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National Soc Y of Prof Engineers Vs United States - Citation 104423 - Court Judgment | LegalCrystal
National Soc'y of Prof. Engineers Vs. United States - Court Judgment
LegalCrystal Citation legalcrystal.com/104423
Case Number 435 U.S. 679
Appellant National Soc'y of Prof. Engineers
national soc'y of prof. engineers v. united states - 435 u.s. 679 (1978) u.s. supreme court national soc'y of prof. engineers v. united states, 435 u.s. 679 (1978) national society of professional engineers v. united states no. 76-1767 argued january 18, 1978 decided april 25, 1978 435 u.s. 679 certiorari to the united states court of appeals for the district of columbia circuit syllabus the united states brought this civil antitrust suit against petitioner, the national society of professional engineers, alleging that petitioner's canon of ethics prohibiting its members from submitting competitive bids for engineering services suppressed competition in violation of § 1 of the sherman act. petitioner defended on.....
National Soc'y of Prof. Engineers v. United States - 435 U.S. 679 (1978)
U.S. Supreme Court National Soc'y of Prof. Engineers v. United States, 435 U.S. 679 (1978)
1. On its face, the canon in question restrains trade within the meaning of § 1 of the Sherman Act, and the Rule of Reason, under which the proper inquiry is whether the challenged agreement is one that promotes, or one that suppresses, competition, does not support a defense based on the assumption that competition itself is unreasonable. Pp. 435 U. S. 686 -696.
(a) The canon amounts to an agreement among competitors to refuse to discuss prices with potential customers until after negotiations have resulted in the initial selection of an engineer, and, while it is not price-fixing as such, it operates as an absolute ban on competitive bidding, applying with equal force to both complicated and simple projects and to both inexperienced and sophisticated customers. Pp. 435 U. S. 692 -693.
to the public safety and the ethics of the engineering profession is nothing less than a frontal assault on the basic policy of the Sherman Act. Pp. 435 U. S. 693 -695.
(c) That engineers are often involved in large-scale projects significantly affecting the public safety does not justify any exception to the Sherman Act. Pp. 435 U. S. 695 -696.
(d) While ethical norms may serve to regulate and promote competition in professional services, and thus fall within the Rule of Reason, petitioner's argument here is a far cry from such a position; and, although competition may not be entirely conducive to ethical behavior, that is not a reason, cognizable under the Sherman Act, for doing away with competition. P. 435 U. S. 696 .
2. The District Court's injunction, as modified by the Court of Appeals, does not abridge First Amendment rights. Pp. 435 U. S. 696 -699.
(a) The First Amendment does not "make it . . . impossible ever to enforce laws against agreements in restraint of trade," Giboney v. Empire Storage & Ice Co., 336 U. S. 490 , 336 U. S. 502 , and, although the District Court may consider the fact that its injunction may impinge upon rights that would otherwise be constitutionally protected, those protections do not prevent it from remedying the antitrust violations. Pp. 435 U. S. 697 -698.
(b) The standard against which the injunction must be judged is whether the relief represents a reasonable method of eliminating the consequences of the illegal conduct, and the injunction meets this standard. P. 435 U. S. 698 .
(c) If petitioner wishes to adopt some other ethical guideline more closely confined to the legitimate objective of preventing deceptively low bids, it may move the District Court to modify its injunction. Pp. 435 U. S. 698 -699.
STEVENS, J., delivered the opinion of the Court, in which STEWART, WHITE, MARSHALL, and POWELL, JJ., joined, and in Parts I and III of which BLACKMUN and REHNQUIST, JJ., joined. BLACKMUN, J., filed an opinion concurring in part and concurring in the judgment, in which REHNQUIST, J., joined, post, p. 435 U. S. 699 . BURGER, C.J., filed an opinion concurring in part and dissenting in part, post, p. 435 U. S. 701 . BRENNAN, J., took no part in the consideration or decision of the case.
This is a civil antitrust case brought by the United States to nullify an association's canon of ethics prohibiting competitive bidding by its members. The question is whether the canon may be justified under the Sherman Act, 26 Stat. 209, as amended, 15 U.S.C. § 1 et seq. (1976 ed.), because it was adopted by members of a learned profession for the purpose of minimizing the risk that competition would produce inferior engineering work endangering the public safety. The District Court rejected this justification without making any findings on the likelihood that competition would produce the dire consequences foreseen by the association. [ Footnote 1 ] The Court of Appeals affirmed. [ Footnote 2 ] We granted certiorari to decide whether the District Court should have considered the factual basis for the proffered justification before rejecting it. 434 U.S. 815. Because we are satisfied that the asserted defense rests on a fundamental misunderstanding of the Rule of Reason frequently applied in antitrust litigation, we affirm.
engineer for a particular project. Evidence of this agreement is found in § 11(c) of the Society's Code of Ethics, adopted in July 1964. [ Footnote 3 ]
"ethical rules against competitive bidding for engineering services as prohibiting the submission of any form of price information to a prospective customer which would enable that customer to make a price comparison on engineering services. [ Footnote 4 ]"
obligation upon the engineering firm to withdraw from consideration for that job. The Society's Code of Ethics thus "prohibits engineers from both soliciting and submitting such price information," 389 F.Supp. 1193, 1206 (DC 1974), [ Footnote 5 ] and seeks to preserve the profession's "traditional" method of selecting professional engineers. Under the traditional method, the client initially selects an engineer on the basis of background and reputation, not price. [ Footnote 6 ]
methods of construction." [ Footnote 7 ] Accordingly, competitive pressure to offer engineering services at the lowest possible price would adversely affect the quality of engineering. Moreover, the practice of awarding engineering contracts to the lowest bidder, regardless of quality, would be dangerous to the public health, safety, and welfare. For these reasons, the Society claimed that its Code of Ethics was not an "unreasonable restraint of interstate trade or commerce."
Although it modified the injunction entered by the District Court, [ Footnote 8 ] the Court of Appeals affirmed its conclusion that the agreement was unlawful on its face, and therefore "illegal without regard to claimed or possible benefits." 181 U.S.App.D.C. 41, 47, 555 F.2d 978, 984.
In Goldfarb v. Virginia State Bar, 421 U. S. 773 , the Court held that a bar association's rule prescribing minimum fees for legal services violated § 1 of the Sherman Act. In that opinion, the Court noted that certain practices by members of a learned profession might survive scrutiny under the Rule of Reason even though they would be viewed as a violation of the Sherman Act in another context. The Court said:
421 U.S. at 421 U. S. 788 -789, n. 17.
Relying heavily on this footnote, and on some of the major cases applying a Rule of Reason -- principally Mitchel v. Reynolds, 1 P. Wms. 181, 24 Eng.Rep. 347 (1711); Standard Oil Co. v. United States, 221 U. S. 1 ; Chicago Board of Trade v. United States, 246 U. S. 231 ; and Continental T.V., Inc. v. GTE Sylvania Inc., 433 U. S. 36 -- petitioner argues that its attempt to preserve the profession's traditional method of setting fees for engineering services is a reasonable method of forestalling the public harm which might be produced by unrestrained competitive bidding. To evaluate this argument it is necessary to identify the contours of the Rule of Reason and to discuss its application to the kind of justification asserted by petitioner.
One problem presented by the language of § 1 of the Sherman Act is that it cannot mean what it says. The statute says that "every" contract that restrains trade is unlawful. [ Footnote 9 ] But, as Mr. Justice Brandeis perceptively noted, restraint is the very
essence of every contract; [ Footnote 10 ] read literally, § 1 would outlaw the entire body of private contract law. Yet it is that body of law that establishes the enforceability of commercial agreements and enables competitive markets -- indeed, a competitive economy -- to function effectively.
Congress, however, did not intend the text of the Sherman Act to delineate the full meaning of the statute or its application in concrete situations. The legislative history makes it perfectly clear that it expected the courts to give shape to the statute's broad mandate by drawing on common law tradition. [ Footnote 11 ] The Rule of Reason, with its origins in common law precedents long antedating the Sherman Act, has served that purpose. It has been used to give the Act both flexibility and definition, and its central principle of antitrust analysis has remained constant. Contrary to its name, the Rule does not open the field of antitrust inquiry to any argument in favor of a challenged restraint that may fall within the realm of reason. Instead, it focuses directly on the challenged restraint's impact on competitive conditions.
public of the benefit of potential competition. The long-run benefit of enhancing the marketability of the business itself -- and thereby providing incentives to develop such an enterprise -- outweighed the temporary and limited loss of competition. [ Footnote 12 ]
The Rule of Reason suggested by Mitchel v. Reynolds has been regarded as a standard for testing the enforceability of covenants in restraint of trade which are ancillary to a legitimate transaction, such as an employment contract or the sale of a going business. Judge (later Mr. Chief Justice) Taft so interpreted the Rule in his classic rejection of the argument that competitors may lawfully agree to sell their goods at the same price as long as the agreed-upon price is reasonable. United States v. Addyston Pipe & Steel Co., 85 F. 271, 282-283 (CA6 1898), aff'd, 175 U. S. 175 U.S. 211. That case, and subsequent decisions by this Court, unequivocally foreclose an interpretation of the Rule as permitting an inquiry into the reasonableness of the prices set by private agreement. [ Footnote 13 ]
The early cases also foreclose the argument that, because of the special characteristics of a particular industry, monopolistic arrangements will better promote trade and commerce than competition. United States v. Trans-Missouri Freight Assn., 166 U. S. 290 ; United States v. Joint Traffic Assn., 171 U. S. 505 , 171 U. S. 573 -577. That kind of argument is properly addressed to Congress, and may justify an exemption from the statute for
specific industries, [ Footnote 14 ] but it is not permitted by the Rule of Reason. As the Court observed in Standard Oil Co. v. United States, 221 U.S. at 221 U. S. 65 ,
The test prescribed in Standard Oil is whether the challenged contracts or acts "were unreasonably restrictive of competitive conditions." Unreasonableness under that test could be based either (1) on the nature or character of the contracts, or (2) on surrounding circumstances giving rise to the inference or presumption that they were intended to restrain trade and enhance prices. [ Footnote 15 ] Under either branch of the test, the inquiry is confined to a consideration of impact on competitive conditions. [ Footnote 16 ]
246 U.S. at 246 U. S. 238 , quoted in 433 U.S. at 433 U. S. 49 n. 15. [ Footnote 17 ]
There are, thus, two complementary categories of antitrust analysis. In the first category are agreements whose nature and necessary effect are so plainly anticompetitive that no elaborate study of the industry is needed to establish their illegality -- they are "illegal per se. " In the second category are agreements whose competitive effect can only be evaluated by analyzing the facts peculiar to the business, the history of the restraint, and the reasons why it was imposed. In either event, the purpose of the analysis is to form a judgment about the competitive significance of the restraint; it is not to decide whether a policy favoring competition is in the public interest, or in the interest of the members of an industry. Subject to exceptions defined by statute, that policy decision has been made by the Congress. [ Footnote 18 ]
Price is the "central nervous system of the economy," United States v. Socony-Vacuum Oil Co., 310 U. S. 150 , 310 U. S. 226 n. 59, and an agreement that "interfere[s] with the setting of price by free market forces" is illegal on its face. United States v. Container Corp., 393 U. S. 333 , 393 U. S. 337 . In this case, we are presented with an agreement among competitors to refuse to discuss prices with potential customers until after negotiations have resulted in the initial selection of an engineer. While this is not price-fixing as such, no elaborate industry analysis is required to demonstrate the anticompetitive character of such an agreement. It operates as an absolute ban on competitive bidding, applying with equal force to both complicated and simple projects and to both inexperienced and sophisticated customers. As the District Court found, the ban "impedes the ordinary give and take of the market place," and substantially deprives the customer of "the ability to utilize
The Society's affirmative defense confirms, rather' than refutes, the anticompetitive purpose and effect of its agreement. The Society argues that the restraint is justified because bidding on engineering services is inherently imprecise, would lead to deceptively low bids, and would thereby tempt individual engineers to do inferior work, with consequent risk to public safety and health. [ Footnote 19 ] The logic of this argument rests on the assumption that the agreement will tend to maintain the price level; if it had no such effect, it would not serve its intended purpose. The Society nonetheless invokes the Rule of Reason, arguing that its restraint on price competition ultimately inures to the public benefit by preventing the
It may be, as petitioner argues, that competition tends to force prices down, and that an inexpensive item may be inferior to one that is more costly. There is some risk, therefore, that competition will cause some suppliers to market a defective product. Similarly, competitive bidding for engineering projects may be inherently imprecise and incapable of taking into account all the variables which will be involved in the actual performance of the project. [ Footnote 20 ] Based on these considerations, a purchaser might conclude that his interest in quality -- which may embrace the safety of the end product outweighs the advantages of achieving cost savings by pitting one competitor against another. Or an individual vendor might independently refrain from price negotiation until he has satisfied himself that he fully understands the scope of his customers' needs. These decisions might be reasonable; indeed, petitioner has provided ample documentation for that thesis. But these are not reasons that satisfy the Rule; nor are such individual decisions subject to antitrust attack.
The Sherman Act does not require competitive bidding; [ Footnote 21 ]
The Sherman Act reflects a legislative judgment that, ultimately, competition will produce not only lower prices but also better goods and services. "The heart of our national economic policy long has been faith in the value of competition." Standard Oil Co. v. FTC, 340 U. S. 231 , 340 U. S. 248 . The assumption that competition is the best method of allocating resources in a free market recognizes that all elements of a bargain -- quality, service, safety, and durability -- and not just the immediate cost, are favorably affected by the free opportunity to select among alternative offers. Even assuming occasional exceptions to the presumed consequences of competition, the statutory policy precludes inquiry into the question whether competition is good or bad.
By the same token, the cautionary footnote in Goldfarb, 421 U.S. at 421 U. S. 788 -789, n. 17, quoted supra, cannot be read as fashioning a broad exemption under the Rule of Reason for learned professions. We adhere to the view expressed in Goldfarb that, by their nature, professional services may differ significantly from other business services, and, accordingly, the nature of the competition in such services may vary. Ethical norms may serve to regulate and promote this competition, and thus fall within the Rule of Reason. [ Footnote 22 ] But the Society's argument in this case is a far cry from such a position. We are faced with a contention that a total ban on competitive bidding is necessary because otherwise engineers will be tempted to submit deceptively low bids. Certainly, the problem of professional exception is a proper subject of an ethical canon. But, once again, the equation of competition with deception, like the similar equation with safety hazards, is simply too broad; we may assume that competition is not entirely conducive to ethical behavior, but that is not a reason, cognizable under the Sherman Act, for doing away with competition.
the Court of Appeals, [ Footnote 23 ] prohibits the Society from adopting any official opinion, policy statement, or guideline stating or implying that competitive bidding is unethical. [ Footnote 24 ] Petitioner argues that this judgment abridges its First Amendment rights. [ Footnote 25 ] We find no merit in this contention.
Having found the Society guilty of a violation of the Sherman Act, the District Court was empowered to fashion appropriate restraints on the Society's future activities both to avoid a recurrence of the violation and to eliminate its consequences. See, e.g., International Salt Co. v. United States, 332 U. S. 392 , 332 U. S. 400 -401; United States v. Glaxo Group, Ltd., 410 U. S. 62 , 410 U. S. 64 . While the resulting order may curtail the exercise of liberties that the Society might otherwise enjoy, that is a necessary and, in cases such as this, unavoidable consequence of the violation. Just as an injunction against price-fixing abridges the freedom of businessmen to talk to one another about prices, so too the injunction in this case must restrict the Society's range of expression on the ethics of competitive bidding. [ Footnote 26 ] The First Amendment does not "make it . . . impossible ever to enforce laws against agreements in restraint of trade. . . ." Giboney v. Empire Storage & Ice Co., 336 U. S. 490 , 336 U. S. 502 . In fashioning a remedy, the District Court may, of course, consider the fact that its injunction may impinge upon rights that would otherwise be constitutionally
International Salt Co., supra at 332 U. S. 400 .
The Society apparently fears that the District Court's injunction, if broadly read, will block legitimate paths of expression on all ethical matters relating to bidding. [ Footnote 27 ] But the answer to these fears is, as the Court held in International Salt, that the burden is upon the proved transgressor "to bring any proper claims for relief to the court's attention." Ibid. In
181 U.S.App.D.C. 41, 555 F.2d 978 (1977). When the District Court's original judgment was entered, petitioner as entitled to appeal directly to this Court. We vacated the District Court's judgment for reconsideration in the light of our then recent decision in Goldfarb v. Virginia State Bar, 421 U. S. 773 . 422 U.S. 1031. After reconsideration, the District Court reentered its original judgment, 404 F.Supp. 457 (DC 1975), and petitioner then appealed to the Court of Appeals.
Chicago Board of Trade v. United States, 246 U. S. 231 , 246 U. S. 238 . See also United States v. Topco Associates, 405 U. S. 596 , 405 U. S. 606 : "Were § 1 to be read in the narrowest possible way, any commercial contract could be deemed to violate it."
85 F. at 293. See also United States v. Trans-Missouri Freight Assn., 166 U. S. 290 , 166 U. S. 340 -342.
221 U.S. at 221 U. S. 58 .
Throughout the Court's opinion, the emphasis is on economic conceptions. For instance, the Court's description of the common law treatment of engrossing and forestalling statutes noted that contracts which had been illegal on their face were later recognized as reasonable because they tended to promote competition. Id. at 221 U. S. 55 . As was pointed out in the Report of the Attorney General's National Committee To Study the Antitrust Laws 11 (1955):
433 U.S. at 433 U. S. 49 .
The Court then analyzed the "market impact" of vertical restraints, noting their complexity because of the potential for a simultaneous reduction of intrabrand competition and stimulation of interbrand competition. Id. at 433 U. S. 50 -51. "Competitive impact" and "economic analysis" were emphasized throughout the opinion.
The Society also points out that competition, in the form of bargaining between the engineer and customer, is allowed under its canon of ethics once an engineer has been initially selected. See n 6, supra. It then contends that its prohibition of competitive bidding regulates only the timing of competition, thus making this case analogous to Chicago Board of Trade, where the Court upheld an exchange rule which forbade exchange members from making purchases after the close of the day's session at any price other than the closing bid price. Indeed, petitioner has reprinted the Government's brief in that case to demonstrate that the Solicitor General regarded the exchange's rule as a form of price-fixing. Reply Brief for Petitioner A1-A28. We find this reliance on Chicago Board of Trade misplaced for two reasons. First, petitioner's claim mistakenly treats negotiation between a single seller and a single buyer as the equivalent of competition between two or more potential sellers. Second, even if we were to accept the Society's equation of bargaining with price competition, our concern with Chicago Board of Trade is in its formulation of the proper test to be used in judging the legality of an agreement; that formulation unquestionably stresses impact on competition. Whatever one's view of the application of the Rule of Reason in that case, see Sullivan, supra, 435 U. S. 18, at 175-182, the Court considered the exchange's regulation of price information as having a positive effect on competition. 246 U.S. at 246 U. S. 240 -241. The District Court's findings preclude a similar conclusion concerning the effect of the Society's "regulation."
Thus, in Goldfarb, although the bar association believed that its fee schedule accurately reflected ethical price levels, it was nonetheless enjoined "from adopting, publishing, or distributing any future schedules of minimum or suggested fees." Goldfarb v. Virginia State Bar, 355 F.Supp. 491, 495-496 (ED Va.1973). See also United States v. National Assn. of Real Estate Boards, 339 U. S. 485 .
For instance, the Society argues that the injunction can be read as prohibiting it from opposing repeal of statutes such as the Brooks Act, see n 21, supra, and that such a prohibition would violate the principles of the Noerr-Pennington doctrine. See Eastern Railroad Presidents Conf. v. Noerr Motor Freight, Inc., 365 U. S. 127 ; Mine Workers v. Pennington, 381 U. S. 657 . By its terms, the injunction contains no such prohibition, and indeed the Government contends that "[n]othing in the judgment prevents NSPE and its members from attempting to influence governmental action. . . ." Brief for United States 60.
I join Parts I and III of the Court's opinion and concur in the judgment. I do not join 435 U. S. because I would not, at least for the moment, reach as far as the Court appears to me to do in intimating, ante at 435 U. S. 696 , and n. 22, that any ethical rule with an overall anticompetitive effect promulgated by a professional society is forbidden under the Sherman Act. In my view, the decision in Goldfarb v. Virginia State Bar, 421 U. S. 773 , 421 U. S. 788 -789, n. 17 (1975), properly left to the Court some flexibility in considering how to apply traditional Sherman Act concepts to professions long consigned to self-regulation. Certainly, this case does not require us to decide whether the "Rule of Reason," as applied to the professions, ever could take account of benefits other than increased competition. For even accepting petitioner's assertion that product quality is one such benefit, and that maintenance of the quality of engineering services requires that an engineer not bid before he has made full acquaintance with the scope of a client's desired project, Brief for Petitioner 49-50, 54, petitioner Society's rule is still grossly overbroad. As petitioner concedes, Tr. of Oral
entrants. A bar association's regulation of the permissible forms of price advertising for nonroutine legal services or limitation of in-person solicitation, see Bates v. State Bar of Arizona, 433 U. S. 350 (1977), may also have the effect of reducing price competition. In acknowledging that "professional services may differ significantly from other business services," and that the "nature of the competition in such services may vary," ante at 435 U. S. 696 , but then holding that ethical norms can pass muster under the Rule of Reason only if they promote competition, I am not at all certain that the Court leaves enough elbow room for realistic application of the Sherman Act to professional services.