Classic Antitrust Cases: National Society of Professional Engineers v. United States, 435 U.S. 679 (1978)

Engineers and BridgeAs an antitrust attorney, over time you see the same major cases cited again and again. It is only natural that you develop favorites. Here at The Antitrust Attorney Blog, we will, from time-to-time, highlight some of the “Classic Antitrust Cases” that we love, that we hate, or that we merely find interesting.

The Supreme Court decided National Society of Professional Engineers in the late 1970s—when I was two-years old—and before the Reagan Revolution. But the views that the author, Justice John Paul Stevens, expressed on behalf of the Supreme Court perhaps ushered in the faith in competition often associated with the 1980s.

The National Society of Professional Engineers thought that its members were above price competition. Indeed, it strictly forbid them from competing on price.

The reason was simple: “it would be cheaper and easier for an engineer ‘to design and specify inefficient and unnecessarily expensive structures and methods of construction.’ 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.” (684-85).

So price competition will cause bridges to collapse? I suppose the same argument could be made for any market where greater expense can improve the health or safety of a product or service. We better not let the car manufacturers compete to provide us with cars because they will skimp on the brakes.

Let’s look at how Justice Stevens and the Supreme Court responded

Before addressing the Society’s argument, the Supreme Court offered a little lesson on the rule of reason and how antitrust law develops. If you read the Sherman Act for the first time, you will notice that it says, roughly, that every contract that restrains trade is illegal. That, of course, can’t be right. A single contract between two parties to buy and sell a bushel of wheat, for example, restrains trade because only one party can buy that particular wheat bushel at that moment.

As Justice Stevens says, quoting Justice Brandeis, “read literally, § 1 [of the Sherman Act] would outlaw the entire body of private contract law.” (687-88). Instead, Congress meant for the courts to “give shape to the statute’s broad mandate by drawing on common-law tradition.” (688). And that is just what the courts have done.

That, in fact, is part of what I enjoy about antitrust law. It really does evolve as our understanding of competition and economics develops. I am happy to play even a small role in that process, and part of the goal of The Antitrust Attorney Blog is to highlight the concept and glory of competition itself, beyond the confines of antitrust law, which is merely a tool to support competition.

In fact, that is what this Court explains—antitrust law is all about supporting competition: “The Sherman Act reflects a legislative judgment that ultimately competition will produce not only lower prices, but also better goods and services.” (695). Then, quoting Standard Oil v. FTC, Justice Stevens repeats one of my favorite Supreme Court antitrust lines: “The heart of our national economy long has been faith in the value of competition.” (695). Short, simple, and to the point; I love it.

Back to the case itself: “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.” (692). The Supreme Court acknowledged that “no elaborate industry analysis is required to demonstrate the anticompetitive character of such an agreement.” (692).

The 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.” (695).

This point is notable because the association of engineers isn’t the only group of professionals that wants to impose its view of “the costs and benefits of competition” on their customers. Lawyers, medical doctors, dentists, and a whole host of professions have a similar perspective. Everyone sees the world through their own lens and has an exaggerated idea of their profession’s importance in the world.

Justice Stevens correctly points out that the engineers’ attempt to justify their restraint “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.” (695). I like the way he put that—no hesitation, no lawyerly wavering, but a clear “frontal assault” on the core purpose of the antitrust act itself. He’s right.

An antitrust case is not the place to debate whether competition is good or bad. Congress has already decided that it is how we are ordering our economy: “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.” (695).

Pay attention to this line: “the statutory policy precludes inquiry into the question whether competition is good or bad.” (696).

Although decided almost forty-years ago, the case is very relevant today and is constantly cited. Different groups, usually a professional organization or board of one type of another, often try to get away with clearly anticompetitive restraints, then argue that they are above the federal antitrust laws because “they,” in particular, are very important and without these restraints, the world will collapse as their customers are incapable of evaluating their or their competitors’ services.

As Justice Stevens said, in my own words, “It’s Hogwash.”