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Sherman Antitrust Laws Don't Apply, Says Judge

"The antitrust laws do not apply to student aid activities in the circumstances of this case," wrote Circuit Court Judge Joseph F. Weis, Jr. in his dissent, which said the majority did not go far enough in their decision to reverse the lower court ruling.

MIT financial aid "is charity, just as would be a gift from an independent fund established to pay the tuition of needy students," he wrote.

Below are excerpts from his 12-page dissent.

"Although the century that has passed since the enactment of the Sherman Act may make reliance upon legislative history somewhat hazardous, it is a fair assumption that the drafters of the statute would have been quite astounded at the government's contention that the student aid program at issue here is covered by the antitrust laws. In response to a motion on the Senate floor to amend the legislation by exempting temperance societies, Senator Sherman remarked:

"`I do not see any reason for putting in temperance societies any more than churches or school-houses or any other kind of moral or educational associations that may be organized. Such an association is not in any sense a combination or arrangement made to interfere with interstate commerce . . You might as well include churches and Sunday schools.' .

"The challenged practices, designed to provide high quality education to those who have demonstrated academic talent without regard to their financial status, do not instinctively conjure up images of reprehensible business dealings. Quite to the contrary, the initial reaction is to question why the heavy artillery of antitrust has been wheeled into position to shoot down practices that so obviously advance the public interest.

"Practices that might be illegal in the commercial area do not transform a charitable activity into a business one. To the extent that the government pursues that course, its argument is simply a non sequitur..

"Determining the amount of aid is not always a simple calculation, but often involves several categories of assistance. Government grants or loans are one type of financial support. Another, termed self-help, includes amounts earned by a student during the school year (often while participating in government-funded work-study programs), and loans the student secures directly from a bank. As the district court found, each university sets its own levels for self-help.

"Thus, although the participating institution in Overlap might agree on a family contribution figure, the type of aid an individual student receives could vary substantially. For example, in weighting self-help bank loans, government grants and work-study earnings, one school might conclude that there is no need for university-funded grants. Another school, however, might decide to offer a grant to a student in lieu of all or part of a bank loan. Thus, although the family contribution would be identical for both schools, the first school would not expend any of its own funds, whereas the second would be more generous.

"The government's description of financial aid as a `discount' is a semantic attempt to bring the process within the Sherman Act and puts the rabbit into the hat.. A discount, which is intended to improve profits from a business, is not a gift, and is not intended as such. The record demonstrates that MIT receives over three times as many applications as it can accept and that it could fill its classrooms with students who are able to pay the full base tuition. In the business world, that would eliminate any need for a `discount.'.

"The government does not challenge the societal good that flows from these need-blind admission and need-based aid policies. Indeed, financial aid made available by the government is aimed at the very same objective..

"To meet its societal obligations as it sees them, MIT takes some of the funds it could otherwise use to augment salaries, modernize buildings, increase laboratory resources or otherwise invest in the school, and donates them to worthy, but needy, students in the form of grants. This decision is not compelled nor advised by business considerations, but only serves commendable social objectives. Such university-provided aid is charity, just as would be a gift from an independent fund established to pay the tuition of needy students. If that fund conditioned the size of awards on considerations of family contributions, as does the MIT program, the gift would be charitable nonetheless.

"Under an analysis commonly used by courts in the tax field, university-funded aid is undoubtedly charitable.I see no need in the antitrust context to interpret charity less liberally than the Internal Revenue Code..

"The government does not dispute the facts that MIT provides over $20 million in aid annually, that 57 percent of the student population receives such help, nor that, as a result of this assistance, the percentage of minorities at MIT has increased from 3 percent to 44 percent over the last thirty years..

"The funds that are earmarked for student aid could instead be used to increase salaries as a means of attracting the very finest faculty. Thus, an allocation for financial aid could have a negative effect on a school's reputation for excellence because students are generally attracted to a university because of the standing of its faculty rather than that of its students..

"In a case closer to the one at hand, Marjorie Webster Junior College, Inc. v. Middle States Ass'n of Colleges & Secondary Schools, Inc., 432 F.2d 650 (D.C. Cir. 1970), the Court found that an accrediting institution's refusal to recognize a proprietary school did not come within the Sherman Act. Absent [commercial motives] . the process of accreditation is an activity distinct from the sphere of commerce; it goes rather to the heart of the concept of education itself.".

"It does seem ironic . that the Sherman Act, intended to prevent plundering by the "robber barons," is being advanced as a means to punish, not predations, but philanthropy. The result that the government seeks would divert funds that otherwise could be used for student aid to cover the expenses generated by treble damage suits. This is hardly the public good that Congress intended.

"On the record in this case, I would grant judgment in favor of defendant MIT."

A version of this article appeared in the September 22, 1993 issue of MIT Tech Talk (Volume 38, Number 7).

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