The Supreme Court yesterday broadened significantly the antitrust liability of the powerful professional and trade associations that set standards and regulate safety in dozens of U.S. industries.
In a case stemming from the use of American Society of Mechanical Engineers safety panel to cripple a small company, the court ruled 6 to 3 that these nonprofit organizations can be forced to pay treble damages under antitrust laws for such violations. They are responsible not only for their own behavior but for the violations of anyone acting in their name, the court ruled.
Yesterday's ruling affects dozens of organizations, relatively unknown to the general public, that decide what is safe and acceptable in everything from boiler construction to nuclear engineering to the strength of concrete.
The purpose of the associations--such as the National Fire Protection Association, the American Society of Testing and Materials, and the mechanial engineers society involved in the case--is to promulgate standards and give advice on safety. The standards generally are drawn up by volunteer panels of industry experts, however, which creates a potential for decisions based on competitive self-interest.
The American Society of Mechanical Engineers, with 90,000 members and a budget of more than $12 million, uses industry volunteers to publish more than 400 codes and standards. The volunteers in yesterday's case served on a panel on boiler safety while working for companies that marketed devices to prevent boiler explosions by cutting off the fuel supply when the boiler water level got too low.
The two became concerned about a safety device marketed by a smaller company, Hydrolevel Corp., after one large purchaser shifted its business from one of their own companies to Hydrolevel.
They arranged for the issuance of a letter under the name of the ASME panel declaring the competitor's product unsafe. The letter had no legal force, but its circulation proved devastating to Hydrolevel's sales. Hydrolevel sued the companies and the ASME under the Sherman Antitrust Act and then went out of business. The courts separately still are considering whether a $7.5 million jury verdict in Hydrolevel's favor was excessive.
The society claimed that it was not responsible for the actions of the two panel members and should not be held liable for the heavy treble antitrust damages, especially because it was a nonprofit organization and did not benefit from the actions of the Hydrolevel competitors.
Writing for the court yesterday, Justice Harry Blackmun said that, "when it cloaks its subcommittee officials with the authority of its reputation, ASME permits those agents to affect the destinies of businesses and thus gives them the power to frustrate competition in the marketplace."
If lack of involvement freed the organization of responsibility, it could "avoid liability by ensuring that it remained ignorant of its agents' conduct," Blackmun said. Congress intended the Sherman Act as a deterrent whether or not such organizations operate for profit, he said.
Chief Justice Warren E. Burger concurred in the judgment, but disagreed with Blackmun's reasoning. Justices Lewis F. Powell Jr., joined by Byron R. White and William H. Rehnquist, dissented.
Powell said the court had created a theory, without precedent in prior rulings, that threatened "serious injustice and overdeterrence" in cases involving nonprofit organizations. Never before have nonprofit groups been subjected to such heavy penalties and never before have they been held responsible for actions beyond their control, he said. "There is no way in which an association adequately can protect itself from this sort of liability," he said.