Seventeen of U.S. News & World Report’s top 25 universities in the nation recently lost their bid to dismiss allegations of an antitrust conspiracy to suppress student financial aid awards. The ruling by the U.S. District Court for the Northern District of Illinois is notable because it held that the “568 Exemption,” on which many universities’ financial aid systems are based, does not provide antitrust immunity unless all participating universities admit their students on a need-blind basis. It also highlights the risk in relying on narrow exemptions to the antitrust laws in reaching horizontal agreements with competitors.
The 568 Exemption to Antitrust Laws
The exemption dates back to 1989, when the Department of Justice filed a civil antitrust case against the “Ivy Overlap Group,” a group of universities alleged to have “collectively determine[d] the amount of financial assistance to award to commonly admitted students” by “employ[ing] the same analysis to compute family contributions.” After a trip to the U.S. Court of Appeals for the Third Circuit, in 1991 the parties inked a 10-year consent decree in which the universities pledged, among other things, not to agree on “student financial aid,” including “how family or parental contribution will be calculated.”
In 1992, Congress passed what has become colloquially called the 568 Exemption. Modeled in part on concepts in the 1991 consent decree, the exemption provides, to paraphrase, as long as admissions decisions are need-blind, universities may collaborate on a financial aid framework.
Carbone v. Brown University
The plaintiffs in Carbone v. Brown University allege in their putative class action that the “568 Presidents Group” of universities “participated … in a price-fixing cartel that is designed to reduce or eliminate financial aid as a locus of competition” by agreeing to a “Consensus Approach, [i.e.,] a set of common standards for determining a family’s ability to pay for college.” They also allege that the defendants are ineligible for the 568 Exemption because the defendants considered financial circumstances in deciding whether to admit students. Accordingly, they allege the university defendants violated §1 of the Sherman Act.
In August 2022, the District Court denied a motion to dismiss by the university defendants, finding that the plaintiffs’ allegations sufficed at the pleading stage. In self-proclaimed dicta, the court rejected several interpretation arguments concerning the 568 Exemption. First, it agreed with the plaintiffs, at least at the pleading stage, that the phrase “without regard to the financial circumstances” means without regard to “any aspect of an applicant’s financial circumstances,” despite the universities’ position that this interpretation “would prohibit schools from considering an applicant’s financial hardship in a positive way.”
Second, the court rejected the argument that each individual defendant must be alleged to have considered financial need in admissions decisions. All participating universities must admit students solely on a need-blind basis or no one gets immunity. While the universities argued this interpretation would require onerous policing of other schools’ policies, the court concluded there is no “actual knowledge requirement” in the 568 Exemption and that “bad policy” arguments are “better directed towards Congress, not the Court.”
Legal Takeaways
The Carbone decision offers several important takeaways:
- First, educational institutions, even nonprofit ones, are generally subject to the antitrust laws. Public universities too are governed by the antitrust laws, and though “Parker Immunity” may apply, its application can be highly fact-dependent and will be narrowly construed. In short, the Sherman Act is broad, and its exemptions narrow, even in the realm of higher education.
- Second, though the paradigmatic example of price fixing is agreement on a specific price, agreements on pricing formulas and pricing discounts can also violate the Sherman Act. Even discussing pricing information, without reaching an agreement, invites antitrust scrutiny.
- Third, pricing agreements between competitors are per se illegal regardless of any perceived benefits to customers specifically or the market generally. Thus, any analysis of antitrust immunity in the context of competitor agreements must also include an appreciation of the risk and consequences of per se liability, should immunity turn out to be narrower than anticipated or subject to an exception.
In the weeks since the Carbone decision, the parties have filed answers, precipitating what could be extensive discovery. While the court avoided some tough calls at the pleading stage, including the antitrust standard by which the 568 Presidents Group should be reviewed, these issues will likely come to a head at summary judgment. Stay tuned.
The full article in its original form can be found here.
Carl Hittinger (B.A. ’76, LAW ’79) is a partner at BakerHostetler in the Philadelphia and Washington, D.C. offices. Hittinger serves as BakerHostetler’s Antitrust and Competition Practice National Team Leader. He focuses his practice on complex commercial and class action litigation, with an emphasis on antitrust and unfair competition matters.
Tyson Herrold is counsel at BakerHostetler in the Philadelphia office. Herrold focuses his litigation practice on antitrust and competition matters as well as other complex litigation. Immediately before joining the firm, he clerked for Circuit Judge Dolores K. Sloviter of the U.S. Court of Appeals for the Third Circuit.