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:
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.
(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
Page 435 U. S. 680
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.
181 U.S.App.D.C. 41, 555 F.2d 978, affirmed.
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.
Page 435 U. S. 681
MR. JUSTICE STEVENS delivered the opinion of the Court.
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.
I
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
Page 435 U. S. 682
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.
The National Society of Professional Engineers (Society) was
organized in 1935 to deal with the nontechnical 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.
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
Page 435 U. S. 683
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]
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.
[
Footnote 4]"
If the client requires that such information be provided, then §
11(c) imposes an
Page 435 U. S. 684
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]
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.
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
Page 435 U. S. 685
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."
The parties compiled a voluminous discovery and trial record.
The District Court made detailed findings about the
Page 435 U. S. 686
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.
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.
II
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:
"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
Page 435 U. S. 687
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
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.
A. The Rule of Reason.
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
Page 435 U. S. 688
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.
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
Page 435 U. S. 689
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
Page 435 U. S. 690
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,
"restraints of trade within the purview of the statute . . .
[can]not 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."
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]
Page 435 U. S. 691
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
246 U. S. 238,
quoted in 433 U.S. at
433 U. S. 49 n.
15. [
Footnote 17]
Page 435 U. S. 692
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]
B. The Ban on Competitive Bidding.
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
Page 435 U. S. 693
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.
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
Page 435 U. S. 694
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.
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]
Page 435 U. S. 695
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.
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.
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
Page 435 U. S. 696
indirectly protect the public against this harm by conferring
monopoly privileges on the manufacturers.
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.
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.
III
The judgment entered by the District Court, as modified by
Page 435 U. S. 697
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
Page 435 U. S. 698
protected, but those protections do not prevent it from
remedying the antitrust violations.
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.
"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
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
Page 435 U. S. 699
this case, the Court of Appeals specifically stated that,
"[i]f 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.
The judgment of the Court of Appeals is
Affirmed.
MR. JUSTICE BRENNAN took no part in the consideration or
decision of this case.
[
Footnote 1]
389 F.
Supp. 1193 (DC 1974).
[
Footnote 2]
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.
[
Footnote 3]
That section, which remained in effect at the time of trial,
provided:
"Section 11 -- The Engineer will not compete unfairly with
another engineer by attempting to obtain employment or advancement
or professional engagements by competitive bidding. . . . "
"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.
[
Footnote 4]
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.
[
Footnote 5]
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
"support[s] 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.
[
Footnote 6]
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.
[
Footnote 7]
The entire defense pleaded in the answer reads as follows:
"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 public
interest."
"(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."
"(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."
"(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.
[
Footnote 8]
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.
[
Footnote 9]
Section 1 of the Sherman Act, as set forth in 15 U.S.C. § 1
(1976 ed.), provides:
"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. . .
."
[
Footnote 10]
"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,
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."
[
Footnote 11]
See 21 Cong.Rec. 2456 (1890) (comments of Sen.
Sherman);
see generally H. Thorelli, Federal Antitrust
Policy 228-229 (1955).
[
Footnote 12]
"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.
[
Footnote 13]
85 F. at 293.
See also United States v. Trans-Missouri
Freight Assn., 166 U. S. 290,
166 U. S.
340-342.
[
Footnote 14]
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).
[
Footnote 15]
"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
221 U. S. 58.
[
Footnote 16]
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):
"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 'cutthroat' competition or other
similar unusual conditions."
[
Footnote 17]
In
Continental T.V., Inc., the Court explained the Rule
of Reason standard as follows:
"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
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.
[
Footnote 18]
See generally Attorney General's Report,
supra, n 16, at
111; 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).
[
Footnote 19]
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."
[
Footnote 20]
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.
[
Footnote 21]
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 af 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.
[
Footnote 22]
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
433 U. S. 55 n.
23.
[
Footnote 23]
See n 8,
supra.
[
Footnote 24]
See App. 9974-9980.
[
Footnote 25]
Petitioner contends the judgment is both an unconstitutional
prior restraint on speech and an unconstitutional prohibition
against free association.
[
Footnote 26]
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.
[
Footnote 27]
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.
MR. JUSTICE BLACKMUN, with whom MR. JUSTICE REHNQUIST joins,
concurring in part and concurring in the judgment.
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
Page 435 U. S. 700
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, 55 F.2d 978, 982 (1977).
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
Page 435 U. S. 701
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.
* 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.
MR. CHIEF JUSTICE BURGER, concurring in part and dissenting in
part.
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.