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| [1] | SUPREME COURT OF THE UNITED STATES |
| [2] | No. 76-1767 |
| [3] | 1978.SCT.1545 <http://www.versuslaw.com>,
435 U.S. 679, 98 S. Ct. 1355, 55 L. Ed. 2d 637 |
| [4] | April 25, 1978 |
| [5] | NATIONAL SOCIETY OF PROFESSIONAL ENGINEERS v. UNITED STATES |
| [6] | CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA
CIRCUIT. |
| [7] | Lee Loevinger argued the cause for petitioner. With him on the briefs
was Martin Michaelson. |
| [8] | Howard E. Shapiro argued the cause for the United States. With him on
the brief were Solicitor General McCree, Assistant Attorney General Shenefield,
and Robert B. Nicholson. |
| [9] | 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. 699. Burger, C. J., filed an opinion Concurring in part and Dissenting
in part, post, p. 701. Brennan, J., took no part in the consideration or
decision of the case. |
| [10] | The opinion of the court was delivered by: Stevens |
| [11] | 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 the ground, inter alia, that under the
Rule of Reason the canon was justified 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, granting an injunction against the canon, rejected this
justification, holding that the canon on its face violated § 1 of the Sherman
Act, thus making it unnecessary to make findings on the likelihood that
competition would produce the dire consequences envisaged by petitioner.
The Court of Appeals affirmed, although modifying the District Court's injunction
in certain respects so that, as modified, it prohibits petitioner from adopting
any official opinion, policy statement, or guideline stating or implying
that competitive bidding is unethical. Held : |
| [12] | 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. 686-696. |
| [13] | (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. 692-693. |
| [14] | (b) Petitioner's affirmative defense confirms rather than refutes the
anticompetitive purpose and effect of its canon, and its attempt to justify,
under the Rule of Reason, the restraint on competition imposed by the canon
on the basis of the potential threat that competition poses 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. 693-695. |
| [15] | (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. 695-696. |
| [16] | (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. 696. |
| [17] | 2. The District Court's injunction, as modified by the Court of Appeals,
does not abridge First Amendment rights. Pp. 696-699. |
| [18] | (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, 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. 697-698. |
| [19] | (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. 698. |
| [20] | (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. 698-699. |
| [21] | MR. JUSTICE STEVENS delivered the opinion of the Court. |
| [22] | 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. *fn1
The Court of Appeals affirmed. *fn2
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. |
| [23] | I |
| [24] | Engineering is an important and learned profession. There are over 750,000
graduate engineers in the United States, of whom about 325,000 are registered
as professional engineers. Registration requirements vary from State to
State, but usually require the applicant to be a graduate engineer with
at least four years of practical experience and to pass a written examination.
About half of those who are registered engage in consulting engineering
on a fee basis. They perform services in connection with the study, design,
and construction of all types of improvements to real property -- bridges,
office buildings, airports, and factories are examples. Engineering fees,
amounting to well over $2 billion each year, constitute about 5% of total
construction costs. In any given facility, approximately 50% to 80% of the
cost of construction is the direct result of work performed by an engineer
concerning the systems and equipment to be incorporated in the structure. |
| [25] | The National Society of Professional Engineers (Society) was organized
in 1935 to deal with the non-technical aspects of engineering practice,
including the promotion of the professional, social, and economic interests
of its members. Its present membership of 69,000 resides throughout the
United States and in some foreign countries. Approximately 12,000 members
are consulting engineers who offer their services to governmental, industrial,
and private clients. Some Society members are principals or chief executive
officers of some of the largest engineering firms in the country. |
| [26] | The charges of a consulting engineer may be computed in different ways.
He may charge the client a percentage of the cost of the project, may set
his fee at his actual cost plus overhead plus a reasonable profit, may charge
fixed rates per hour for different types of work, may perform an assignment
for a specific sum, or he may combine one or more of these approaches. Suggested
fee schedules for particular types of services in certain areas have been
promulgated from time to time by various local societies. This case does
not, however, involve any claim that the National Society has tried to fix
specific fees, or even a specific method of calculating fees. It involves
a charge that the members of the Society have unlawfully agreed to refuse
to negotiate or even to discuss the question of fees until after a prospective
client has selected the 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. *fn3 |
| [27] | The District Court found that the Society's Board of Ethical Review has
uniformly interpreted the "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." *fn4
If the client requires that such information be provided, then § 11 (c)
imposes an 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), *fn5
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. *fn6 |
| [28] | In 1972 the Government filed its complaint against the Society alleging
that members had agreed to abide by canons of ethics prohibiting the submission
of competitive bids for engineering services and that, in consequence, price
competition among the members had been suppressed and customers had been
deprived of the benefits of free and open competition. The complaint prayed
for an injunction terminating the unlawful agreement. |
| [29] | In its answer the Society admitted the essential facts alleged by the
Government and pleaded a series of affirmative defenses, only one of which
remains in issue. In that defense, the Society averred that the standard
set out in the Code of Ethics was reasonable because competition among professional
engineers was contrary to the public interest. It was averred that it would
be cheaper and easier for an engineer "to design and specify inefficient
and unnecessarily expensive structures and methods of construction."
*fn7
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." |
| [30] | The parties compiled a voluminous discovery and trial record. The District
Court made detailed findings about the engineering profession, the Society,
its members' participation in interstate commerce, the history of the ban
on competitive bidding, and certain incidents in which the ban appears to
have been violated or enforced. The District Court did not, however, make
any finding on the question whether, or to what extent, competition had
led to inferior engineering work which, in turn, had adversely affected
the public health, safety, or welfare. That inquiry was considered unnecessary
because the court was convinced that the ethical prohibition against competitive
bidding was "on its face a tampering with the price structure of engineering
fees in violation of § 1 of the Sherman Act." 389 F.Supp., at 1200. |
| [31] | Although it modified the injunction entered by the District Court, *fn8
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. |
| [32] | II |
| [33] | 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: |
| [34] | "The fact that a restraint operates upon a profession as distinguished
from a business is, of course, relevant in determining whether that particular
restraint violates the Sherman Act. It would be unrealistic to view the
practice of professions as interchangeable with other business activities,
and automatically to apply to the professions antitrust concepts which originated
in other areas. 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.
We intimate no view on any other situation than the one with which we are
confronted today." 421 U.S., at 788-789, n. 17. |
| [35] | 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. |
| [36] | A. The Rule of Reason. |
| [37] | 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. *fn9
But, as Mr. Justice Brandeis perceptively noted, restraint is the very essence
of every contract; *fn10
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. |
| [38] | 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.
*fn11
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. |
| [39] | This principle is apparent in even the earliest of cases applying the
Rule of Reason, Mitchel v. Reynolds, supra. Mitchel involved the enforceability
of a promise by the seller of a bakery that he would not compete with the
purchaser of his business. The covenant was for a limited time and applied
only to the area in which the bakery had operated. It was therefore upheld
as reasonable, even though it deprived the 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. *fn12 |
| [40] | 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. 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. *fn13 |
| [41] | 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, 573-577. That kind of argument is properly addressed to Congress and
may justify an exemption from the statute for specific industries, *fn14
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 65, "restraints of
trade within the purview of the statute . . . be taken out of that category
by indulging in general reasoning as to the expediency or nonexpediency
of having made the contracts or the wisdom or want of wisdom of the statute
which prohibited their being made." |
| [42] | 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. *fn15
Under either branch of the test, the inquiry is confined to a consideration
of impact on competitive conditions. *fn16 |
| [43] | In this respect the Rule of Reason has remained faithful to its origins.
From Mr. Justice Brandeis' opinion for the Court in Chicago Board of Trade
to the Court opinion written by MR. JUSTICE POWELL in Continental T. V.,
Inc., the Court has adhered to the position that the inquiry mandated by
the Rule of Reason is whether the challenged agreement is one that promotes
competition or one that suppresses competition. "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." 246 U.S., at 238, quoted in 433 U.S., at 49 n.
15. *fn17 |
| [44] | 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. *fn18 |
| [45] | B. The Ban on Competitive Bidding. |
| [46] | Price is the "central nervous system of the economy," United
States v. Socony-Vacuum Oil Co., 310 U.S. 150, 226 n. 59, and an agreement
that " with the setting of price by free market forces" is illegal
on its face. United States v. Container Corp., 393 U.S. 333, 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
and compare prices in selecting engineering services." 404 F.Supp.
457, 460. On its face, this agreement restrains trade within the meaning
of § 1 of the Sherman Act. |
| [47] | 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. *fn19
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 production of inferior work and
by insuring ethical behavior. As the preceding Discussion of the Rule of
Reason reveals, this Court has never accepted such an argument. |
| [48] | 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. *fn20
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. |
| [49] | The Sherman Act does not require competitive bidding; *fn21
it prohibits unreasonable restraints on competition. Petitioner's ban on
competitive bidding prevents all customers from making price comparisons
in the initial selection of an engineer, and imposes the Society's views
of the costs and benefits of competition on the entire marketplace. It is
this restraint that must be justified under the Rule of Reason, and petitioner's
attempt to do so on the basis of the potential threat that competition poses
to the public safety and the ethics of its profession is nothing less than
a frontal assault on the basic policy of the Sherman Act. |
| [50] | 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, 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. |
| [51] | The fact that engineers are often involved in large-scale projects significantly
affecting the public safety does not alter our analysis. Exceptions to the
Sherman Act for potentially dangerous goods and services would be tantamount
to a repeal of the statute. In our complex economy the number of items that
may cause serious harm is almost endless -- automobiles, drugs, foods, aircraft
components, heavy equipment, and countless others, cause serious harm to
individuals or to the public at large if defectively made. The judiciary
cannot indirectly protect the public against this harm by conferring monopoly
privileges on the manufacturers. |
| [52] | By the same token, the cautionary footnote in Goldfarb, 421 U.S., at 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. *fn22
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 deception 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. |
| [53] | In sum, the Rule of Reason does not support a defense based on the assumption
that competition itself is unreasonable. Such a view of the Rule would create
the "sea of doubt" on which Judge Taft refused to embark in Addyston,
85 F., at 284, and which this Court has firmly avoided ever since. |
| [54] | III |
| [55] | The judgment entered by the District Court, as modified by the Court of
Appeals, *fn23
prohibits the Society from adopting any official opinion, policy statement,
or guideline stating or implying that competitive bidding is unethical.
*fn24
Petitioner argues that this judgment abridges its First Amendment rights.
*fn25
We find no merit in this contention. |
| [56] | 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, 400-401; United States v. Glaxo Group, Ltd., 410 U.S. 52, 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. *fn26
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, 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 protected, but those
protections do not prevent it from remedying the antitrust violations. |
| [57] | The standard against which the order must be Judged is whether the relief
represents a reasonable method of eliminating the consequences of the illegal
conduct. We agree with the Court of Appeals that the injunction, as modified,
meets this standard. While it goes beyond a simple proscription against
the precise conduct previously pursued, that is entirely appropriate. |
| [58] | "The District Court is not obliged to assume, contrary to common
experience, that a violator of the antitrust laws will relinquish the fruits
of his violation more completely than the court requires him to do. And
advantages already in hand may be held by methods more subtle and informed,
and more difficult to prove, than those which, in the first place, win a
market. When the purpose to restrain trade appears from a clear violation
of law, it is not necessary that all of the untraveled roads to that end
be left open and that only the worn one be closed." International Salt
Co., supra, at 400. |
| [59] | 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. *fn27
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 this case, the
Court of Appeals specifically stated that " the Society 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 for modification
of the decree." 181 U. S. App. D.C., at 46, 555 F.2d, at 983. This
is, we believe, a proper approach, adequately protecting the Society's interests.
We therefore reject petitioner's attack on the District Court's order. |
| [60] | The judgment of the Court of Appeals is |
| [61] | Affirmed. |
| [62] | JUSTICE BRENNAN took no part in the consideration or decision of this
case. |
| [63] | JUSTICE BLACKMUN, with whom MR. JUSTICE REHNQUIST joins, Concurring in
part and Concurring in the judgment. |
| [64] | I join Parts I and III of the Court's opinion and concur in the judgment.
I do not join Part II because I would not, at least for the moment, reach
as far as the Court appears to me to do in intimating, ante, at 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, 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 Arg. 47-48,
§ 11 (c) forbids any simultaneous consultation between a client and several
engineers, even where the client provides complete information to each about
the scope and nature of the desired project before requesting price information.
To secure a price estimate on a project, the client must purport to engage
a single engineer, and so long as that engagement continues no other member
of the Society is permitted to discuss the project with the client in order
to provide comparative price information. Though § 11 (c) does not fix prices
directly, and though the customer retains the option of rejecting a particular
engineer's offer and beginning negotiations all over again with another
engineer, the forced process of sequential search inevitably increases the
cost of gathering price information, and hence will dampen price competition,
without any calibrated role to play in preventing uninformed bids. Then,
too, the Society's rule is overbroad in the aspect noted by Judge Leventhal,
when it prevents any dissemination of competitive price information in regard
to real property improvements prior to the engagement of a single engineer
regardless of "the sophistication of the purchaser, the complexity
of the project, or the procedures for evaluating price information."
181 U. S. App. D.C. 41, 45, 555 F.2d 978, 982 (1977). |
| [65] | My skepticism about going further in this case by shaping the Rule of
Reason to such a narrow last as does the majority,* arises from the fact
that there may be ethical rules which have a more than de minimis anticompetitive
effect and yet are important in a profession's proper ordering. A medical
association's prescription of standards of minimum competence for licensing
or certification may lessen the number of entrants. A bar association's
regulation of the permissible forms of price advertising for non-routine
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 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 elbowroom for realistic application of the Sherman Act to professional
services. |
| [66] | MR. CHIEF JUSTICE BURGER, Concurring in part and Dissenting in part. |
| [67] | I concur in the Court's judgment to the extent it sustains the finding
of a violation of the Sherman Act but Dissent from that portion of the judgment
prohibiting petitioner from stating in its published standards of ethics
the view that competitive bidding is unethical. The First Amendment guarantees
the right to express such a position and that right cannot be impaired under
the cloak of remedial judicial action. |
|
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|
| Opinion Footnotes | |
|
|
|
| [68] | *fn1
389 F.Supp. 1193 (DC 1974). |
| [69] | *fn2
181 U. S. App. D.C. 41, 555 F.2d 978 (1977). When the District Court's original
judgment was entered, petitioner was 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 re-entered
its original judgment, 404 F.Supp. 457 (DC 1975), and petitioner then appealed
to the Court of Appeals. |
| [70] | *fn3
That section, which remained in effect at the time of trial, provided: |
| [71] | "Section 11 -- The Engineer will not compete unfairly with another
engineer by attempting to obtain employment or advancement or professional
engagements by competitive bidding . . . . |
| [72] | "c. He shall not solicit or submit engineering proposals on the basis
of competitive bidding. Competitive bidding for professional engineering
services is defined as the formal or informal submission, or receipt, of
verbal or written estimates of cost or proposals in terms of dollars, man
days of work required, percentage of construction cost, or any other measure
of compensation whereby the prospective client may compare engineering services
on a price basis prior to the time that one engineer, or one engineering
organization, has been selected for negotiations. The disclosure of recommended
fee schedules prepared by various engineering societies is not considered
to constitute competitive bidding. An Engineer requested to submit a fee
proposal or bid prior to the selection of an engineer or firm subject to
the negotiation of a satisfactory contract, shall attempt to have the procedure
changed to conform to ethical practices, but if not successful he shall
withdraw from consideration for the proposed work. These principles shall
be applied by the Engineer in obtaining the services of other professions."
App. 9951. |
| [73] | *fn4
389 F.Supp., at 1206. In addition to § 11 (c) of the Society's Code of Ethics,
see n. 3, (supra) , the Society's Board of Directors has adopted various
"Professional Policy" statements. Policy statement 10-F was issued
to "make it clear beyond all doubt" that the Society opposed competitive
bidding for all engineering projects. 389 F.Supp., at 1206. This policy
statement was replaced in 1972 by Policy 10-G which permits price quotations
for certain types of engineering work -- in particular, research and development
projects. |
| [74] | *fn5
Although the Society argues that it has never "enforced" its ban
on competitive bidding, Reply Brief for Petitioner 15-18, the District Court
specifically found that the record " a finding that NSPE and its members
actively pursue a course of policing adherence to the competitive bid ban
through direct and indirect communication with members and prospective clients."
389 F.Supp., at 1200. This finding has not been challenged as clearly erroneous. |
| [75] | *fn6
Having been selected, the engineer may then, in accordance with the Society's
canons of ethics, negotiate a satisfactory fee arrangement with the client.
If the negotiations are unsuccessful, then the client may withdraw his selection
and approach a new engineer. Id., at 1215. |
| [76] | *fn7
The entire defense pleaded in the answer reads as follows: |
| [77] | "18. (a) The principles and standards contained in the NSPE Code
of Ethics, particularly those contained in that part of the NSPE Code of
Ethics set out above, are reasonable, necessary to the public health, safety
and welfare insofar as they are affected by the work of professional engineers,
and serve the the public interest. |
| [78] | "(b) Experience has demonstrated that competitive bidding for professional
engineering services is inconsistent with securing for the recipients of
such services the most economical projects or structures. Testing, calculating
and designing the most economical and efficient structures and methods of
construction is complex, difficult and expensive. It is cheaper and easier
to design and specify inefficient and unnecessarily expensive structures
and methods of construction. Consequently, if professional engineers are
required by competitive pressures to submit bids in order to obtain employment
of their services, the inevitable tendency will be to offer professional
engineering services at the lowest possible price. Although this may result
in some lowering of the cost of professional engineering services it will
inevitably result in increasing the overall cost and decreasing the efficiency
of those structures and projects which require professional engineering
design and specification work. |
| [79] | "(c) Experience has also demonstrated that competitive bidding in
most instances and situations results in an award of the work to be performed
to the lowest bidder, regardless of other factors such as ability, experience,
expertise, skill, capability, learning and the like, and that such awards
in the case of professional engineers endanger the public health, welfare
and safety. |
| [80] | "(d) For the aforesaid reasons, the provisions of the NSPE Code of
Ethics set out above are not, in any event, in unreasonable restraint of
interstate trade or commerce." App. 21-22. |
| [81] | *fn8
The Court of Appeals struck down the portion of the District Court's decree
that ordered the Society to state that it did not consider competitive bidding
to be unethical. 181 U. S. App. D.C., at 47, 555 F.2d, at 984. The court
reasoned that this provision was "more intrusive than necessary to
achieve fulfillment of the governmental interest." Ibid. The Government
has not petitioned for review of that decision. |
| [82] | *fn9
Section 1 of the Sherman Act, as set forth in 15 U. S. C. § 1 (1976 ed.),
provides: |
| [83] | "Every contract, combination in the form of trust or otherwise, or
conspiracy, in restraint of trade or commerce among the several States,
or with foreign nations, is declared to be illegal. . . ." |
| [84] | *fn10
"But the legality of an agreement or regulation cannot be determined
by so simple a test, as whether it restrains competition. Every agreement
concerning trade, every regulation of trade, restrains. To bind, to restrain,
is of their very essence." Chicago Board of Trade v. United States,
246 U.S. 231, 238. |
| [85] | See also United States v. Topco Associates, 405 U.S. 596, 606: |
| [86] | "Were § 1 to be read in the narrowest possible way, any commercial
contract could be deemed to violate it." |
| [87] | *fn11
See 21 Cong. Rec. 2456 (1890) (comments of Sen. Sherman); see generally
H. Thorelli, Federal Antitrust Policy 228-229 (1955). |
| [88] | *fn12
"4thly, The fourth reason is in favour of these contracts, and is,
that there may happen instances wherein they may be useful and beneficial,
as . . . in case of an old man, who finding himself under such circumstances
either of body or mind, as that he is likely to be a loser by continuing
his trade, in this case it will be better for him to part with it for a
consideration, that by selling his custom, he may procure to himself a livelihood,
which he might probably have lost, by trading longer." 1 P. Wms., at
191, 24 Eng. Rep., at 350. |
| [89] | *fn13
85 F., at 293. See also United States v. Trans-Missouri Freight Assn., 166
U.S. 290, 340-342. |
| [90] | *fn14
Congress has exempted certain industries from the full reach of the Sherman
Act. See, e. g., 7 U. S. C. §§ 291-292 (1976 ed.) (Capper-Volstead Act,
agricultural cooperatives); 15 U. S. C. §§ 1011-1013 (1976 ed.) (McCarran-Ferguson
Act, insurance); 49 U. S. C. § 5b (Reed-Bulwinkle Act, rail and motor carrier
rate-fixing bureaus); 15 U. S. C. § 1801 (1976 ed.) (newspaper joint operating
agreements). |
| [91] | *fn15
"Without going into detail and but very briefly surveying the whole
field, it may be with accuracy said that the dread of enhancement of prices
and of other wrongs which it was thought would flow from the undue limitation
on competitive conditions caused by contracts or other acts of individuals
or corporations, led, as a matter of public policy, to the prohibition or
treating as illegal all contracts or acts which were unreasonably restrictive
of competitive conditions, either from the nature or character of the contract
or act or where the surrounding circumstances were such as to justify the
Conclusion that they had not been entered into or performed with the legitimate
purpose of reasonably forwarding personal interest and developing trade,
but on the contrary were of such a character as to give rise to the inference
or presumption that they had been entered into or done with the intent to
do wrong to the general public and to limit the right of individuals, thus
restraining the free flow of commerce and tending to bring about the evils,
such as enhancement of prices, which were considered to be against public
policy." 221 U.S., at 58. |
| [92] | *fn16
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 55. As was pointed out in the Report of the Attorney
General's National Committee To Study the Antitrust Laws 11 (1955): |
| [93] | "While Standard Oil gave the courts discretion in interpreting the
word 'every' in Section 1, such discretion is confined to consideration
of whether in each case the conduct being reviewed under the Act constitutes
an undue restraint of competitive conditions, or a monopolization, or an
attempt to monopolize. This standard permits the courts to decide whether
conduct is significantly and unreasonably anticompetitive in character or
effect; it makes obsolete once prevalent arguments, such as, whether monopoly
arrangements would be socially preferable to competition in a particular
industry, because, for example, of high fixed costs or the risks of 'cut-throat'
competition or other similar unusual conditions." |
| [94] | *fn17
In Continental T. V., Inc., the Court explained the Rule of Reason standard
as follows: |
| [95] | "Under this rule, the factfinder weighs all of the circumstances
of a case in deciding whether a restrictive practice should be prohibited
as imposing an unreasonable restraint on competition." 433 U.S., at
49. |
| [96] | 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 50-51. "Competitive impact" and "economic analysis"
were emphasized throughout the opinion. |
| [97] | *fn18
See generally Attorney General's Report, (supra) n. 16, at 10-11; Bork,
The Rule of Reason and the Per Se Concept: Price Fixing and Market Division,
74 Yale L. J. 775 (1965); L. Sullivan, Law of Antitrust 165-197 (1977). |
| [98] | *fn19
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) n. 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 240-241. The District Court's
findings preclude a similar Conclusion concerning the effect of the Society's
"regulation." |
| [99] | *fn20
We, of course, express no view on the truth of this assertion, although
it might be noted that the Society has allowed competitive bidding for some
types of engineering projects in this country, see n. 4, (supra) , and,
at one time, allowed competitive bidding for all engineering work in foreign
countries "as required by the laws, regulations or practices of the
foreign country." App. 6487. This rule, called the "When-in-Rome"
clause, was abolished in 1968. Id., at 6344. |
| [100] | *fn21
Indeed, Congress has decided not to require competitive bidding for Government
purchases of engineering services. The Brooks Act, 40 U. S. C. §§ 541-544
(1970 ed., Supp. V), requires the Government to use a method of selecting
engineers similar to the Society's "traditional method." See n.
6, (supra) . The Society relies heavily on the Brooks Act as evidence that
its ban on competitive bidding is reasonable. The argument is without merit.
The Brooks Act does not even purport to exempt engineering services from
the antitrust laws, and the reasonableness of an individual purchaser's
decision not to seek lower prices through competition does not authorize
the vendors to conspire to impose that same decision on all other purchasers. |
| [101] | *fn22
Courts have, for instance, upheld marketing restraints related to the safety
of a product, provided that they have no anticompetitive effect and that
they are reasonably ancillary to the seller's main purpose of protecting
the public from harm or itself from product liability. See, e. g., Tripoli
Co. v. Wella Corp., 425 F.2d 932 (CA3 1970) (en banc); cf. Continental T.
V., 433 U.S., at 55 n. 23. |
| [102] | *fn23
See n. 8, (supra) . |
| [103] | *fn24
See App. 9974-9980. |
| [104] | *fn25
Petitioner contends the judgment is both an unconstitutional prior restraint
on speech and an unconstitutional prohibition against free association. |
| [105] | *fn26
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. |
| [106] | *fn27
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 " in the judgment prevents NSPE and its members from attempting
to influence governmental action . . . ." Brief for United States 60. |
| [107] | CONCURRING FOOTNOTES |
| [108] | * This Court has not always applied the Rule of Reason with such rigor
even to commercial businesses. See Appalachian Coals, Inc. v. United States,
288 U.S. 344 (1933); Chicago Board of Trade v. United States, 246 U.S. 231
(1918); L. Sullivan, Law of Antitrust 175-182 (1977); R. Bork, The Antitrust
Paradox 41-47, 56 (1978). I intimate no view as to the correctness of those
decisions. |
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