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Nat'l Soc'y of Prof'l Eng'rs v. United States - 435 U.S. 679, 98 S. Ct. 1355 (1978)

Rule:

The rule of reason is used to give the Sherman Act, 15 U.S.C.S. § 1 et seq., both flexibility and definition, and its central principle of antitrust analysis remains 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. 

Facts:

The United States brought an action in the United States District Court for the District of Columbia, against an association of professional engineers under 1 of the Sherman Act (15 USCS 1)--which declares illegal every contract, combination, or conspiracy in restraint of trade or commerce--seeking to nullify the association's canon of ethics which prohibited association members from submitting competitive bids for their engineering services. Rejecting the association's contention that the canon was justified under the "rule of reason" allegedly because the canon was adopted by members of a learned profession for the purpose of minimizing the risk that competition would produce inferior engineering work endangering public safety, the District Court granted an injunction against the canon, which it found to be a combination and conspiracy in unreasonable restraint of interstate trade and commerce violative of 1 of the Act (389 F Supp 1193). Ultimately, the United States Court of Appeals for the District of Columbia Circuit affirmed, modifying the injunction so that the association was prohibited from adopting any official opinion, policy statement, or guideline stating or implying that competitive bidding was unethical.

Issue:

Did petitioner’s canon of ethics that prohibits its members from submitting competitive bids for engineering services suppressed competition in violation of § 1 of the Sherman Act?

Answer:

Yes

Conclusion:

The Court held that, pursuant to the Sherman Act, 15 U.S.C.S. § 1 et seq., the society of engineers could not require that its members adhere to a code of professional ethics that disallowed competitive bidding. The court found that the society's claim that competition would result in poor designs did not justify a complete ban on competition. Even though the society's directive was not price fixing on its face, the court reasoned that it operated to restrain trade within the meaning of the Sherman Act. Having found a violation of the Act, the Court held that the district court was empowered to issue an injunction to prohibit a recurrence of the violation and to eliminate its consequences. As modified by the court of appeals to prohibit the society from adopting any official opinion or policy implying that competitive bidding was unethical, the Court held that the injunction met the requirement of reasonably eliminating the consequences of the illegal conduct and was not an unconstitutional infringement on the society's right to free speech.

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