webster. See College Athletic Placement Serv., Inc. v. NCAA, 1975-1 Trade Cas. (CCH) ¶  60,117 (D.N.J.), aff'd, *46506 F.2d 1050  (3d Cir. 1974). In that case, this Court affirmed a lower court's ruling that an NCAA eligibility rule that rendered ineligible any student who utilized the College Athletic Placement Service, a private business that located college athletic scholarships for high school students, did not affect “trade or commerce” and therefore was not actionable under the Sherman Act. The court reasoned that the rule had an educational purpose of ensuring that “the admission standards of member colleges ... would not be compromised by a party with a financial stake in the admission of a student athlete.” Id. ¶  60,117, at 65,267. Like the D.C. Circuit in Marjorie Webster, this Circuit affirmed the district court's finding that the challenged conduct did not affect trade or commerce despite the fact that it had a significant effect on commercial activities. Indeed, it destroyed the plaintiff's business.

The courts in these cases correctly discerned that the Sherman Act cannot be used to regulate undertakings that are not motivated or governed by the principles of the commercial marketplace. By failing to make this critical distinction, the lower court strayed beyond the commercial world and trespassed into the political and social welfare arena.[FN22]

FN22. An illustration of the danger of extending the Sherman Act beyond the commercial world is contained in the testimony of the Antitrust Division's expert economist, in which he uses the same principles to condemn Overlap and to question a hypothetical agreement between hospitals to distribute transplant organs based upon need, and not based upon the wealth of the recipients. [Leffler Tr., App. at 135-38].
B. Overlap Was Noncommercial in Its Intent and Effect.

1. The trial court's conclusion that Overlap restrained “trade or commerce” is based upon defective reasoning.

The opinion provides three faulty bases for the trial court's conclusion that Overlap restrained trade or commerce. The first two --- that MIT engages in significant economic activity, Decision at 25-26, App. at 474-75, and that it provides educational services in exchange for money, Decision at 26, App. at 475 --- do not provide a legally sufficient basis for categorizing Overlap as “commercial” conduct. The third basis, the Court's conclusion that the awarding of financial aid is indistinguishable *47 from the commercial practice of providing a “discount” off of a “list price,” is completely contrary to both the record and reality.[FN23] Decision at 26, App. at 475.

FN23. The lower court denounced as “pure sophistry” MIT's explanation of why providing educational access to the poor is legally, economically, and socially different from manufacturing and selling commodities for profit. Decision at 26, App. at 475. Harsh rhetoric, however, can neither cloak nor excuse the absence of reasoned analysis in the lower court's decision.

The fact that MIT is a significant economic entity cannot, in and of itself, consign all of its activities to the sphere of “trade or commerce.” Many organizations which pursue charitable or other noncommercial goals are significant economic entities in the sense that they control substantial assets and make decisions concerning millions of dollars of expenditures. Examples of other noncommercial organizations that engage in significant economic activity include many organized religious denominations, private foundations, and noneducational charities such as the United Way and the Salvation Army. The effectiveness of such organizations in achieving their social welfare objectives, as evidenced by the large number of people who support them and are benefitted by them, cannot alone subject them to regulation by the Sherman Act. Just as small businesses, although small, are still commercial, large charities, although large, are still charities.

Similarly, the fact that students contribute varying amounts toward the cost of an education, cannot be dispositive where it is undisputed that no student's contribution even approaches the cost of providing an education. Many charitable transactions involve some sort of contribution by the recipient based on ability to pay. Describing the subsidized education of the poor as commercial completely mischaracterizes the nature of the schools' role in society. It is no more accurate to describe charitably-subsidized education as commercial than it is to describe weekly contributions to a religious organization as a “fee for service” arrangement in which the service sold is the promise of eternal life.

Finally, the trial court's characterization of Overlap as commercial price-fixing is based upon a faulty analogy between the Overlap process and commercial discounting. See Decision at 26, App. *48 at 475. The Court cites nothing in the record to support its flawed analogy. Indeed, nothing in the record supports it, and undisputed facts rebut it. Financial aid distributed by the Overlap schools was charity, not “discounts.”[FN24] When a college such as MIT can fill all its seats with students willing to pay full price, accepting impecunious students for a smaller tuition, or no tuition, is “charity” in the purest sense. It is charitable and educational policy, not revenue-enhancing policy, that produced Overlap.

FN24. In the commercial world, discounts are not granted unless they increase volume or enhance revenues. Roger D. Blair & David L. Kaserman, Antitrust Economics 259-61 (1985). The evidence in this case is that these effects were neither intended by nor resulted from the Overlap process. The commercial principles on which “discounts” are based in the for-profit setting bear no logical relationship to the conduct at issue in this case.

MIT's use of need-blind admissions, recognized by the Court below, Decision at 5, App. at 454, itself refutes the Court's commercial discount hypothesis. No commercially motivated school would blind itself to whether a candidate for admission was coming checkbook in hand, or hand out. MIT does just that as a matter of educational policy, and then makes up the difference by seeking charitable donations from alumni.

2. Overlap promoted educational objectives without benefitting the schools financially.

The charitable, educational and social welfare enhancing attributes of Overlap which place it outside of the commercial sphere regulated by the Sherman Act were addressed above in the context of the Rule of Reason analysis. They include the following. MIT (and each of the other Overlap schools) is qualified under 501(c)(3) of the Internal Revenue Code as a charitable corporation, a status which requires it to have and maintain a recognized charitable mission, and places strict limitations on its ability to generate and distribute profits. [See Gray Tr., App. at 825; I.R.C. §  501(c)(3) (1988)]. MIT maintains its charitable, educational mission in many ways, including in its financial aid policies. It charges many students less than it could, subsidizes all students, awards approximately $20 million in institutional grant aid that it need not award in order to *49 fill its classes with able students, and does not give financial aid to those without demonstrated need. [Gray Tr., App. at 757-58, 767, 833, 839; Hudson Tr., App. at 949-50; Behnke Tr., App. at 973].

Overlap in particular was consistent with MIT's charitable mission, as it was intended to, and did, promote well-recognized goals of educational opportunity and socioeconomic diversity. It was not intended to financially benefit the participating schools, and in fact it did not increase the schools' revenues, a result which is consistent with Overlap's charitable purpose, and utterly at odds with commercial behavior.

By definition, charities seek to employ the resources available to them to serve those in need, and not to benefit themselves materially. Black's Law Dictionary 235 (6th ed. 1990). It is not uncommon in the world of philanthropy for separate charities to coordinate their activities in order to better assess the needs of society, and to more effectively serve those needs with the limited resources available. [Bowen Tr., App. at 863, 867, 871-72; Carlton Tr., App. at 165-66]. Like Overlap, such arrangements are intended to advance socially desirable objectives that are not served by any commercial market. Like Overlap, such endeavors will be at risk under the Sherman Act if the trial court's judgment is permitted to stand.

In sum, Overlap is charity and charity is not commerce. As such, the Sherman Act simply has nothing to say about it.

CONCLUSION

The proposition that the Division seeks to test in this case is that wealthy consumers have a legal right to the financial benefits they might enjoy from promoting rivalry among charities, even where the resulting financial enjoyment for the rich causes increased deprivation of the poor. Of course, the Sherman Act does not assign a higher value to the welfare of rich consumers than the welfare of poor consumers, or vice versa. The law speaks only in terms of the total welfare of all consumers.

*50 Here, the total welfare of all consumers is injured, not improved, by the decision below. That decision improperly circumscribes the ability of charities cooperatively to advance social welfare objectives, and it improves the welfare of some consumers only by adversely affecting the welfare of others.

The Division's unwise and unwarranted intervention obtains only a thin --- and transparent --- veneer of objectivity by claiming that it is merely intended to “restore” market forces. There is no more a “market” in charitably-subsidized higher education than there is a “market” in sheltering the homeless, rescuing the abused, or feeding the hungry. Optimal allocation of charitable resources to meet charitable needs occurs when charities, not enforcement agencies, determine social needs and allocate limited charitable resources. If through cooperation charities can more effectively relieve need, so much the better.

In casting aside the objective standards of economic theory, the decision below turns the antitrust laws into a standardless device for implementing the subjective preference of the decisionmaker of the moment. Such misuse of the Sherman Act distorts and degrades it. “A judge who feels compelled to a particular result regardless of the teachings of economic theory,” writes Judge Bork, “deceives himself and abdicates his delegated responsibility.” Bork, supra, at 48. That delegated responsibility now must be exercised by this Court, and the decision below 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 12132454 (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 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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