January 25th 2025 | Siddharth Dhadi
Edited by Theia Liu
In the age of Standard Oil and railroad barons, the Sherman-Antitrust Act was passed by the U.S. Congress in 1890 to regulate anti-competitive practices and monopolies. Named after Senator John Sherman, it aimed to promote economic fairness and competition. The law illegalized the formation of trusts or monopolies that imposed unreasonable restraints on trade or commerce among the several states or with foreign nations [1]. This distinction was important because only those trusts or monopolies that had significantly restricted competition were considered illegal prior to Sherman. This Act laid the groundwork for subsequent antitrust legislation, including the Clayton Act of 1914, which further addressed specific practices that Sherman did not clearly prohibit, such as price discrimination and exclusive dealings.
With later rising emphasis on college education in America, Congress passed the Improving America’s Schools Act of 1994, and the section 568 Exemption to the Sherman-Antitrust Act. Per the 568 Exemption, certain colleges and universities in the United States could collaborate on financial aid policies without violating antitrust laws [2]. This exemption permitted participating institutions to agree on common principles for distributing financial aid, as long as they did not consider applicants’ individual financial circumstances, (i.e., need-blind basis.) The goal was to standardize the methodology for assessing students’ financial needs and tp prevent bidding wars for top students through financial aid offers [3].
Nearly three decades later, an antitrust class action lawsuit Brown, et al. v. Henry, et al. was filed on January 9, 2022, in the United States District Court for the Northern District of Illinois. The plaintiffs claimed that several of the top 20 universities (Brown, Cal Tech, Columbia, Cornell, Johns Hopkins, among others) artificially increased tuition prices by intentionally collaborating as part of the President’s 568 Group [4]. The plaintiffs also alleged that these colleges wrongfully took advantage of the 568 Exemption because the institutions did not consider student financial circumstances in deciding whether to admit students.
The defendants filed a motion to dismiss in 2022. The Honorable Judge Mathew F. Kennelly dismissed the motion and stated that the Court suspected that some or all of these colleges do not admit students on a need-blind basis [5]. In the court proceedings, the plaintiffs argued that these violated the Sherman Antitrust Law because they were not entitled to the 568 Exemption. The plaintiffs presented evidence to demonstrate that the defendants possessed and used knowledge about student financial circumstances in determining admission. Particularly, the fact that several of these institutions gave preference to the children of wealthy alumni and donors was presented to the court [6]. Both parties eventually reached a settlement, wherein the defendants agreed to pay $280 million [7].
The United States has upheld more than 150 years of precedent against monopolistic practices and anti-competitive behavior, establishing a strong tradition of promoting economic fairness and preventing market dominance. The Sherman Antitrust Act of 1890 and the passing of subsequent laws, including the Clayton Antitrust Act of 1914 and the creation of the Federal Trade Commission (FTC) in 1914, all reinforced the government’s commitment to curbing anti-competitive practices across various industries. This legal tradition has shaped the framework for antitrust enforcement in sectors as diverse as oil, railroads, and technology, which underscores the importance of maintaining competitive markets for the benefit of consumers and economic stability. As recently as 1984, even nonprofits were exempt from Antitrust regulation. For example, in Board of Regents of the University of Oklahoma v. NCAA (1984), the court held that while nonprofit organizations like the NCAA can face antitrust scrutiny, their activities may be evaluated differently due to their nonprofit status and purpose. The Supreme Court ruled that the NCAA’s broadcast restrictions were anti-competitive but acknowledged some allowance for coordination aimed at preserving the nature of amateur sports [8].
With this landmark case Brown, et al. v. Henry, et al., however, the legal antitrust framework that underpins corporate laws and business practices in America seems to extend to ‘nonprofit’ entities like private educational institutions. The court held that while these institutions are nonprofit, they are still subject to antitrust regulation [4]. The court emphasized that legal status, such as nonprofit or for profit, does not shield organizations from regulation [9]. This ruling has significant implications for how nonprofits operate, particularly in areas where collaboration is common. Nonprofit organizations must now carefully consider their collaborative efforts and joint activities to ensure they do not violate antitrust laws. This decision underscores the importance of maintaining competitive practices and avoiding agreements or actions that could be seen as restraining trade, even in the nonprofit sector.
Brown, et al. v. Henry, et al.‘s outcome has several implications. One would be that students will receive more financial aid in upcoming admission cycles. The President’s 568 Group, a coalition of colleges that agreed to follow certain principles in financial aid practices, was dissolved on November 4, 2022, after the class action lawsuit was filed [9]. It is expected that students will benefit from increased competition among colleges for their enrollment with this crackdown. Such competition is likely to lead to more generous financial aid packages and scholarships as institutions strive to attract students without the constraints of the 568 Group’s guidelines [10]. Increased financial aid can make higher education more accessible and affordable for a broader range of students.
Another, less easy-to-predict implication would be that the FTC would get more oversight in regulating businesses in order to enforce antitrust laws. With antitrust regulations extending to nonprofits, the FTC can use this legal framework to challenge similar monopolies in healthcare, human services, and sports industries. For instance, in 2023, the FTC challenged a proposed merger between UnitedHealth Group, a large nonprofit health insurer, and Change Healthcare, a healthcare technology company that provides software for processing medical claims [11]. Although UnitedHealth Group is a for-profit parent company, the dispute involved a nonprofit subsidiary, Optum, which is a key part of the UnitedHealth Group system. The FTC raised concerns that the merger would reduce competition in the healthcare services and technology sectors. It was believed that the combination of UnitedHealth’s Optum and Change Healthcare would stifle competition in the market for medical claims processing software, giving the combined entity too much control over pricing and services [11]. Although the court allowed the merger to proceed, federal agencies like the FTC could use this case as a precedent to regulate business activities more rigorously. In conclusion, the Brown et al. v. Henry, et al. case serves as a pivotal moment in the intersection of antitrust law and nonprofit organizations, particularly in the education sector. The ruling reinforces the idea that nonprofit status does not grant immunity from antitrust regulations, especially when such entities engage in practices that harm consumer welfare. The case highlights the importance of maintaining fairness and transparency in areas like college admissions and financial aid, with the potential to impact future policies. Additionally, the broader implications of this case suggest that the FTC and other regulatory bodies may take a more proactive role in overseeing nonprofit sectors like healthcare, human services, and beyond. With the allowance of more antitrust oversight over nonprofits, this case sets a precedent for more rigorous oversight and ensures that competition remains a fundamental principle across all sectors, for-profit and nonprofit alike.
Sources:
[1] USC 15 U.S.C. §§ 1–38
[2] Public Law 103-382
[3] Dullea, Henrik N. “28 university presidents affirms commitment to financial aid.” Cornell Chronicle, July 6, 2001. https://news.cornell.edu/stories/2001/07/28-university-presidents-affirms-commitment-financial-aid#:~:text=In%201994%20Congress%20created%20an,strengthening%20need%2Dbased%20aid%20programs
[4] Henry et al v. Brown University et al, No. 1:22-cv-00125 (N. D. III. 2022)
[5] https://www.govinfo.gov/content/pkg/USCOURTS-ilnd-1_22-cv-00125/pdf/USCOU RTS-ilnd-1_22-cv-00125-0.pdf
[6] Torchinsky, R. “Kids Of Alumni Get Special Treatment At 80% Of America’s Top Private Colleges.” Forbes, August 28, 2023. https://www.forbes.com/sites/rinatorchinsky/2023/08/28/kids-of-alumni-get-special-treatment-at-80-of-americas-top-private-colleges/#:~:text=A%20Forbes%20analysis%20of%20the,100%20for%202022%20were%20private.)
[7] Nietzel, Michael T. “Four More Elite Universities Settle Financial Aid Lawsuit For $166 Million.” Forbes, February 24, 2024. https://www.forbes.com/sites/michaeltnietzel/2024/02/24/four-more-elite-universities-settle-financial-aid-lawsuit-for-166-million/#
[8] NCAA v. Board of Regents, 468 U.S. 85 (1984)
[9] 568 Presidents Group Page. November 4, 2022. https://www.568group.org
[10] Jewett, A., Styf, J. “Four more universities reach settlements in student aid price-fixing class action.” Top Class Actions, March 1, 2024. https://topclassactions.com/lawsuit-settlements/education/group-of-top-private-universities-work-together-to-fix-price-of-admission-says-class-act/
[11] U. S. Department of Justice. Office of Public Affairs. Press Release. “Justice Department Sues to Block UnitedHealth Group’s Acquisition of Change Healthcare.” February 24, 2022. https://www.justice.gov/opa/pr/justice-department-sues-block-unitedhealth-group-s-acquisition-change-healthcare
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