Court Opinion

ID: 6928310
Source: CourtListenerOpinion
Date Created: 2022-07-23 23:40:57.8128+00
Date Added: 2024-06-11T16:07:01.249127
License: Public Domain

WEIS, Circuit Judge,
dissenting.
Although the century that has passed since the enactment of the Sherman Act may make reliance upon legislative history somewhat hazardous, it is a. fair assumption that the drafters of the statute would have been quite astounded at the government’s contention that the student aid program at issue here is covered by the antitrust laws. In response to a motion on the Senate floor to amend the legislation by exempting temperance societies, Senator Sherman remarked:
“I do not see any reason for putting in 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 .... You might as well include churches and Sunday schools.”
21 Cong.Rec. 2658-59 (1890) (statement of Sen. Sherman), reprinted in 1 The Legislative History of the Federal Antitrust Laws and Related Statutes 252 (Earl W. Kintner ed., 1978), and reprinted in Missouri v. National Org. for Women, Inc., 620 F.2d 1301, 1309 (8th Cir.1980).1
*680Glossing over the policy articulated in this bit of legislative history, the government has rushed into discussions of economic theory using pejorative terms such as “price fixing” and illegal “discounts.” But before such considerations have any relevance, a formidable threshold must be crossed in this case — the applicability of the Sherman Act to agreements on need-blind admission policies and student aid. It is premature to analyze activities in the business world that violate antitrust law until it has been established that the Sherman Act does, in fact, govern the conduct in the circumstances present here.
The challenged practices, designed to provide high quality education to those who have demonstrated academic talent without regard to their financial status, do not instinctively conjure up images of reprehensible business dealings. Quite to the contrary, the initial reaction is to question why the heavy artillery of antitrust has been wheeled into position to shoot down practices that so obviously advance the public interest.
Practices that might be illegal in the commercial area do not transform a charitable activity into a business one. To the extent that the government pursues that course, its argument is simply a non sequitur.
In his treatise on antitrust, Professor Ar-eeda observes:
“It would seem strange, for example, to bring the antitrust laws to bear on two philanthropists who ‘divided the market’ by agreeing that one would care for the homeless on the east side of town while the other did so, on the west side. They would say — perhaps correctly in that particular situation — that they are not part of the ‘trade or commerce’ to which the antitrust laws apply.”
Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law: An Analysis of Antitrust Principles and Their Application § 232.2, at 286-87 (Supp.1992).
The hypothetical can be moved a bit closer to the situation at hand by assuming that the two philanthropists chose to provide food for needy persons not only by “dividing the territory,” but also by agreeing to allocate their aid on the basis of a formula that includes factors such as income and the number of family members. This, too, would be a purely charitable enterprise that the Sherman Act was never intended to cover. It would make no difference that the two philanthropists were business competitors, and that similar agreements between them with respect to their companies would run afoul of the antitrust laws. Similarly here, the issue is not whether MIT is a nonprofit entity, but rather whether the challenged activity is commercial or not.
Section 1 of the Sherman Act prohibits every contract, combination, or conspiracy “in restraint of trade or commerce among the several States.” 15 U.S.C. § 1. Because section 1 could outlaw the entire body of private contract law, courts have not read the statute literally, National Soc’y of Professional Eng’rs v. United States, 435 U.S. 679, 687-88, 98 S.Ct. 1355, 1363, 55 L.Ed.2d 637 (1978), but have drawn upon its language to fashion appropriate limits. The unique circumstances of this case require a careful examination of the statute, particularly the words “trade or commerce.”
The Supreme Court has defined “trade or commerce” to be commercial competition in the marketing of goods or services. In that light, the aim of the statute was “to free competition in business and commercial transactions which tended to restrict production, raise prices or otherwise control the market to the detriment of purchasers or consumers of goods and services.” Apex Hosiery Co. v. Leader, 310 U.S. 469, 493, 60 S.Ct. 982, 992, 84 L.Ed. 1311 (1940). As the Court pointed out, “restraint of trade” had a well-understood meaning at common law. The addition of “commerce among the several states” was .not a further restraint, but was the constitutional basis on which federal action was founded. Id. at 495, 60 S.Ct. at 993. Thus, the Sherman Act was directed at “the public wrongs which flow from restraints of trade in the common law sense of restriction or suppression of commercial competition.” Id. at 500, 60 S.Ct. at 996.
When considering the scope of “trade or commerce,” courts must be cautious in examining the entities and activities that are the *681intended objects of the statute. The Sherman Act applies to organizations that sell services as well as commodities. See, e.g., FTC v. Indiana Fed’n of Dentists, 476 U.S. 447, 459-64, 106 S.Ct. 2009, 2018-20, 90 L.Ed.2d 445 (1986); Arizona v. Maricopa County Medical Soc’y, 457 U.S. 332, 348-49, 102 S.Ct. 2466, 2475, 73 L.Ed.2d 48 (1982); Professional Eng’rs, 435 U.S. at 693-96, 98 S.Ct. at 1366-67; Goldfarb v. Virginia State Bar, 421 U.S. 773, 787-88, 95 S.Ct. 2004, 2013, 44 L.Ed.2d 572 (1975). Moreover, the Act applies to nonprofit corporations as well as business entities. See, e.g., NCAA v. Board of Regents, 468 U.S. 85, 100-01 & n. 22, 104 S.Ct. 2948, 2959-60 & n. 22, 82 L.Ed.2d 70 (1984); Maricopa County, 457 U.S. at 348-49, 102 S.Ct. at 2475; Professional Eng’rs, 435 U.S. at 693-96, 98 S.Ct. at 1366-67; Goldfarb, 421 U.S. at 787-88, 95 S.Ct. at 2013. But it is significant that in each of the cases brought against nonprofit organizations, the practice condemned was the setting of, or affecting, fees for services — activity that fell within the ambit of commerce even though conducted by professionals.
Those eases focused on the nature of the challenged activity rather than on the institution that performed the service. Thus, Goldfarb cautioned: “The public service aspect, and other features of the professions, may require that a particular practice, which could properly be viewed as a violation of the Sherman Act in another context, be treated differently.” 421 U.S. at 788-89 n. 17, 95 S.Ct. at 2013-14 n. 17 (emphasis added). In NCAA, 468 U.S. at 100-103, 104 S.Ct. at 2959-61, the Court observed that some restraints might be necessary to make a product pro-competitive, but concluded, nevertheless, that the practice of limiting the number of college football games that could be shown on television violated the antitrust laws. It is unremarkable that marketing of football games, an outright profit-making activity, was found to be subject to review under commercial, rather than educational, standards.
in considering the challenged practices here, the question is whether agreeing to give financial aid only on the basis of need and cooperating in determining the amount of support offered to applicants are activities in trade or commerce.2 If they are not, then an exchange of information or an agreement on the appropriate allowances in individual cases does not come within the scope of the Sherman Act.
The district court concluded that the price charged to students by the universities was an exchange of money for services and was, thus, commerce. As the majority explains, the government objected to the school’s agreement on the amount of the family contribution expected from each student, a factor that is used .in determining the total amount of aid that the universities extend. The district court characterized student aid as a “discount” from the price students would otherwise pay.
Determining the amount of aid is not always a simple calculation, but often involves several categories of assistance. Government grants or loans are one type of financial support. Another, termed self-help, includes amounts earned by a student during the school year (often while participating in government-funded work-study programs), and loans the student secures directly from a bank. As the district court found, each university sets its own levels for self-help.
Thus, although the participating institutions in Overlap might agree on a family contribution figure, the type of aid an individual student receives could vary substantially. For example, in weighing self-help bank loans, government grants, and work-study earnings, one school might conclude that there is no need for university-funded grants. Another school, however, might decide to offer a grant to a student in lieu of all or part of a bank loan. Thus, although the family contribution would be identical for both schools, the first school would hot expend any of its own'funds, whereas the second would be more generous.
The government’s description of financial aid as a “discount” is a semantic attempt to *682bring the process within the Sherman Act and puts the rabbit into the hat. “Discount” is a term used in commercial transactions when a reduction in price is used to increase sales volume or enhance revenues. See, e.g., Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643, 645-50, 100 S.Ct. 1925, 1926-29, 64 L.Ed.2d 580 (1980). A discount, which is intended to improve profits from a business, is not a gift, and is not intended as such. The record demonstrates that MIT receives over three times as many applications as it can accept and that it could fill its classrooms with students who are able to pay the full base tuition. In the business world, that would eliminate any need for a “discount.”
It is true enough that the effect of financial aid is to reduce the amount of money that students are required to expend for their education. However, that result follows regardless of the source of the aid. Students who receive university-funded aid are in the same position as those who receive federal grants or gifts from philanthropic organizations that provide scholarships for needy students.
To pinpoint the issue here, it is necessary to separate the functions of calculating base tuition and awarding financial aid. The granting of aid is the gravamen of the government’s complaint, not the setting of base tuition.
Although Goldfarb emphasized the need to fodus on the “particular practice” under scrutiny, 421 U.S. at 788-89 n. 17, 95 S.Ct. at 2013-14 n. 17, there is little decisional authority on this point in the antitrust field as it might affect educational institutions. Grove City College v. Bell, 465 U.S. 555, 104 S.Ct. 1211, 79 L.Ed.2d 516 (1984), however, provides a helpful analogy. In that case, brought under Title IX of the Education Amendments of 1972, the Court was required to decide whether the statutory language, “any education program or activity receiving Federal financial assistance,” applied to the college as a whole. Id. at 558-59, 104 S.Ct. at 1213-14. The Court rejected the notion that the “education program” embodied the entire school, but held instead that it was limited to the student financial aid program. Id. at 571, 104 S.Ct. at 1220.
“Student financial aid programs, we believe, are sui generis_ The [government grant] program was designed, not merely to increase the' total resources available to educational institutions, but to enable them to offer their services to students who had previously been unable to afford higher education_ [TJhe economic effect of student aid is far different from the effect of nonearmarked grants to institutions themselves since the former, unlike the latter, increases both an institution’s resources and its obligations.”3
Id. at 573, 104 S.Ct. at 1221.
The same reasoning is applicable to the financial aid programs here. A university sets its base tuition after calculating the expense of operating the institution, including such mundane matters as utility charges, building maintenance expenses, and salaries. Universities must also consider the ratio of faculty to students, the number of students reasonably expected to attend, and the services to be offered to those students. When the costs of administering the institution have been compiled, all or a portion of the expense is calculated to be met by base tuition, applicable to all students.
As part of their perceived responsibility to society, MIT and the other Ivy League schools- adopted a policy of admitting students based on academic, and not financial, ability. Those universities further decided that all students who were admitted would receive financial aid to the full extent of their needs. As a result of these policies, the record demonstrates that the number of students from minority groups and non-affluent families who attend MIT has increased dramatically in recent years. The government does not challenge the societal good that flows from these need-blind admission and need-based aid policies. Indeed, financial aid *683made available by the government is aimed at the very same objective. See Higher Education Act of 1965, 20 U.S.C. §§ 1001-1146a.
As the district court conceded, the nation profits in immeasurable ways
“when our many great institutions of higher education open their doors to those who for too long were denied the privilege of attending college .... These policies send an important signal to a large segment of our society that persons need not presume they are unable to attend college for fear of not being able to afford what has become the extraordinary cost of higher education.”
To meet its societal obligations as it sees them, MIT takes some of the funds it could otherwise use to augment salaries, modernize buildings, increase laboratory resources, or otherwise invest in the school, and donates them to worthy, but needy, students in the form of grants. This decision is not compelled nor advised by business considerations, but only serves commendable social objectives. Such university-provided' aid is charity, just as would be a gift from an independent fund established to pay the tuition of needy students. If that fund conditioned the size of awards on considerations of family contributions, as does the MIT program, the gift would be charitable nonetheless.
• Under an analysis commonly used by courts in the tax-field, university-funded aid is undoubtedly charitable. In Hernandez v. Commissioner, 490 U.S. 680, 109 S.Ct. 2136, 104 L.Ed.2d 766 (1989), the Court cited Congressional reports defining “‘gifts’ as payments ‘made with no expectation of a financial return commensurate with the amount of the gift.’’” Id. at 690, 109 S.Ct. at 2144 (quoting S.Rep. No. 1622, 83d Cong., 2d Sess. 196 (1954); H.R.Rep. No. 1337, 83d Cong., 2d Sess. A44 (1954)). The question is whether the payment is made with the “expectation of any quid pro quo.” Id. In United States v. America Bar Endowment, 477 U.S. 105, 106 S.Ct. 2426, 91 L.Ed.2d 89 (1986), the Court said: “The sine qua non of a charitable contribution is a transfer of money or property without adequate consideration. The taxpayer, therefore, must at a minimum demonstrate that he purposely contributed money or property in excess of the value of any benefit he received in return.” Id. at 118, 106 S.Ct. at 2433.
Singer Co. v. United States, 449 F.2d 413, 196 Ct.Cl. 90 (1971), discusses specific transfers that both satisfy and fail to meet this definition. The Singer Company had granted substantial discounts on its sewing machines to schools, in order to encourage training of young women, and charitable institutions. Because the company expected the reductions granted to schools to result in future increases in sales, those discounts were not deemed charitable under the tax code. Id. at 423-24.
In contrast, because the primary purpose of the discounts to charitable institutions was to assist the recipients in the performance of their religious, charitable, or public services, a tax deduction was allowed. Id. at 424. The Court noted that “[t]he incidental effect of this policy was the development and maintenance of a favorable public image for [the donor] in the eyes of those organizations and their members.” Id. Nevertheless, that was not a benefit of such substance as to deny a deduction. Id. I see no need in the antitrust context to interpret charity less liberally than the Internal Revenue Code.
It is an unfortunate trait of human nature that if increased respect in the community as a result of philanthropy would be a sufficient quid pro quo under the tax code to deny a deduction, charitable contributions would diminish significantly. Substantial anonymous contributions are not unknown, but they are rare as demonstrated by the paucity of nameless buildings on university campuses.
The tax eases generally eschew reliance on motivation largely because of difficulties of proof. Motivation need not be put aside here, however, where the record convincingly demonstrates the benefits to the public and the absence of financial return to the university. The government does not dispute the facts that MIT provides over $20 million in aid annually, that 57% of the student population receives such help, nor that, as a result of this assistance, the percentage of minorities at MIT has increased from 3% to 44% over the last thirty years.
*684The government argues that, in addition to social approbation, MIT could expect an increase in reputation by admitting a higher caliber, of student. This contention is highly speculative and has no record support. The students are the recipients of largesse, and any contribution they make in return has not been substantiated. No quid pro quo of substance exists. Although it may be that, through the need-blind admission policy, MIT and the other Ivy league schools enhance their institutional prestige, such a legacy is a breed apart from naked economic benefits.
The funds that are earmarked for student aid could instead be used to increase salaries as a means of attracting the very finest faculty. Thus, an allocation for financial aid could have a negative effect on a school’s reputation for excellence because students are generally attracted to a university because of the standing of its faculty rather than that of its students..
The antitrust laws have their limits. They are not all-encompassing statutes that regulate every facet of human conduct. In a case involving unsavory business practices, we remarked that “the Sherman Act may not be extended beyond its intended scope and used to police the morals of the marketplace.” Sitkin Smelting & Ref. Co. v. FMC Corp., 575 F.2d 440, 448 (3d Cir.1978). The Act is not “a panacea for all business affronts which seem to fit nowhere else.” Id. (internal quotation omitted). That general concern is equally appropriate in determining whether a particular activity arises in a commercial or non-commercial setting. The need for restraint in marking out the perimeters of the Sherman Act is demonstrated by cases holding that certain practices are foreign to the purposes of the antitrust laws.
In National Org. for Women, Inc. v. Scheidler, 968 F.2d 612, 620-23 (7th Cir.1992), the Court refused to find that otherwise illegal conduct having an economic effect on abortion clinics was within the scope of the antitrust laws. The Court remarked: “We are convinced by the economic and legislative history of the Sherman Act that it was intended to prevent business competitors from making restraining arrangements for their own economic advantage.... Defendants are not involved in business, and have no ability to concentrate economic power.” Id. at 621.
In Missouri v. National Org. for Women, Inc., 620 F.2d 1301, 1312-17 (8th Cir.1980), the Court found that a boycott organized by the National Organization for Women because of Missouri’s failure to ratify the Equal Rights Amendment was not subject to the Sherman Act. The Court pointed out that the ERA was not a “ ‘financial,’ ‘economic,’ or ‘commercial’ piece of legislation.” Id. at 1311. Despite the fact that the boycott had an adverse economic effect, the Court concluded that “using a boycott in a non-competitive political arena for the purpose of influencing legislation is not proscribed by the Sherman Act.” Id. at 1315.4
In a case closer to the one at hand, Marjorie Webster Junior College, Inc. v. Middle States Ass’n of Colleges & Secondary Schools, Inc., 432 F.2d 650 (D.C.Cir.1970), the Court found that an accrediting institution’s refusal to recognize a proprietary school did not come within the Sherman Act. “Absent [commercial motives] ... 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.”Id. at 655; see also Donnelly v. Boston College, 558 F.2d 634, 635 (1st Cir.1977) (law school admissions not within antitrust); Selman v. Harvard Medical Sch., 494 F.Supp. 603, 621 (S.D.N.Y.) (“Academic admissions criteria may well have a purely incidental effect on the commercial aspects of the medical profession. They are, however, non-commercial in nature.”), aff'd, 636 F.2d 1204 (2d Cir.1980).
My view that the antitrust laws do not apply to student aid activities in the circumstances of this case is not meant to convey any opinion on the desirability or necessity of all of the Overlap procedures. That is more properly the prerogative of Congress. In that connection, it is interesting that, in an *685interim measure enacted during the pen-dency of this ease, Congress approved the concept of need-blind admissions and agreement among schools on general principles for determining student aid, but prohibited discussion of individual cases. Higher Education Amendments of 1992, Pub.L. No. 102-325, § 1544,106 Stat. 448, 837 (codified at 20 U.S.C. § 1088 note).5 Perhaps it is of some significance that this statute was an amendment to the Higher Education Act, rather than to the Sherman Act.
Although Senator Sherman did not envision the application of the antitrust laws to schools in any circumstances, such a blanket exemption for educational institutions is not required to' decide this case.6 It does seem ironic, however, that the Sherman Act, intended to prevent plundering by the “robber barons,” is being advanced as a means to punish, not predations, but philanthropy. The result that the government seeks would divert funds that otherwise could be used for student aid to cover the expenses generated by treble damage suits.7 This is hardly the public good that Congress intended.
On the record in this case, I would grant judgment in favor of defendant MIT.

. "The unanimity with which foes and supporters of the bill spoke of its aims as the protection of free competition, permit use of the debates in interpreting the purpose of the act.” Apex Hosiery Co. v. Leader, 310 U.S. 469, 495 n. 15, 60 S.Ct. 982, 992 n. 15, 84 L.Ed. 1311 (1940).

. The government has not demonstrated that the Overlap Group conspired to set base tuition levels, and the district court’s findings do not discuss that issue.

. In response to the Grove City decision, Congress amended Title IX by providing a more. expansive definition of "program or activity.” Civil Rights Restoration Act of 1987, Pub.L. No. 100-259, § 3(a), 102 Stat. 28, 28-29 (1988) (codified at 20 U.S.C. § 1687). That amendment, designed to broaden the scope of Title IX, in no way detracts from the value of using Goldfarb's "particular practice’1, analysis for determining the application of antitrust laws.

. In contrast to the NOW cases, the Supreme Court found that a boycott motivated by economic considerations violated the Sherman Act. FTC v. Superior Court Trial Lawyers Ass'n, 493 U.S. 411, 426-27, 110 S.Ct. 768, 776-77, 107 L.Ed.2d 851 (1990).

.Section 1544 provides in full:
SEC. 1544. AUTHORITY TO AWARD NEED-BASED AID.
(a) Effect on Pending Cases Prohibited.— Nothing in this section shall in any way be construed to affect any antitrust litigation pending on the date of enactment of this Act.
(b) In General. — Except as provided in subsections (a), (c), and (e), institutions of higher education may—
(1) voluntarily agree with any other institution of higher education to award financial aid not awarded under the Higher Education Act of 1965 to students attending those institutions only on the basis of demonstrated financial need for such aid; and
(2) discuss and voluntarily adopt defined principles of professional judgment for determining student financial need for aid not awarded under the Higher Education Act of 1965.
(c) Exception. — Institutions of higher education shall not discuss or agree with each other on the prospective financial aid award to a specific common applicant for financial aid.
(d) Related Matters. — No inference of unlawful contract, combination, or conspiracy shall be drawn from the fact that institutions of higher education engage in conduct authorized by this section.
(e) Sunset Provision. — This section shall expire on September 30, 1994.
Higher Education Amendments of 1992, Pub.L. No. 102-325, § 1544, 106 Stat. 448, 837 (codified at 20 U.S.C. § 1088 note).

. In Sunshine Books, Ltd. v. Temple Univ., 697 F.2d 90, 92 (3d Cir.1982), we applied the Sherman Act in a suit between a competing retailer and the University book store.

. At least one private suit has been filed seeking damages for this alleged violation of the Sherman Act. See Kingsepp v. Wesleyan Univ., No. 89 Civ. 6121, 1992 WL 230136 (S.D.N.Y. filed 1990) (motions to dismiss were denied in 1991, 763 F.Supp. 22, as was a motion to certify a class in 1992, 142 F.R.D. 597).