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United States v. Brown Univ. - 5 F.3d 658 (3d Cir. 1993)

Rule:

In determining whether a business combination unreasonably restrains trade under § 1 of the Sherman Act, 15 U.S.C.S. § 1, the traditional rule of reason requires a fact-finder to weigh all of the circumstances of a case in deciding whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition. The plaintiff bears an initial burden of showing that the alleged combination or agreement produced adverse, anti-competitive effects within the relevant product and geographic markets, and satisfy this burden by proving the existence of actual anti-competitive effects. Such proof is often impossible to make, however, due to the difficulty of isolating the market effects of challenged conduct. Accordingly, courts typically allow proof of a defendant's market power instead—with market power being a surrogate for detrimental effects.

Facts:

Plaintiff, the Antitrust Division of the United States Department of Justice ("Division"), brought a civil antitrust action against defendants Massachusetts Institute of Technology ("MIT") and eight Ivy League colleges and universities, including Brown University. The Division alleged that MIT violated  § 1 of the Sherman Antitrust Act, 15 U.S.C.S. § 1, by agreeing with the Ivy League schools to distribute financial aid exclusively on the basis of need and to collectively determine the amount of financial assistance commonly admitted students would be awarded (the "Agreement"). The Division sought only injunctive relief. The Ivy League schools signed a consent decree with the United States, and only MIT proceeded to trial. At trial, the district court, believing it was faced with a plainly anti-competitive agreement, applied an abbreviated version of the rule of reason and took only a "quick look" to determine if MIT presented any plausible pro-competitive affirmative defenses. After a 10-day bench trial, the district court held that the parties' Agreement constituted "trade or commerce" under § 1, rejecting MIT's argument that financial aid was pure charity and thus exempt from the dictates of the Sherman Act. MIT appealed.

Issue:

Did the district court err in deciding the case under an abbreviated rule of reason analysis?

Answer:

Yes.

Conclusion:

The court of appeals reversed the district court's judgment and remanded the case with instructions to evaluate the parties' Agreement using the full-scale rule of reason analysis. The court agreed with the district court that nonprofit institutions were covered by the Sherman Act and that the challenged practices implicated trade or commerce within the meaning of § 1 of the Sherman Act. However, the district court was obliged to more fully investigate the pro-competitive and non-economic justifications proffered by MIT than it did when it performed the truncated rule of reason analysis.

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