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A federal appeals court in Philadelphia last Friday unanimously reversed a lower-court ruling against MIT in the financial aid antitrust case.
Two of the three judges ruled the case be sent back to the lower court for additional review of the competitive and social-welfare justifications made by MIT.
The third judge, Joseph F. Weis, Jr., ruled unequivocally in favor of MIT, saying that the 1890 Sherman Antitrust Act did not apply in this case. Judge Weis said, "It does seem ironic ... that the Sherman Act, intended to prevent plundering by the `robber barons,' is being advanced as a means to punish ... philanthropy."
MIT President Charles M. Vest said he considered the ruling "a significant step toward the equal opportunity for all students to attend the college of their choice.... We are confident that the interests of needy students and their families will ultimately prevail."
Dr. Vest said, "We look forward to an eventual clear victory for access to higher education and an end to the waste of taxpayers' money which this ill-conceived suit represents."
Dr. Vest told a reporter, "I am extremely hopeful the Clinton Administration and the new attorney general will take a careful look at the values reflected in our arguments, question whether this is a worthy venture, and see if they don't have better use of their time."
The judges rejected the "quick look" ruling made in US District Court in Philadelphia by Chief Judge Louis J. Bechtle on September 2, 1992, and the Antitrust Division's assertion that the case was a standard, obvious "per se" violation.
Although Judges Robert E. Cowen and Carol Los Mansmann of the US Court of Appeals for the Third District in Philadelphia agreed with the lower court that the Sherman Act was applicable, they declared: "We hold that the district court erred by failing to adequately consider the pro competitive and social-welfare justifications proffered by MIT and by deciding the case on the basis of an abbreviated rule of reason analysis."
They added, "We therefore will reverse the judgment of the district court and remand for further proceedings consistent with this opinion."
The appeals court, recounting the history, said: "In 1991, the Antitrust Division of the Justice Department brought this suit alleging that the Ivy (League) Overlap Group unlawfully conspired to restrain trade in violation of section one of the Sherman Act...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 settling, with only insignificant discrepancies, each commonly admitted student's family contribution toward the price of tuition."
"Overlap" referred to students who made overlapping applications to more than one of the Ivy League group, which included MIT as well as Brown, Columbia, Cornell, Dartmouth, Harvard, Princeton, University of Pennsylvania and Yale. All together, more than 50 colleges participated in overlap procedures between1958 and 1990, when the annual overlap meetings were discontinued because of the Antitrust Division's investigation.
The Appeals Court said, "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."
The decision continued, "Overlap may in fact merely regulate competition in order to enhance it, while also deriving certain social benefits. If the rule of reason analysis leads to this conclusion, then indeed Overlap will be beyond the scope of the prohibitions of the Sherman Act."
The decision said, "It is most desirable that schools achieve equality of educational access and opportunity in order that more people enjoy the benefits of a worthy higher education. There is no doubt, too, that enhancing the quality of our educational system redounds to the public good. To the extent that higher education endeavors to foster vitality of the mind, to promote free exchange between bodies of thought and truths, and better communication among a broad spectrum of individuals, as well as prepares individuals for the intellectual demands of responsible citizenship, it is a common good that should be extended to as wide a range of individuals from as broad a range of socio-economic backgrounds as possible.
"It is with this in mind that the Overlap Agreement should be submitted to the rule of reason scrutiny under the Sherman Act."
Judge Weis, in his 12-page dissent, said the Sherman Act should not be used to regulate the undergraduate scholarship grants in the case before the court because, as MIT had maintained, financial aid is a charitable and not a commercial endeavor.
"The challenged practices, designed to provide high-quality education to those who have demonstrated academic talent without regard to their financial status, do not instinctively conjure up images of reprehensible business dealings," Judge Weis wrote.
"Quite to the contrary, the initial reaction is to question why the heavy artillery of antitrust has been wheeled into position to shoot down practices that so obviously advance the public interest."
The eight other schools agreed to stop the practices, but MIT insisted that its actions were both legal and necessary if the university was to continue its long-standing policy of offering merit-based admission on a need-blind basis, guaranteeing that all those admitted would be able to attend, regardless of financial circumstances. The Antitrust Division of the Justice Department brought suit against MIT on May 22, 1991.
In the majority ruling, Judge Cowen wrote that he agreed with District Court Judge Bechtle's 1992 ruling that the financial-aid practices challenged by the Justice Department "implicate `trade or commerce.'" The decision said, "We hold that financial assistance to students is part and parcel of the process of setting tuition and thus a commercial transaction."
A version of this article appeared in the September 22, 1993 issue of MIT Tech Talk (Volume 38, Number 7).