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U.S. v. Brown University in Providence in State of R.I.

filed: September 17, 1993; As Corrected October 1, 1993.

THE UNITED STATES OF AMERICA
v.
BROWN UNIVERSITY IN PROVIDENCE IN THE STATE OF RHODE ISLAND, AND PROVIDENCE PLANTATIONS; THE TRUSTEES OF COLUMBIA UNIVERSITY IN THE CITY OF NEW YORK; CORNELL UNIVERSITY; THE TRUSTEES OF DARTMOUTH COLLEGE; PRESIDENT AND FELLOWS OF HARVARD COLLEGE, MASSACHUSETTS; MASSACHUSETTS INSTITUTE OF TECHNOLOGY; THE TRUSTEES OF PRINCETON UNIVERSITY; THE TRUSTEES OF THE UNIVERSITY OF PENNSYLVANIA; YALE UNIVERSITY MASSACHUSETTS INSTITUTE OF TECHNOLOGY, APPELLANT



On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Civil No. 91-03274)

Before: Mansmann, Cowen and Weis Circuit Judges

Author: Cowen

Opinion OF THE COURT

Cowen, Circuit Judge.

The Antitrust Division of the United States Department of Justice ("Division") brought this civil antitrust action against appellant Massachusetts Institute of Technology ("MIT") and eight Ivy League colleges and universities. The Division alleged that MIT violated section one of the Sherman Antitrust Act, 15 U.S.C. § 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 district court entered judgment in favor of the Division. United States v. Brown University, et al., 805 F. Supp. 288 (E.D. Pa. 1992). We agree with the district court that the challenged practices implicate "trade or commerce" within the meaning of section one, and should be accorded more inquiry than a conclusory rejection under the per se rule, given the institutional context. However, we hold that the district court erred by failing to adequately consider the procompetitive and social welfare justifications proffered by MIT and by deciding the case on the basis of an abbreviated rule of reason analysis. We therefore will reverse the judgment of the district court and remand for further proceedings consistent with this opinion.

I. FACTUAL AND PROCEDURAL BACKGROUND

MIT, founded in 1861, is a private nonprofit institution of higher education offering undergraduate and graduate programs. According to MIT's charter, it exists to maintain a school of industrial science and to advance the practical application of science. Its governing body, the MIT Corporation, is comprised of distinguished leaders in science, engineering, industry, education and public service. By virtue of its educational mission, MIT qualifies as a charitable, tax-exempt corporation under the Internal Revenue Code. See 26 U.S.C. § 501(c)(3).

MIT has vast resources. It has an operating budget of $1.1 billion and an endowment of $1.5 billion, among the ten largest in the nation. It receives in excess of $200 million annually in tuition and room and board payments. Although the annual student budget (tuition, room and board, books and incidental expenses) is approximately $25,000, MIT still operates its undergraduate educational program at a significant loss. Alumni contributions and investment income from the endowment heavily subsidize the cost of MIT's educational services.

Each year, MIT receives between six and seven thousand applications for admission to its undergraduate program. MIT then evaluates applicants' grades, class rank, standardized test scores and personal accomplishments, and admits approximately 2,000 students. Approximately 1,100 of the accepted students ultimately matriculate at MIT. MIT accepts only exceptionally talented students. In the 1991-92 academic year, eighty-three percent of the first-year class were in the top five percent of their high school class and eighty percent had math SAT scores over 700. MIT's principal competitors for these high quality undergraduate students are Harvard, Princeton, Yale and Stanford. In 1988, eighty-two percent of all students admitted to MIT chose to attend either MIT, an Ivy League school or Stanford.

Although MIT could fill its entire entering class with students able to pay the full tuition, it utilizes a need-blind admissions system under which all admission decisions are based entirely on merit without consideration of an applicant's ability to pay tuition. Because financial status is irrelevant, very intelligent but needy students are preferred over less accomplished but more affluent ones. To provide admitted needy students with a realistic opportunity to enroll, MIT also is committed to satisfying the full financial aid needs of its student body. This commitment is expensive. In the 1991-92 academic year, fifty-seven percent of the entering class received some financial aid. The combination of need-blind admissions and full need-based aid allows many students to attend MIT who otherwise could not afford to attend. For the 1991-92 academic year, minorities comprised forty-four percent of the entering class, while thirty years earlier minorities represented only three to four percent of the undergraduate class.

Before explaining how MIT calculates financial assistance packages, we provide an overview of the financial aid process. Under the federal financial aid program, students and their families must use their combined assets to pay for the students' college education. See 20 U.S.C. §§ 1087kk, 1087mm. When family assets are insufficient to meet expenses, the student is eligible for federal loans and loan guarantees. See id. To qualify for federal financial aid, students and their parents must disclose financial information to the College Scholarship Service ("CSS"). CSS processes this information and distributes the results to the United States Department of Education, which calculates each aid applicant's expected family contribution using the "Congressional Methodology" formula. The family contribution is the amount the student and his or her family may reasonably be expected to contribute annually toward educational expenses. See id. § 1087mm. CSS then forwards these results to participating institutions.

Under the Congressional Methodology, schools may increase or decrease the family contribution determination using their professional judgment. See id. § 1087tt(a). Professional judgment may be used only on a case-by-case basis when special circumstances exist. See id. Through the exercise of professional judgment, schools may have differing family contribution determinations for the same applicant. If a student receives any federal aid, however, he or she may not receive supplemental aid from an institution that would exceed his or her need as computed under the Congressional Methodology.

In 1958, MIT and the eight Ivy League schools*fn1 formed the "Ivy Overlap Group" to collectively determine the amount of financial assistance to award to commonly admitted students. The facts concerning this Agreement are essentially undisputed. The Ivy Overlap Group expressly agreed that they would award financial aid only on the basis of demonstrated need. Thus, merit-based aid was prohibited. To ensure that aid packages would be comparable, the participants agreed to share financial information concerning admitted candidates and to jointly develop and apply a uniform needs analysis for assessing family contributions.*fn2

The Ivy Overlap Group conducted their needs analysis pursuant to the "Ivy Methodology," which differed from the Congressional Methodology in several significant respects. For example, when a family has two or more children simultaneously attending college, the Congressional Methodology evenly apportions the parental contribution while the Ivy Methodology apportions the contribution based on the relative cost of the colleges. When a student's parents are divorced, the Congressional Methodology expects a parental contribution only from the custodial parent while the Ivy Methodology expects a contribution from both the custodial and noncustodial parents. Each deviation resulted in less generous aid packages than under the Congressional Methodology.

Although each Ivy Overlap institution employed the same analysis to compute family contributions, discrepancies in the contribution figures still arose. To eliminate these discrepancies, the Overlap members agreed to meet in early April each year to jointly determine the amount of the family contribution for each commonly admitted student. Prior to this conference, the Overlap schools independently determined the family contribution of each student they admitted, and transmitted this data to Student Aid Services. Student Aid Services then compiled rosters. A bilateral roster listed aid applicants who were admitted to two Ivy Overlap Group schools, and a multilateral roster compiled applicants admitted to more than two participating schools. For each student, the rosters showed each school's student budget, proposed student and parent contributions, self-help levels, and grant awards.

At the two-day spring Overlap conference, the schools compared their family contribution figures for each commonly admitted student. Family contribution differences of less than $500 were ignored. When there was a disparity in excess of $500, the schools would either agree to use one school's figure or meet somewhere in the middle. Due to time constraints, the schools spent only a few minutes discussing an individual and the agreed upon figures were more a result of compromise than of a genuine effort to accurately assess the student's financial circumstances.

All Ivy Overlap Group institutions understood that failing to comply with the Overlap Agreement would result in retaliatory sanctions. Consequently, noncompliance was rare and quickly remedied. For example, in 1986, Princeton began awarding $1,000 research grants to undergraduates based on academic merit. After a series of complaints from other Overlap institutions who viewed these grants as a form of scholarship, Princeton terminated this program.

Stanford represented the Overlap schools' only meaningful competition for students. The Ivy Overlap Group, fearful that Stanford would lure a disproportionate number of the highest caliber students with merit scholarships, attempted to recruit Stanford into the group. Stanford declined this invitation.

In 1991, the Antitrust Division of the Justice Department brought this civil suit alleging that the Ivy Overlap Group unlawfully conspired to restrain trade in violation of section one of the Sherman Act, 15 U.S.C. § 1, by (1) agreeing to award financial aid exclusively on the basis of need; (2) agreeing to utilize a common formula to calculate need; and (3) collectively setting, with only insignificant discrepancies, each commonly admitted students' family contribution toward the price of tuition.*fn3 The Division sought only injunctive relief. All of the Ivy League institutions signed a consent decree with the United States, and only MIT proceeded to trial. After a ten-day bench trial, the district court held that the Ivy Overlap Group's conduct constituted "trade or commerce" under section one of the Sherman Act. Rejecting MIT's argument that financial aid is pure charity and thus exempt from the dictates of the Sherman Act, the district court characterized the Overlap Agreement as setting a selective discount off the price of educational services.

The district court found that the Overlap Agreement constituted price fixing. Due to the nonprofit status and educational mission of the alleged conspirators, however, the court declined to apply the per se rule of illegality that summarily invalidates most horizontal price fixing agreements. Because the conflicting and complex expert testimony left the court unsure that the economic effect of Overlap could be accurately measured, it assumed without deciding MIT's premise that the Overlap Agreement was revenue neutral, i.e., did not increase or decrease the average tuition payment made by students. Nevertheless, the court was quick to point out that assuming the fact of revenue neutrality, without more, offers no insight into any alleged procompetitive virtue of a restraint. Hence, despite this assumption of revenue neutrality, the court found the Agreement plainly anticompetitive because it eliminated price competition for outstanding students among the participating schools. Because the harm was tampering with free market forces, the court deemed it irrelevant whether the total amount of tuition payments collected from all students increased, decreased or remained the same.

Faced with what it believed was a plainly anticompetitive agreement, the district court applied an abbreviated version of the rule of reason and took only a "quick look" to determine if MIT presented any plausible procompetitive affirmative defenses that justified the Overlap Agreement. MIT argued that Overlap widened the pool of applicants to Overlap institutions by providing needy students with the ability to enroll if accepted. This, MIT asserted, increased consumer choice and enhanced the quality of the education provided to all students by opening the doors of the most elite colleges in the nation to diversely gifted students of varied socio-economic backgrounds. The district court deemed these explanations to be social welfare justifications and flatly rejected the contention that the elimination of competition may be justified by non-economic considerations. The court based its reasoning on the unambiguous pronouncements of the Supreme Court in landmark Sherman Act cases, which preclude substituting Congress' view of the social benefits of competition for that of a defendant. In two cases which the district court deemed closely analogous to the present case, the Supreme Court had rejected social welfare justifications for the anti-competitive designs of certain professional associations. National Society of Professional Engineers v. United States, 435 U.S. 679, 695, 98 S. Ct. 1355, 1367, 55 L. Ed. 2d 637 (1978); FTC v. Indiana Federation of Dentists, 476 U.S. 447, 463, 106 S. Ct. 2009, 2020, 90 L. Ed. 2d 445 (1986). This holding with respect to social welfare justifications led the district court to find insufficient MIT's proffered justification that Overlap promoted equality of educational access and opportunity.

The district court also discredited MIT's prediction that without Overlap, bidding for the highest achieving students would partially if not totally displace need-based aid. Absent Overlap, the district court found, each institution acting independently would be free to dedicate the necessary resources to ensure the continuation of need-blind admissions and full need-based aid. The district court apparently believed that even if eliminating merit scholarships and distributing student financial aid exclusively according to need promoted cognizable social objectives, Overlap was not a necessary means to effectuate these goals. The district court therefore entered a broad permanent injunction prohibiting MIT from:

entering into, being a party to, maintaining or participating in -- directly or indirectly, on a case-by-case-basis or otherwise -- any combination or conspiracy which has the effect, or the tendency to affect, the determination of the price, or any adjustment thereof, expected to be paid by, or on behalf of, a prospective student, whether identified as tuition, family contribution, financial aid awards, or some other component of the cost of providing the student's education by the institutions to which the student has been admitted.

App. at 499-500.

MIT appealed the order of the district court. We granted leave for several amicus curiae briefs to be filed in support of MIT.*fn4

II. TRADE OR COMMERCE

As a threshold matter, we must decide whether section one of the Sherman Act applies to the challenged conduct -- MIT's agreement with the other Overlap institutions to award financial aid only to needy students and to set the amount of family contribution from commonly admitted students. Section one, by its terms, does not apply to all conspiracies, but only to those which restrain "trade or commerce." 15 U.S.C. § 1. MIT characterizes its conduct as disbursing charitable funds to achieve the twin objectives of advancing equality of access to higher education and promoting socio-economic and racial diversity within the nation's most elite universities. This alleged pure charity, MIT argues, does not implicate trade or commerce, and is thus exempt from antitrust scrutiny.

It is axiomatic that section one of the Sherman Act regulates only transactions that are commercial in nature. See Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 213 n.7, 79 S. Ct. 705, 710, 3 L. Ed. 2d 741 (1959). Congress, however, intended this statute to embrace the widest array of conduct possible. Goldfarb v. Virginia State Bar, 421 U.S. 773, 787-88, 95 S. Ct. 2004, 2013-14, 44 L. Ed. 2d 572 (1975). Section one's scope thus reaches the activities of nonprofit organizations, including institutions of higher learning. NCAA v. Board of Regents of the Univ. of Oklahoma, 468 U.S. 85, 100 n.22, 104 S. Ct. 2948, 2960, 82 L. Ed. 2d 70, n.22 (1984) ("There is no doubt that the sweeping language of § 1 applies to nonprofit entities."); American Society of Mechanical Engineers, Inc. v. Hydrolevel Corp., 456 U.S. 556, 576, 102 S. Ct. 1935, 1948, 72 L. Ed. 2d 330 (1982) ("It is beyond debate that nonprofit organizations can be held liable under the antitrust laws."); see also Goldfarb, 421 U.S. at 781-88, 95 S. Ct. at 2010-14 (finding nonprofit professional association violated Sherman Act). Nonprofit organizations are not beyond the purview of the Sherman Act, because the absence of profit is no guarantee that an entity will act in the best interest of consumers. See P. Areeda & H. Hovenkamp, Antitrust Law P 232.2, at 275 (Supp. 1991); see also United States v. Rockford Memorial Corp., 898 F.2d 1278, 1285 (7th Cir.), cert. denied, 498 U.S. 920, 111 S. Ct. 295, 112 L. Ed. 2d 249 (1990).

Although nonprofit organizations are not entitled to a class exemption from the Sherman Act, when they perform acts that are the antithesis of commercial activity, they are immune from antitrust regulation. Cf. Apex Hosiery Co. v. Leader, 310 U.S. 469, 60 S. Ct. 982, 84 L. Ed. 1311 (1940) (labor union strike does not implicate commerce under Sherman Act); National Org. For Women, Inc. v. Scheidler, 968 F.2d 612 (7th Cir. 1992) (violent pro-life protests that successfully closed abortion clinics do not implicate commerce), cert. granted in part, 113 S. Ct. 2958, 61 U.S.L.W. 3834 (June 14, 1993). This immunity, however, is narrowly circumscribed. It does not extend to commercial transactions with a "public-service aspect." Goldfarb, 421 U.S. at 787-88, 95 S. Ct. at 2013-14. Courts classify a transaction as commercial or noncommercial based on the nature of the conduct in light of the totality of surrounding circumstances.

The exchange of money for services, even by a nonprofit organization, is a quintessential commercial transaction. See id. at 787-88, 95 S. Ct. at 2013 ("the exchange of . . . a service for money is 'commerce' in the most common usage of that word"). Therefore, the payment of tuition in return for educational services constitutes commerce. MIT concedes as much by acknowledging that its determination of the full tuition amount is a commercial decision.

We thus come to the crux of the issue -- is providing financial assistance solely to needy students a selective reduction or 'discount' from the full tuition amount, or a charitable gift? If this financial aid is a component of the process of setting tuition prices, it is commerce. See Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643, 648, 100 S. Ct. 1925, 1928, 64 L. Ed. 2d 580 (1980) (agreement to eliminate discounts violates section one). If it is pure charity, it is not.*fn5

When MIT admits an affluent student, that student must pay approximately $25,000 annually (tuition plus room, board and incidental expenses) if he or she wishes to enroll at MIT. If MIT accepts a needy student and calculates that it will extend $10,000 in financial aid to that student, the student must pay approximately $15,000 to attend MIT. The student certainly is not free to take the $10,000 and apply it toward attendance at a different college. The assistance package is only available in conjunction with a complementary payment of approximately $15,000 to MIT. The amount of financial aid not only impacts, but directly determines the amount that a needy student must pay to receive an education at MIT. The financial aid therefore is part of the commercial process of setting tuition.*fn6

MIT suggests that providing aid exclusively to needy students and setting the amount of that aid is not commercial because the price needy students are charged is substantially below the marginal cost of supplying a year of education to an undergraduate student. Because profit maximizing companies would not engage in such economically abnormal behavior, MIT concludes that such activity must be noncommercial. MIT's concession, however, that setting the full tuition amount is a commercial decision subject to antitrust scrutiny undermines this argument. The full tuition figure, like the varying amounts charged to needy students, is significantly below MIT's marginal cost. Therefore, whether the price charged for educational services is below marginal cost is not probative of the commercial or noncommercial nature of the methodology utilized to determine financial aid packages.

The fact that MIT is not obligated to provide any financial aid does not transform that aid into charity. Similarly, discounting the price of educational services for needy students is not charity when a university receives tangible benefits in exchange. Regardless of whether MIT's motive is altruism, self-enhancement or a combination of the two,*fn7 MIT benefits from providing financial aid. MIT admits that it competes with other Overlap members for outstanding students. By distributing aid, MIT enables exceptional students to attend its school who otherwise could not afford to attend. The resulting expansion in MIT's pool of exceptional applicants increases the quality of MIT's student body. MIT then enjoys enhanced prestige by virtue of its ability to attract a greater portion of the "cream of the crop." The Supreme Court has recognized that nonprofit organizations derive significant benefit from increased prestige and influence. See American Society of Mechanical Engineers, Inc., v. Hydrolevel Corp., 456 U.S. 556, 576, 102 S. Ct. 1935, 1948, 72 L. Ed. 2d 330 (1982). Although MIT could fill its class with students able to pay the full tuition, the caliber of its student body, and consequently the institution's reputation, obviously would suffer. Overlap affords MIT the benefit of an overrepresentation of high caliber students, with the concomitant institutional prestige, without forcing MIT to be responsive to market forces in terms of its tuition costs. By immunizing itself through the Overlap from competition for students based on a price/quality ratio, MIT achieves certain institutional benefits at a bargain.

Our holding that the Overlap Agreement clearly implicates trade or commerce is consistent with Marjorie Webster Junior College, Inc. v. Middle States Ass'n of Colleges and Secondary Schools, Inc., 139 U.S. App. D.C. 217, 432 F.2d 650 (D.C. Cir. 1970), upon which MIT heavily relies. In that case, the Middle States Association ("MSA"), a nonprofit corporation dedicated to improving quality in institutions of higher learning, was responsible for, among other things, accrediting qualified colleges. One of the prerequisites to accreditation was that institutions be nonprofit organizations. Following this longstanding policy, the MSA declined to accredit Marjorie Webster because it was a proprietary junior college. The Court of Appeals for the District of Columbia Circuit held that the MSA's refusal to accredit Marjorie Webster was not commercial activity under section one of the Sherman Act. Marjorie Webster, 432 F.2d at 654. The Sherman Act's proscriptions, the court stated, do not extend to "the noncommercial aspects of the liberal arts." Id. Therefore, the refusal to accredit an institution "absent an intent or purpose to affect the commercial aspects of the profession" did not constitute commerce. Id.

The Marjorie Webster court focused primarily on intent because the nature of the conduct in that case was distinctly noncommercial. The MSA received no payment or other benefit for evaluating institutions and deciding whether to accredit them. In contrast to the Overlap Agreement, there was no exchange of money for services or the setting of a price. We agree that the Sherman Act does not apply to "the noncommercial aspects of the liberal arts." Id. MIT's conduct, however, presents the opposite side of the coin -- the commercial aspects of the liberal arts. Like the district court, we "can conceive of few aspects of higher education that are more commercial than the price charged to students." United States v. Brown University, 805 F. Supp. 288, 298 (E.D. Pa. 1992). The Marjorie Webster court even acknowledged that if the MSA engaged in commercial activity, "antitrust policy would presumably be applicable." 432 F.2d at 654-55.

We hold that financial assistance to students is part and parcel of the process of setting tuition and thus a commercial transaction. Although MIT's status as a nonprofit educational organization and its advancement of congressionally-recognized and important social welfare goals does not remove its conduct from the realm of trade or commerce, these factors will influence whether this conduct violates the Sherman Act. See Goldfarb, 421 U.S. at 788 n.17, 95 S. Ct. at 2013 n.17.

III. RESTRAINT OF TRADE

Section one of the Sherman Act provides that "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states . . . is declared to be illegal." 15 U.S.C. § 1. Courts long ago realized that literal application of section one would render virtually every business arrangement unlawful. "Every agreement concerning trade, every regulation of trade, restrains. To bind, to restrain, is of their very essence." Chicago Board of Trade v. United States, 246 U.S. 231, 238, 38 S. Ct. 242, 244, 62 L. Ed. 683 (1918). Because even beneficial business contracts or combinations restrain trade to some degree, section one has been interpreted to prohibit only those contracts or combinations that are "unreasonably restrictive of competitive conditions." Standard Oil Co. v. United States, 221 U.S. 1, 58, 31 S. Ct. 502, 515, 55 L. Ed. 619 (1911).

Three general standards have emerged for determining whether a business combination unreasonably restrains trade under section one. Most restraints are analyzed under the traditional "rule of reason." Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49, 97 S. Ct. 2549, 2557, 53 L. Ed. 2d 568 (1977). The rule of reason requires the 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." Id.*fn8 The plaintiff bears an initial burden under the rule of reason of showing that the alleged combination or agreement produced adverse, anti-competitive effects within the relevant product and geographic markets. Tunis Bros. Co. v. Ford Motor Co., 952 F.2d 715, 722 (3d Cir. 1991), cert. denied, U.S. , 112 S. Ct. 3034 (1992); Cernuto, Inc. v. United Cabinet Corp., 595 F.2d 164, 166 (3d Cir. 1979). The plaintiff may satisfy this burden by proving the existence of actual anticompetitive effects, such as reduction of output, see FTC v. Indiana Federation of Dentists, 476 U.S. 447, 460-61, 106 S. Ct. 2009, 2019, 90 L. Ed. 2d 445 (1986), increase in price, or deterioration in quality of goods or services, see Tunis Bros., 952 F.2d at 728. Such proof is often impossible to make, however, due to the difficulty of isolating the market effects of challenged conduct. 7 P. Areeda, Antitrust Law P 1503, at 376 (1986). Accordingly, courts typically allow proof of the defendant's "market power" instead. Tunis Bros., 952 F.2d at 727; see NCAA v. Board of Regents of the Univ. of Oklahoma, 468 U.S. 85, 110, 104 S. Ct. 2948, 2965, 82 L. Ed. 2d 70 (1984). Market power, the ability to raise prices above those that would prevail in a competitive market, Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 27 n.46, 104 S. Ct. 1551, 1566, 80 L. Ed. 2d 2 (1984), is essentially a "surrogate for detrimental effects." Indiana Dentists, 476 U.S. at 460-61, 106 S. Ct. at 2019 (quoting 7 P. Areeda, supra, P 1511, at 429).

If a plaintiff meets his initial burden of adducing adequate evidence of market power or actual anti-competitive effects, the burden shifts to the defendant to show that the challenged conduct promotes a sufficiently pro-competitive objective. A restraint on competition cannot be justified solely on the basis of social welfare concerns. See, e.g., Professional Engineers, 435 U.S. at 695, 98 S. Ct. at 1367; Indiana Dentists, 476 U.S. at 463, 106 S. Ct. at 2020. To rebut, the plaintiff must demonstrate that the restraint is not reasonably necessary to achieve the stated objective. 7 P. Areeda, supra P 1507, at 397; Bhan v. NME Hospitals, Inc., 929 F.2d 1404, 1413 (9th Cir.), cert. denied, U.S. , 116 L. Ed. 2d 639, 112 S. Ct. 617 (1991).

While the rule of reason typically mandates "an elaborate inquiry into the reasonableness of a challenged business practice," Arizona v. Maricopa County Medical Society, 457 U.S. 332, 343, 102 S. Ct. 2466, 2472, 73 L. Ed. 2d 48 (1982), "there are certain agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable," Northern Pacific Ry. Co. v. United States, 356 U.S. 1, 5, 78 S. Ct. 514, 518, 2 L. Ed. 2d 545 (1958). Such "plainly anticompetitive" agreements or practices are deemed to be "illegal per se." National Society of Professional Engineers v. United States, 435 U.S. 679, 692, 98 S. Ct. 1355, 1365, 55 L. Ed. 2d 637 (1978). "Business certainty and litigation efficiency" are the principal salutary effects of per se rules. Maricopa, 457 U.S. at 344, 102 S. Ct. at 2473. Such rules "tend to provide guidance to the business community and to minimize the burdens on litigants and the judicial system of the more complex rule-of-reason trials." Continental T.V., 433 U.S. at 50 n.16, 97 S. Ct. at 2557 n.16.

In addition to the traditional rule of reason and the per se rule, courts sometimes apply what amounts to an abbreviated or "quick look" rule of reason analysis. The abbreviated rule of reason is an intermediate standard. It applies in cases where per se condemnation is inappropriate, but where "no elaborate industry analysis is required to demonstrate the anticompetitive character" of an inherently suspect restraint. See NCAA, 468 U.S. at 109, 104 S. Ct. at 2964 (quoting Professional Engineers, 435 U.S. at 692, 98 S. Ct. at 1365); Indiana Dentists, 476 U.S. at 459, 106 S. Ct. at 2018 (same). Because competitive harm is presumed, the defendant must promulgate "some competitive justification" for the restraint, "even in the absence of detailed market analysis" indicating actual profit maximization or increased costs to the consumer resulting from the restraint. NCAA, 468 U.S. at 110, 104 S. Ct. at 2965; accord Indiana Dentists, 476 U.S. at 459, 106 S. Ct. at 2018. If no legitimate justifications are set forth, the presumption of adverse competitive impact prevails and "the court condemns the practice without ado." Chicago Prof'l Sports Limited Partnership ...


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