If a trade association rule restricts competition, it must be reasonably necessary and tailored to achieve the procompetitive goals of the association.
In December 2019, the Department of Justice Antitrust Division ("DOJ") settled charges that certain National Association for College Admission Counseling ("NACAC") rules governing college admissions were anticompetitive under Section 1 of the Sherman Act. NACAC is a trade association for college admissions, whose members include nonprofit colleges and universities and their admissions staff, as well as high schools and their counselors.
DOJ alleged that the following rules limited competition among member colleges for applicants or transfer students:
- The "Transfer Student Recruiting Rule" prohibited members from recruiting transfer students unless the student initiated a transfer inquiry, the student was enrolled at a college allowing transfer recruitment, or the student was not enrolled in college.
- The "First Year Undergraduate Recruiting Rule" restricted recruitment of incoming first year students after May 1, the point at which enrollment commitments are final.
- The "Early Decision Incentives Rule" prohibited colleges from offering incentives (e.g., financial incentives, better housing) to applicants admitted through the early decision.
Although DOJ acknowledged that many NACAC rules are procompetitive, it found that the three rules above were not reasonably necessary to any procompetitive collaboration among NACAC members. DOJ alleged that these rules suppressed competition for applicants, including by limiting the incentive to offer lower tuition costs and better admissions packages. According to DOJ, NACAC had authority to enforce the rules by expelling noncompliant members or excluding them from college fairs.
In a press release, NACAC stated that the rules served the best interests of students, but that it retracted the rules in September 2019 given the cost of a DOJ investigation and potential litigation.
Collaborations among competitors, including trade associations, receive heightened scrutiny from the antitrust authorities, and this case is the latest example of the agencies' focus on trade association codes of ethics and bylaws. DOJ has challenged association rules in the legal, nursing, realty, and chiropractic industries, among others. (Read previous Jones Day alerts covering electricians and professional skaters and music teachers and legal support professionals.) As this case demonstrates, even if most trade association rules are procompetitive, a small number of rules that are not can lead to an antitrust problem. If a trade association rule restricts competition, it must be reasonably necessary and tailored to achieve the procompetitive goals of the association.
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