National Society of Professional Engineers v. United States
55 L. Ed. 2d 637, 98 S. Ct. 1355 (1978)
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Rule of Law:
Under the Rule of Reason, the competitive effects of a restraint are the sole legitimate inquiry; a defense based on the argument that competition itself is contrary to the public interest is not cognizable under the Sherman Act.
Facts:
- The National Society of Professional Engineers (Society) is a professional organization whose members include consulting engineers.
- In 1964, the Society adopted a Code of Ethics that included Section 11(c), which prohibited members from engaging in competitive bidding for engineering services.
- The Society interpreted this rule to mean that members could not discuss or provide any price information to a potential client until that client had selected a single engineer for negotiations.
- If a client insisted on receiving price information for comparison before selecting an engineer, the Society's code required the member to withdraw from consideration for the job.
- The Society's stated justification for the ban was that competitive bidding would lead to deceptively low bids, which in turn would tempt engineers to perform inferior work and endanger public health, safety, and welfare.
Procedural Posture:
- The United States filed a civil antitrust complaint against the National Society of Professional Engineers (Society) in a U.S. District Court.
- The District Court entered summary judgment for the United States, finding the Society's rule was a per se violation of the Sherman Act.
- The U.S. Supreme Court vacated this judgment and remanded for reconsideration in light of Goldfarb v. Virginia State Bar.
- On remand, the District Court re-entered its judgment, concluding the ban on competitive bidding was unlawful on its face.
- The Society appealed to the U.S. Court of Appeals for the D.C. Circuit, which affirmed the District Court's finding of a violation but modified the scope of the injunction.
- The U.S. Supreme Court granted certiorari to review the case.
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Issue:
Does a professional society's canon of ethics, which prohibits its members from submitting competitive bids for engineering services, violate Section 1 of the Sherman Act?
Opinions:
Majority - Mr. Justice Stevens
Yes. The Society's canon of ethics prohibiting competitive bidding violates Section 1 of the Sherman Act because the Rule of Reason's inquiry is confined to whether a challenged restraint promotes or suppresses competition, not whether competition itself is desirable. The Society's justification, which argues that competition is harmful to public safety, amounts to a frontal assault on the fundamental policy of the Sherman Act. This Act reflects a legislative judgment that competition is the best method for allocating resources and will ultimately produce not only lower prices but also better goods and services. The argument that certain professions or industries should be exempt from competition on public interest grounds is a policy consideration for Congress, not a valid defense under the Rule of Reason. While the Court's decision in Goldfarb recognized that professional services are different from other businesses, it did not create a broad exemption for learned professions to engage in anticompetitive conduct like banning price competition.
Concurring - Mr. Justice Blackmun
Yes. The Society's rule is illegal because it is grossly overbroad. While agreeing with the judgment, this opinion expresses concern that the majority's formulation of the Rule of Reason is too rigid for professional services. The dissent suggests there might be ethical rules with anticompetitive effects that are nonetheless justifiable for reasons other than promoting competition. However, even allowing for such a possibility, the Society's complete ban on competitive bidding is not sufficiently tailored to its stated goal of ensuring quality. The rule prevents price discussions even with sophisticated clients on simple projects and forces a costly sequential search for services, demonstrating its overbreadth and anticompetitive nature.
Concurring-in-part-and-dissenting-in-part - Mr. Chief Justice Burger
Yes, the Society's rule violates the Sherman Act, but the remedy imposed goes too far. This opinion concurs that the ban on competitive bidding is an illegal restraint of trade. However, it dissents from the portion of the injunction that prohibits the Society from stating its ethical view that competitive bidding is undesirable. Such a prohibition is an impairment of the Society's First Amendment right to express its position.
Analysis:
This case significantly clarifies the scope of the Rule of Reason analysis under the Sherman Act. It firmly establishes that the inquiry is strictly confined to a practice's impact on competitive conditions, foreclosing arguments that competition itself is socially or economically undesirable in a particular market. The decision effectively narrows the 'learned profession' consideration introduced in Goldfarb, making it clear that professionals are not immune from antitrust prohibitions against suppressing price competition. This precedent severely limits the ability of professional associations to justify anticompetitive rules based on generalized claims of protecting public safety or upholding professional ethics, thereby subjecting such rules to standard antitrust scrutiny.
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