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Institute Wins New Hearing in Overlap Case

By Jeremy Hylton
Editor in Chief

A federal appeals court ruled Friday that the Overlap antitrust case, which accuses MIT of conspiring with Ivy League colleges to fix the amount of financial aid students received, should be reviewed by the district court for a full analysis of the social and economic benefits of the financial aid policy.

In a 2-1 ruling, the 3rd U.S. Circuit Court of Appeals in Philadelphia said it did not agree with MIT's primary argument, that financial aid should be considered charity, rather than commerce. However, it did rule that the lower court had erred by taking only a "quick look" at the social and economic benefits of the Overlap Group meetings.

The dissenting judge ruled that the case should be dismissed immediately and settled in MIT's favor.

At a news conference Friday afternoon, President Charles M. Vest said he was pleased with the appellate court's ruling. "This is an important step toward ultimate victory for access to higher education in America by students who merit admission and need financial assistance."

The Justice Department is reviewing the decision to see what action it will take, according to spokeswoman Gina Talamona. The government may ask the full appeals court to hear the case, appeal the decision to the Supreme Court, or accept the decision.

"Rule of reason" to be applied

In order to win exemption from antitrust laws, MIT must show "procompetitive and noneconomic justifications" that justify the restraint of trade that Overlap represents. At trial, MIT argued that the aid policy improved the quality of education at Overlap schools, increased consumer choices by making higher education available to more students, and promoted competition for students in areas other than price.

In the district court ruling, U.S. District Judge Louis C. Bechtle dismissed MIT's arguments as "pure sophistry." He did not examine MIT's arguments extensively, but rather applied the "truncated rule of reason." The rule of reason is a test courts often use to determine the outcome of antitrust cases.

In the hearings ordered by the appeals court, MIT's arguments will be considered in full. "Rather than suppress competition, Overlap may in fact merely regulate competition in order to enhance it, while also deriving certain social benefits. If the rule of reason leads to this conclusion, then indeed Overlap will be beyond the scope of the prohibitions of the Sherman Act," Circuit Judge Robert E. Cowen wrote in the decision, joined by Circuit Judge Carol Los Mansmann.

In his dissent, Circuit Judge Joseph F. Weis Jr. supported MIT strongly. "It does seem ironic ... that the Sherman Act, intended to prevent plundering by `robber barons,' is being advanced as a means to punish ... philanthropy," he wrote.

Self-interest an issue

Cowen also wrote that the lower court must consider what benefit Overlap was to the Institute itself, rather than to its students. "To the extent that economic self-interest or revenue maximization is operative in Overlap, it too renders MIT's public interest justification suspect," he wrote.

"We cannot overlook that MIT also desired to attract the most talented students at the least expense to itself, a result which flowed directly from the elimination of price competition among the Ivy Overlap member institutions," Cowen wrote.

MIT must also show that there was no alternative to the Overlap meetings that would have allowed it to offer need-blind admissions and meet the full need of students. If the rule of reason shows that Overlap had compelling justification, then the Justice Department "must prove that a reasonable, less restrictive alternative exists," Cowen wrote.

The Institute has argued that the lower court's decision undermined MIT's ability to continue its policy of need-blind admissions. The Overlap Group, which consisted of MIT and 23 other east coast colleges, stopped meeting in 1991, when the Justice Department filed suit against MIT and the eight Ivy League colleges.

MIT officials are unable to measure any substantial effect on its aid policies as a result of the suit. "The only evidence I can see is anecdotal," Vest said. "There are signs out there that the system is beginning to wear away, but quite honestly the time period has been too short [to measure changes quantitatively.]"

Many of the arguments rejected by Bechtle at trial were also rejected by the appellate court. MIT argued that as a nonprofit organization its was immune to regulation of commercial activities. The courts disagreed. "The exchange of money for services is a quintessential commercial transaction," Cowen wrote.

MIT's primary argument was that financial aid was charity and thus exempt from antitrust regulation of commercial activities. The courts, however, sided with the Justice Department, which argued that financial aid directly determined the amount of money that students must pay and should be considered commercial.

The Justice Department argued that Overlap constituted per se price fixing, that is, Overlap was such an obvious example of price fixing that even the truncated rule of reason was unnecessary.

The court held, however, that because MIT was a nonprofit organization that did offer reasonable procompetitive and social welfare arguments, Overlap was not illegal per se.

Overlap met for 30 years

The Overlap Group began meeting in 1958. Member schools gathered each spring to negotiate financial aid packages for students accepted at more than one of the Overlap schools.

The individual schools' financial aid packages were adjusted at the meeting to make each package similar or identical. The overall process for calculating financial aid was also the same at each school.

When challenged by the Justice Department, MIT was the only school to defend the propriety of the meetings. The Ivy League schools signed consent decrees stating that they "will no longer collude or conspire on financial aid."

MIT has enjoyed wide support from educational groups and newspaper editorial boards around the country. Twenty-one groups, including the Association of American Universities and the United Negro College Fund, filed "friend of the court" briefs in support of MIT at the appeal.

Hundreds of colleges and educational organizations have offered other support to MIT. Several alumni classes also asked that their donations be put toward the cost of the lawsuit.

The continuing legal fees associated with the lawsuit are also considerable. Although Vest said he did not know how much the lawsuit has cost MIT to date, the price tag had been fixed at more than $1 million last fall, according to Constantine B. Simonides '57, vice president and secretary of the Corporation.

Legal fees are not the only cost involved, however. "There is also the time of top officers and administrators. The cost of this thing is very high to MIT," Simonides said.