National Society of Professional Engineers v. United States – Oral Argument – January 18, 1978

Media for National Society of Professional Engineers v. United States

Audio Transcription for Opinion Announcement – April 25, 1978 in National Society of Professional Engineers v. United States

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Warren E. Burger:

We will arguments next in National Society of Engineers against the United States.

Mr. Loevinger you may proceed whenever you are ready.

Lee Loevinger:

Mr. Chief Justice and may it please the court.

The National Society of Professional Engineers the petitioner here appears in the most extraordinary position.

It is opposing the government in advocating the public interest by arguing for an ethical principle which protects the public against injury and clients against cheating.

The government on the other hand takes the position that these matters are not matters for consideration by the court because it invokes the rubric of Per Se, indeed as I read the governments brief the term public interest does not appear in it once.

The principle that we sustain that clears the solicitation of engineering work by competitive bidding before consultation with the client or determination of the scope of the work to be contrary to the public interest and therefore unethical.

The alternative method of solicitation of work by bidding is the traditional, ethical method which involves an initial selection of an engineer by qualification, with fees proposed after consultation with the client and after determination of the scope of the work.

It is basic to understand that engineering involves solving practical problems by the application of science, there is a great deal of testimony on this subject.

So that each engineering problem is essentially unique and indeed each engineering solution is really a new scientific invention.

To determine the nature and the scope of engineering problems and their solution requires substantial consultation and negotiation between engineer and client.

The fee is then calculated and the client is perfectly free to accept or reject any fee that is calculated and to engage the engineer or not engage the engineer and go on and negotiate with other engineers if he likes.

Warren E. Burger:

Anything from preventing him from asking two engineers to embark on this process at the same time?

Lee Loevinger:

It is impractical Mr. Chief Justice, it has been found that it does not work just it is like trying to conduct a private discussion with two people.

I do not know that there is any specific statement on this subject, there is explicit testimony that there is nothing to prevent a client from negotiating with as many engineers as he likes even on the same day.

Warren E. Burger:

But if he does not like the first engineers estimates, he certainly– you have already said then he can try again

Lee Loevinger:

He is free to negotiate with second or third or fourth or fifth as many as his patience will sustain.

No charges routinely made for this preliminary negotiations Mr. Loevinger?

Lee Loevinger:

Sir I am sorry.

Are charges routinely made?

Lee Loevinger:

No sir, there are no charges made, there is no engagement, there is no obligation on the part of the client at this stage of the proceedings.

William H. Rehnquist:

There is a good deal of engineering work that goes into the sale of some complex electrical equipment that is manufactured by electric or equipment manufacturers too is it not?

Lee Loevinger:

This principle incidentally has four important exceptions.

In the first place it is confined exclusively to the design to work related to the design of real estate structures, it does not apply to research and development work, it does not apply to study contracts, it does not apply to so called turnkey contracts, engineering works that relates to the design of products to be manufactured is not involved in this principle for the very good reason that products are tested before they are sold.

The reason that this applies is that real estate structures are not tested, there are not prototypes.

R&D work on the other hand results in a prototype.

A prototype is thoroughly tested before it is exposed to the public whereas real estate structures are occupied by the public.

There is no chance for testing them, if a building falls down the public is injured.

It is exclusively confined to matters that immediately affect public interest.

William H. Rehnquist:

So you say then that this principle what you are enunciating what your clients have enunciated is an exception for the engineers from the Per Se rule only in the case of structures on real property.

Lee Loevinger:

I do not say it is an exception to the Per Se rule Mr. Justice Rehnquist.

I say that the Per Se rule does not apply.

The argument for the Per Se rule applies because of the strange construction which says that because this some how or other affects price, therefore it is price fixing, therefore the Per Se rule applies, actually it is an entirely circular argument.

William H. Rehnquist:

Well, let me — perhaps I can ask you you a question that will solve my problem more quickly.

Your distinction for antitrust purposes between manufacturers of electrical equipment who use — which may be a one item deal and may take a great deal of engineering design skill and your client’s code of ethics is that your client’s code of ethics applies only to structures on real property which are not pretested for safety.

Lee Loevinger:

Yes sir, precisely.

Warren E. Burger:

Is their any way to — I thought you said there is really no way to test a structure in the sense that you do prototype of an airplane or an automobile or wash machine.

Lee Loevinger:

Yes Mr. Chief Justice that as I understood Mr. Justice Rehnquist’s question that this applies only to real estate structures precisely because they are not subject to testing.

If you are designing equipment for sale whether it is automobiles or gadgets or jewelery or whatever these are articles that are designed and manufactured in prototype and tested before sale.

Consequently the public has the protection of such testing and there are many opportunities for testing.

Warren E. Burger:

I suppose the substitute for that testing or at least the partial substitute is the building inspection which goes on from day to day or even hour to hour as a building is going up is that correct?

Lee Loevinger:

There is in fact testimony on that precise subject which points out that the building codes are not adequate substitutes for the code of ethics because they are usually behind times, because they are not effectively enforced because they do not subject to buildings to the same kind of tests as they get from the engineer who was on top of the job.

In any event, we argue that to say that because there may be laws that relate to the same subject, therefore ethics are not applicable, it is inappropriate as to say that because there are laws against homicide therefore we do not need the Sixth commandment.

Thurgood Marshall:

There was something wrong at the Baileys Crossroads when that building came down —

Lee Loevinger:

Yes sir that is one of the incidents that was testified too by witness whom we call probably no case has ever come before this court involving the application of the rule of reason, in which there is been testimony that has been so inclusive.

We had as a witness the Head of the company that ensures over 60% of the professional engineers and architects of the country and who had over a period of 17 or 18 years personally investigated or in the later years when it became more, personally supervised the investigation of every malpractice claim that arose for this entire group of engineers.

He kept statistics on the claims, on their causes he investigated the conditions under which the solicitation occurred and as matter of fact he concluded and the testimony stands uncontroverted in the record that there was a high correlation between the awarding of engineering jobs by bidding and claims of malpractice, inadequacy or negligence and it reached such a point that his company finally concluded that they would not issue malpractice insurance when there is any evidence of that a job has been awarded by bidding.

That is how inclusive the evidence was.

In fact he testified to over 17500 claims that he had investigated and at the time of his testimony, the claims were coming in at the rate of 10 a day of which more than one every single day involved injury or death to a member of the public.

That is how ubiquitous is the threat we are confronting and this case is and the government takes the position that this is irrelevant.

They do no take position — simply it is not true they say it should not be considered by the court and the courts below believed them and proceeded on that basis and that is why we are here.

Now, there is a testimony of many eminent engineers which stands essentially uncontroverted in the record as to the public values of the ethical method of awarding engineering jobs and of the bidding method.

In the first place, the ethical method encourages a free exchange of information among engineers, the exchange of technical and scientific information whereas bidding tends to make them like businessmen who seek to hoard trade secrets and there is a public value in this.

There is no government response to this point and there were no findings by any of the courts below.

The second — the ethical method was well testified, produces completely adequate plans which permits competitive bidding at the construction phase which incidentally costs about 20 times as much as the total cost of engineering and therefore increases and permits competition in construction whereas bidding results in inadequate and incomplete plans of the specifications and therefore frustrates competitive bidding at the construction phase.

There is no response to this point in the Government brief and no findings below.

John Paul Stevens:

Mr. Loevinger, could I just ask you a kind of a broad question?

What is the scope of the, just in what area should anti-competitive agreements be permitted?

Is it because you deal with very dangerous products or because it is a professional society?

Lee Loevinger:

Mr. Justice Stevens, this is not an anti-competitive method.

Lee Loevinger:

As we point out and as I believe our –.

John Paul Stevens:

But then if that is true, the potential for buildings falling down, effect professionals really all irrelevant?

Lee Loevinger:

No sir.

John Paul Stevens:

What is the relevance then if it is not anti-competitive at all?

Lee Loevinger:

It is relevant because our ethical principles being attacked by the Government under the antitrust laws but as we explain, in fact, bidding is false deceptive.

Bidding cheats clients because it is not in fact genuine competition.

Let me give you an example and as a matter of fact there are two examples in the record.

The Government had a massive discovery procedure and got thousands of documents and incidentally this old illusion, I am sorry to divert from answering your question but I will —

John Paul Stevens:

Yes, you know, through years and years it has been argued that the price cutter is unethical, on occasion it cheats the consumer and he does and do frauds, people know that, but why is this industry different from other industries?

What is that that it is– ?

Lee Loevinger:

It is different because when bidding is, when there is bidding for engineering services, the consumer does not know what he is getting.

There is no way to specify what it is getting.

John Paul Stevens:

These are unsophisticated buyers we are dealing with?

Lee Loevinger:

No, there is possible way because you do not know if a sophisticated buyer comes in and says I want to construct a bridge from Brooklyn to Manhattan, how much will you charge me to design it.

There is no way to tell what he is talking about.

As a matter of fact, there is in the record an example of almost this kind of proposal which the Government put in by way of exhibit and which it cites sights in its brief as an example of an invitation to bid which the Metropolitan Transit Authority of New York talks about an invitation to present engineering bids on some — they do not even say how many transportation centers, some centers that serve five communities and this invitation consists of five pages of questions, you do not even have to be an engineer to read this invitation and find out it does not specify anything.

There is not a vaguest, you cannot–

John Paul Stevens:

But supposing you are selling computers and the customer do not understand very much about it.

Would that justify anti-competitive arrangements among computer manufacturers?

Lee Loevinger:

Computers are not in the same situation.

John Paul Stevens:

What is I am asking, trying to understand, what is the scope of the area in which you say the Per Se rules do not apply or anti-competitive arrangements maybe made.

Is it the difficulty of understanding the business on the part of the buyer, is the fact that it is professional or is the fact it is dangerous?

Lee Loevinger:

It is the fact that in the situation and in the special situation presented on the record here, it is impossible to specify in advance either what is sought or what is being offered, the buyer cannot specify, no matter how expert he his, he cannot know what it is that he seeks because he has a problem, he does not have a notion of the solution to the problem.

He does not know how the problem is going to be solved until we.

John Paul Stevens:

The rule would then apply to the medical profession and the legal profession quite clearly.

Does that characteristic applies there?

Lee Loevinger:

I do not, as far as I am aware that the medical problems are encompassed to a somewhat smaller scope and do not involve this.

John Paul Stevens:

But surely the client that goes to the lawyer does not understand the answer?

Lee Loevinger:

No he does not have to understand the answer, but the client that goes to engineer does not know the question.

John Paul Stevens:

Does the rule that you are seeking to the Court to adopt apply to the medical, to the legal profession as well as engineering profession?

Lee Loevinger:

I am not prepared to say that it does because no such record has been made, we have a very extensive record here which presents precisely what the problems are in engineering and as I believe our brief, our initial brief points out there are substantial differences between the engineering profession in this respect and the other learned professions law and medicine, that the engineer deals with problems of different kind of order, of a different magnitude, of a different client.

Engineers design vast structures, they do not treat individuals by and large whereas the lawyer treats with the individual.

There is, as this Court has held certain, there are certain functions which this Court has said in Bates, can be considered as repetitive and even as routine, I understand there is some differences among the Court on that point but we accept the majority opinion of the Court.

But the testimony is clear and uncontroverted, that there are no such matters in engineering that when a client goes to an engineer, the definition of his problem becomes a matter that requires expensive consultation and negotiation before it is possible to begin to formulate a solution and after the beginning of the formulation of the solution, the testimony was, it took about a third of the total amount of work before you arrived at that point and then you formulate a solution.

Then the engineer proposes a fee, the client is still free to reject it and then to talk to other engineers.

William H. Rehnquist:

Well as part of your argument, is it not Mr. Loevinger that unlike the Virginia State Bar case, this is not price fixing?

Lee Loevinger:

This is not price fixing indeed this is antithesis of price fixing.

It is inherent and the principle that we are arguing for, that every single job should be separately negotiated and a fee separately arrived at based upon the scope of the work involved.

I can imagine nothing more antithetical to price fixing than the principle that we here advocate.

William H. Rehnquist:

Well while even assuming that it is a concerted action which affects price nonetheless your claim is even even accepting that much, which I know you do not that in any event it is not price fixing and therefore it is not amenable to any Per Se rule that this Court has ever —

Lee Loevinger:

Precisely.

It is not price fixing sir, the most that can be said of it is that it affects the time and manner of arriving at the price.

In that respect, we believe that it is an fortiori case under Chicago Board of Trade.

Mr. Loevinger, does your principle forbid two engineers from engaging in the same conversations about the same project with the same client?

Lee Loevinger:

It does not say anything about that, Mr. Justice.

So it is really just bidding, it does not forbid competition?

Lee Loevinger:

That is correct.

If it is not really, it is not unethical in this business for a engineer to talk with a client when he knows that the client has had the precisely the same preliminary conversation with another engineer?

Lee Loevinger:

Well, indeed it has been testified that a client may have serially or whole conversation.

So that the principle is not to prevent competition among engineers?

Lee Loevinger:

That is correct sir.

Warren E. Burger:

Goldfarb on other hand had a record which shows that no lawyer consulted, there were great many of them would do the work for less than the price specified in the fee schedule.

So that was price fixing cleared, so that was held.

Lee Loevinger:

Mr. Chief Justice, if I remember Goldfarb correctly, it was specifically recited in your opinion that no lawyer even asked for additional information about the matter.

He simply quoted the fees scheduled price.

This principle requires engineers to get in and find out what the scope of the work is, and separately to consider and ascertain what this involves and to arrive at an independent judgment.

What if one engineers had this preliminary conversation with the client and he will give the client some figures, would not he?

Lee Loevinger:

Ye sir.

This has been testified.

And then the client goes to another one and has a conversation and the second one says, have you talked to another engineer?

Yes I have.

Did he give you some figures?

Yes he gave me some figures.

And so he gives the second engineer the figures and the second engineer cuts them.

He gives him a lower bid if you want to call it that.

Is that forbidden by your ethical principle?

Lee Loevinger:

It would be forbidden if he did it simply on the basis of saying tell me how much the other man —

No he has the conservation, he goes through the whole conversation.

Lee Loevinger:

If it is his independent judgment that this inappropriate figure it is not forbidden, no sir, it is encouraged and it indeed it occurs, there is testimony to that affect.

Warren E. Burger:

And the bid might be higher or lower?

Lee Loevinger:

It might be higher or lower, correct sir.

Warren E. Burger:

If bid is the right word, the response might be higher.

Lee Loevinger:

Response.

I prefer that word, yes sir.

Is there no some restriction on when the information maybe given by the engineering firm to the client?

Lee Loevinger:

Yes that is precisely what this is.

The engineer is not to give the client such information until he has had enough negotiation and consultation with the client to be able to ascertain the scope of the work.

That is the restriction.

John Paul Stevens:

Not until after he is been selected to do the work.

Lee Loevinger:

Well he is not — well it is an initial selection it is not involve an engagement Mr. Justice Stevens.

John Paul Stevens:

I mean it does not involve initial selection and all is left after that is negotiate the price of the services.

Lee Loevinger:

No, it has to negotiate the scope of the work, which involves the price of — the fee for the services.

But it is impossible for an engineer to talk to a client until a client has selected that engineer for the purposes of conversation.

This is why — this is simply a inherent in the nature of the process.

But a client can find out how much it is going to cost and still walk away from the engineer.

Lee Loevinger:

Yes sir.

No question about it.

John Paul Stevens:

But he can not find out how much it is going to cost him till he has a engineer has a general notion of the scope of the work.

Lee Loevinger:

Yes sir, that is correct.

Warren E. Burger:

And if it is a big bridge for example he might – engineer might have to invest I suppose a great deal of time which he is then at risk of losing without compensation.

Lee Loevinger:

This happens, yes sir.

And no doubt about it.

I find that I have only ten minutes left Mr. Chief Justice I think that the basic principle has been explained to the Court I would like to resume my time for rebuttal.

Warren E. Burger:

Very well.

Mr. Shapiro.

Howard E. Shapiro:

Mr. Chief Justice, may it please the Court.

It would be useful I think for us to look at the text of the ethical rule which is the subject of this litigation.

It is printed in the government’s brief at page 4 as well as in the various opinions of the District Court, Court of Appeals and in findings.

It defines competitive bidding as the formal or informal submission or receipt, a verbal or written estimates of cost or proposals in terms of dollars man days of work required, percentage of construction cost or any other measure of compensation whereby the prospective client may compare engineering services on a price basis.

Prior to the time that one engineer or engineering organization has been selected for negotiations.

The disclosure of recommended fees schedules prepared by various engineering societies is not considered to be competitive bidding.

Now the purpose and affect of the rule were found by the Two Courts below to be the total suppression of price competition.

Court of Appeals described it as a price maintenance mechanism.

Petitioner does not challenge any of the findings of the District Court as clearly erroneous, and they were found not to be clearly erroneous.

Or he just suggested that — as I understand that a client may have a conversation with one engineer and get a price for him, and then have a conversation with another engineer and get a price from him.

Howard E. Shapiro:

I must respectfully disagree with my colleague on that.

But that is what is —

Howard E. Shapiro:

That is his contention.

That is what is his contention.

That is and you think that the findings below are contrary to that?

Howard E. Shapiro:

That is my understanding certainly professional policy 10-F which is their interpretation of the rule that is incorporated into its enforcement and application does provide that although a client may talk to other engineers sequentially, he can not do it simultaneously.

He is required to completely severe the relations before approaching another firm or putting it in another way, other engineers will not talk to the clients while he is talking to another engineer.

It is considered unethical.

Are there findings in the record to that it said so?

Howard E. Shapiro:

The District Court did not make a specific finding to that affect, I would refer the Court to joint appendix —

Because that is just saying what the rule means one engineer will compete with another.

Howard E. Shapiro:

That is what the rule means according to what the Courts below found Your Honor.

Warren E. Burger:

Now you were going to give us appendix reference.

Howard E. Shapiro:

Yes Your Honor.

This is in our brief at page 42 we cite joint appendix 5767, it is 5767 and 9930, that is professional policy 10-F.

Howard E. Shapiro:

The professional policy are interpretations of the rule of ethics by NSPE’s Board of Directors of Board of Ethical Review.

I have forgotten which–

Warren E. Burger:

You spoke of a prohibition against talking to a second engineer until the savoring of the relationship of the first.

Is there any relationship in the ordinary legal sense with the first?

Howard E. Shapiro:

Only in the sense of a — not in a legal sense Your Honor only that —

Warren E. Burger:

If you are having conversations.

Howard E. Shapiro:

You are having conversations but the second engineer will not talk to you while you are talking to first engineer.

This has a very practical effect.

Warren E. Burger:

Is that different from let us say the medical profession?

Unless there is open consultation?

Howard E. Shapiro:

I imagine you can talk to one doctor at a time without–

Warren E. Burger:

Well if you do not disclose it —

Howard E. Shapiro:

There is noting in the record I do not know the answer to your question Your honor.

But I would like to return to the record here because this is a worthwhile claim.

The rule on its face does not permit the disclosure of any price comparison information so that since you have no price comparison information you simply can not have any kind of price competition, there is no competition.

It is something of a paradox I think for the petitioner to argue.

Well how can the rule prevent — keep a client from disclosing price he got from one engineer to another?

Howard E. Shapiro:

It cannot keep the client from doing it but it can encourage the engineers not to talk to the client and that is what happens because this rule is enforced in effect by boycott–

So, the second engineer under this rule should not listen to any price information received form the former one.

Howard E. Shapiro:

Should not even talk to the client until he knows that the first engineer has totally withdrawn, that there has been a negotiation, that they have failed to reach agreement on a price, then he can come in and talk.

And what we have therefore is not any kind of price comparison or price competition, you have nothing but bargaining that all is allowed.

Now this has significant practical effects.

It means that the client seeking to go from one engineer to another has very significant search costs.

It is an expensive process it take time it —

Warren E. Burger:

How can an intelligent bid be made without on a large project, without a very great deal of exploration and study and discussion.

Howard E. Shapiro:

Certainly your honor–

Warren E. Burger:

They do not have specification handed to them as contractor does do they?

Howard E. Shapiro:

No.

And that is why no one suggests that there has to be rigid absolute advertised price bidding.

The Sherman Act does not require that.

Howard E. Shapiro:

What the Sherman Act condemns in this case is the collective imposition on clients and on engineer of a bar that lets them consider any aspect of price.

They cannot even ask the engineer what is your hourly rate to give themselves some idea before they begin going further.

These are matters.

Warren E. Burger:

Now wait a minute, you said they cannot ask the engineer.

These rules cannot control the clients.

The engineer may be prohibited from quoting an hourly rate.

Howard E. Shapiro:

That is right.

I mean as a practical matter they cannot ask because the not only will the engineer not quote it but if the client persists in asking any engineer, the rule says and the record shows that the engineer approached must withdraw.

In short, what we have here and this how the rule is actually enforced, is not only a rule against price comparison information, but a rule that restricts the disclosure of price information except where minimum fixed fee schedules are involved.

And in addition is enforced by boycott.

And we have incidents where that kind of a threat has been made.

Mr. Shapiro, you said towards the outset I think of your remarks that there was no claim here that the findings of the District Court approved by the Court of Appeals were erroneous.

I call your attention to appendix to the petition for writ of certiorari, on page a 11, which no more than incorporates the — sets out reproduces the opinion Judge Leventhal opinion for the Court of Appeals in which he says and I am reading, “we approve the District Court comments, finding that the rule is this rule of the society is classic price fixing and hence illegal per se.”

I understood Mr. Loevinger strongly to context that this is whatever else it is not classic price fixing to which any per se rule is ever attached —

Howard E. Shapiro:

Well your honor–

And the District Court and the Court of Appeal explicitly found that it was?

Howard E. Shapiro:

Yes they did Your Honor and Mr. Loevinger contests the ultimate–

No no this characterization of it, that he says this is not price fixing of a kind that any per se rule is ever attached to, in any decision of this court.

Howard E. Shapiro:

Well I think–

Did you not understand him to say much the same things I paraphrased?

Howard E. Shapiro:

He said he means that contention in this court and his ultimate point–

And in his brief —

Howard E. Shapiro:

And in his brief but as far as the findings–

And in the District Court and in the Court of Appeals I presume.

Howard E. Shapiro:

But as far as the findings of facts in the District Court, the specific findings he does not suggest that this rule has any other affect than what has been described forth.

It cannot be, he does not argue that there is any disclosure of price information.

He does not argue that there is any price competition under the law–

But that is quite different from price fixing which is that agreed upon, uniform, single price.

Howard E. Shapiro:

No.

That is what price fixing means.

Warren E. Burger:

The Goldfarb price fixing?

Howard E. Shapiro:

Yes.

In that sense that the engineers have agreed among themselves to maintain a certain price, the answer is no they have not agreed to maintain a —

So the District Court and the Court of Appeals were wrong if we are talking about price fixing and that rather pristine sense of its —

Howard E. Shapiro:

But the Court of Appeals was more careful in its opinion.

It recognized that–

I have just read you what the Court of Appeal says, we approve of the District Court’s description that this is classical price fixing?

Howard E. Shapiro:

Because of its overall affect, because there has been a total suppression of price competition.

There cannot be any in this–

What lists down on the tip of your tongue, what other case is here that it say its competitors agree not to compete that is per se and illegal.

Howard E. Shapiro:

Well we would start with Socony-Vacuum, we would point to Container Corporation, we would point to —

And do the cases say that it is per se because it is other side of coin from price fixing?

Howard E. Shapiro:

In affect yes, if there is a tampering with the price system that so operates that price competition can not function and that is what is involved here.

Then that is also illegal per se, that is what Socony says, that is what Container describes and that is what we are arguing here.

Warren E. Burger:

But where would we find in this record evidence or a finding that they agreed in advance, the engineers agreed it among themselves in advance to on certain prices such as was found in Goldfarb?

Howard E. Shapiro:

Now you would not find that, we do not charge that.

What we charge is a total a suppression of price competition.

What the District Court found was a total suppression of price competition.

What the Court of Appeals affirmed was a finding that there was a total suppression of price competition and they found it so closely related to price fixing that they considered it to be the same thing.

How could they affirm an agreement not to compete on the facts given in this record?

Howard E. Shapiro:

The language of the rule so provides if you totally suppress all price comparison information, you are agreeing —

This is nothing like any sort of a territorial allocation or any of those agreements not to compete.

Is not there good deal of competition–

Howard E. Shapiro:

Not price —

Among engineers to get clients business.

Howard E. Shapiro:

Yes there is, but not price competition Your Honor and that is what we are talking about.

Total suppression of price competition or the possibility of price competition.

Now, I just suggested a moment ago that no one is arguing that clients or engineers have to resort to some sort of rigid competitive bidding, they can decide for themselves the extent to which they will consider problems.

What if the rule was no engineer gives a price until he has had a talk, a good enough talk.

And at the end of it he can give a price and but that is perfectly alright for a second engineer to talk to the same client, know what the price offered was but after he has had a good enough talk, he can give a price.

Now if that were the case would you be here or not?

Howard E. Shapiro:

Well if we permitted sequential, simultaneous discussion that would be a different case.

But simultaneous discussion is not allowed only sequential discussion is allowed under this rule and this effect–

And it is not enough for you if there can only be sequential discussion but the second fellow can know all he needs to know about what the first fellow offered, that is still is not enough for you?

Howard E. Shapiro:

If there can only be sequential discussion then the client suffers a very severe and burdensome additional cost–

But the client can always go back to the first engineer?

Howard E. Shapiro:

Or go back to the first, the point is that there is a, there is not an opportunity for price comparison in the way that price comparison is available every where else in our economy.

In this very large record that has been compiled was there any expert testimony making comparisons, analogies with the legal profession and the medical profession?

Howard E. Shapiro:

No Your Honor, there was expert testimony of this kind.

There were officials and members passed, officials past and present of an NSPE, who as engineers testify that in their opinion, price competition or price comparison would be very harmful and undesirable.

When they were asked on cross- examination, do you have any specific instances in which it is ever been shown that safety is impaired by the existence of some consideration of price, they would invariably answer, I have no specific instances.

Reference was made to the testimony of an insurance executive Mr. Duvall(ph), Mr. Duvall’s certainly established that engineering is related to safety but his testimony does not establish that price bidding or price competition is automatically tied to unsafe practices.

For example, he mentioned the Baileys Crossroads incident which was in Mr. Duvall’s testimony.

Mr. Duvall said that building fell because cement supports were withdrawn too soon.

That is a construction man’s error and the testimony went on to say of course the case is in litigation and I cannot say anymore.

Warren E. Burger:

But is there an appropriate foundation laid for his opinion and did he testify that he had examined the Baileys crossroad?

Howard E. Shapiro:

No he did not Your Honor.

He gave us about 17, he was testifying from his experience as an insurance executive.

In the business of insuring engineers and construction people.

He gave many examples but if each one is examined in detail, one finds what he described was the fact that accidents can occur when there is bad engineering or dishonest engineering.

In the Baileys Crossroad incident had the engineers competed for the engineering job?

Howard E. Shapiro:

The record does not show as far as I know.

Well, proceeding on with the affects of this rule what we see is that it is based on two premises.

One that engineering clients should always be kept in ignorance of the price comparison information for their own good.

They cannot be allowed to anything about price comparison information and engineers cannot be trusted to do their job safely, if clients can make price comparisons.

So it denies relevant information to the client, it prevents the engineers from offering services on their own terms.

It allows only price bargaining not price competition, because it totally suppresses price competition.

The rule is certainly not pro-competitive unless you want to save at the total suppression of competition is pro-competitive.

Now these were the findings–

Now the question here is that the per se violation not admitting of the possibility of any justification in terms of the rule of reason–

Howard E. Shapiro:

And our argument is–

Yes of course that has to be, that it is —

Howard E. Shapiro:

Yes Your Honor and that it really is a classic case of price fixing because it serves as a price maintenance device.

The economic testimony in this case by professor Arnold at the University of Illinois was a government witness test was to the effect that with this kind of a rule engineers do not have any incentive to cut their prices because they are not competing with each other.

They have an incentive to cut the costs but not the prices.

So you have a kind of price maintenance effect and that is what Judge Leventhal summarized these findings as meaning.

Now, I should say that a per se rule here does not bar NSPE from adopting any kind of specific rules.

It requires aims at fraud, at deception, at over-reaching, at disregard of engineering standards.

These are rules aimed at specific abuses but they were not before this court.

They were not before the District Court, the only thing before the Court is this total abolition of price competition.

It is suggested that the case should nevertheless be reviewed under the rule of reason because a learned profession is involved or because price competition is unfeasible in engineering or because engineering affects public safety.

Well, as I understand it NSPE now concedes that except for real estate construction, price competition is feasible in engineering.

It is certainly practical for routine tests.

It applies in the most difficult area of all research and development contracts where it is most difficult to predict what cost will be and the engineers themselves have had fixed fee schedules for years in their state societies which this rule specifically refers to.

Now that again implies that there are certainly tasks where price information can be disclosed.

The second possibility for the rule of reason argument is that there is a learned profession exemption.

Certainly in Goldfarb, there was a note of caution in footnote 17.

The court in holding that Goldfarb involved classic price fixing and learned professions were not exempt, also said in Footnote 17, there might be situations with the public service obligations of learned professions require different approach under the antitrust laws.

We express no view except with respect to the matters before us.

I think the short answer is that yes in the learned professions there may be different public service requirements that justify a rule of reason approach where would not apply in other professions or other activities.

William H. Rehnquist:

How do we know a learned profession received —

Howard E. Shapiro:

That is one of the problems that the term is not defined and would have to be explored.

I do not contest the learned profession nature of the engineering profession.

We did not contest it below.

But I do suggest that whatever the scope of the learned profession caution like in footnote 17maybe in Goldfarb, it does not authorize the total suppression of all price competition because price is the central nervous system of our economy.

Finally there is another aspect to this learned profession problem.

Up to now in the antitrust laws we have not considered rule of reason or per se except in terms of the market place, in terms of competitive effects.

A per se rule is a rule which on balance between pro-competitive effects and anti-competitive effects almost always has anticompetitive effects and therefore we do not make any further inquiry.

A rule of reason approach says let us see what the other competitive effects are, but there has been a caution in the loss and strengthen potteries, not to step beyond competition which is what the Sherman Act is concerned about, for the courts not to step beyond competition and to go in for the questions of social policy that involved other justifications.

Now in this record we have a rather strongly contested contention that public safety requires the abolition of price competition and engineering.

Howard E. Shapiro:

There is a contrary view, we presented an expert witness from Secretary of Airforce who said there is no objective evidence to support this kind of view that price competition results in unsafe practices.

Mr. Shapiro, what do you think Congress had in mind in Brooke’s Act?

Howard E. Shapiro:

The Brooke’s Act is a good example of what we are contending for namely that the client should decide for himself whether and to what extent he wants to consider price.

The Brooke’s Act certainly was an exception of the antitrust laws, it represented a judgment by Congress, in a particular area of government procurement that engineering services would be acquired by the so called traditional method.

Many states also have such provisions and we do not deny that.

That is a case where Congress did the balancing and Congress made the determination.

It incidentally did not appear to be motivated primarily by safety, it was concerned more with the traditions of the profession there and it expressly said in a report —

Now, as expressed in the Legislative History in a discussion with this particular ethical rule?

Howard E. Shapiro:

I do not recall specifically that it did?

It did include a discussion of the then pending report of the government — of the commission on procurement, and noted that the matter was still under discussion.

That report which is on the record concluded here that its GX 346 — concluded that there is no objective evidence that there is a threat to safety, because of price competition.

The problem with relying on public safety arguments in the context of an antitrust case in which court would balance public safety against competition or some other non-competition factor against the suppression of price competition , is that it is a slippery slope, that is the term that was used in their reply brief.

The same argument could justify privately imposed restraints in most industries.

You could take the construction industry, the same argument —

Doesn’t your case depend on your making stick the per se approach?

Howard E. Shapiro:

That is the case which we have made Your Honor.

We stand with that.

You do not think the Brooke’s Act bears at all on whether or not the per se rule should be applied in this case?

Howard E. Shapiro:

No, we do not Your Honor.

You have Congress saying, well, we prefer to get engineering services by this particular method, and yet but just remember that we have another statute that says that no one else may do it.

No one else will have this privilege.

Howard E. Shapiro:

Congress will in effect balance the considerations itself and–

But if it is such an unreasonable method that it should be per se illegal?

Howard E. Shapiro:

What is unreasonable is the concerted imposition.

Well, your answer is yes.

But do you say that these two statutes side by side — you can ride both horses?

Howard E. Shapiro:

Yes, we can Your Honor.

And I will explain it in this way.

What the Sherman Act is aimed at is the concerted imposition of the suppression of price competition by private action.

What the Brooke’s Act reflects is a decision by congress or an appropriate government agency to forgo price competition.

Howard E. Shapiro:

If this case stands it does not mean that there is going to be price competition across the board.

Some engineering clients are going to say let us just pick the engineer we consider the best and talk with him.

If we cannot reach a price we will go through a sequential negotiation.

Some people will attempt what was attempted by the Department of Defense until it was frustrated by a boycott by the National Society of Professional Engineers.

As the District Court expressly found.

That was an experiment under which there were two proposals.

Let us have your technical proposal which the engineers were willing to submit, and will rank you on your technical proposals, engineers and then submit to us your price proposals.

And then we will see whether it will change our mind about our rankings of the technical proposals.

That project failed in the summer of 1970.

Warren E. Burger:

Would that take in to account whether the construction engineer would may have a bid, had ever engaged in that kind of work before?

Suppose if the (Inaudible) replaced the Brooklyn Bridge?

Howard E. Shapiro:

It would certainly take in to account things like reputation and ability.

Clients are free to do this under the position we take, they may not want to use any kind of price competition, they may not want to know anything about price.

It depends on the nature of the project and the circumstances.

Some projects are so repetitive that they can almost be handled like standard construction bidding contracts.

Others would be so unique. For instance, a research and development contract to which price competition applies incidentally but you might not really want to let in the ordinary sense.

The extent to which price goes in to the equation is something for the client and the engineer to decide for themselves.

That is all we are arguing for.

Not to have it determined by a private organization.

Warren E. Burger:

That sounds something closely approaching a rule of reason.

Howard E. Shapiro:

Well, we think that it follows almost automatically from applying a per se approach.

I mean as far as the consequence, as far as the client is concerned the — applying the antitrust laws in this way lets the reason of choice.

The rule of reason — let me put it that way be applied by the individual client or the individual engineer.

Well, that is not what the rule of reason means as a term of antitrust law at all, is it?

Howard E. Shapiro:

No, in antitrust law the rule really means that balancing pro-competitive and anticompetitive effects not all kinds of social considerations.

But it does not mean you could justify for safety reasons either, justifies for competitive reasons.

As the rule comes to promote competition.

Howard E. Shapiro:

That is exactly the point and that if there is to be a justification for safety reasons that the Congress should make that kind of decision.

Now one very brief word on the judgment in this case.

It has been attacked it is being over broadened violating the First Amendment.

Howard E. Shapiro:

We think that if it is examined it will be seen that if the finding of liability stands here that this judgment precisely fits the violation found because it simply calls for a correction of the practice by eliminating the ethical restraint from any provisions of NSPE’s rules by barring any attempt to achieve any same result of affiliated state societies by eliminating the fixed fee schedules mentioning any of the rules and then preventing the continuation of the practice.

You are speaking that the judgment as modified by the Court?

Howard E. Shapiro:

As modified by the Court of Appeals.

And the modification you do not quarrel.

Howard E. Shapiro:

We do not quarrel.

Mr. Shapiro, one last question from me, what is the significance, what is the Government’s view of the significance of the fact, as I understand it that before serious negotiations began and when it is appropriate to talk price, there is a lot of work done by the engineering firm and there is no charge during that period?

If that is the correct description of what happens in that?

Howard E. Shapiro:

It is not absolute, it varies, there maybe some preliminary discussions, there maybe a charge for a, what amounts to an initial consultation the rule —

I had the impression the general practice was, it takes quite a bit of work to find out what a job is, the scope of the job and during that period the preliminary work is really not, not paid for.

Howard E. Shapiro:

Well let me refer the Court to a definition of engineering services in Professional Policy 10-G which was adopted by the engineers in 1972 and which is the basis for their restriction of this practice to real estate construction.

Prior to that time under policy 10-F it applied to everything as we read it at least it literally did.

It defines engineering services as including pre-feasibility and feasibility studies, so that comprehensive and general planning, preliminary studies preparation of drawings, plans, designs, specifications.

In short, the rule defining engineering services recognizes as there maybe paid services that amount to fairly preliminary conversation, preliminary studies and that–

Do you understand the rule that permit the firm to quote in advance a fee on doing a pre-feasibility study?

Howard E. Shapiro:

It does not — it is against the– it is an engineering service and therefore they cannot do that either, they cannot quote a price or they cannot even tell what their hourly rates are?

Until after the pre-feasibility study is done.

Howard E. Shapiro:

Until they have negotiated, until they have been accepted by the client.

Thank you Your Honors.

Warren E. Burger:

Do you have anything further Mr. Loevinger.

Lee Loevinger:

Mr. Chief Justice and may it please the Court.

I think that the last colloquy illustrates the difficulty of per se rule as applied in this case.

Mr. Shapiro did not try the case, I believe he is not thoroughly familiar with the record and his application of 10-G is simply erroneous.

Mr. Justice Stevens is entirely correct in negotiating the scope of the work and the possibility of engagement by a client, there is no charge and this is eminently clear.

The difficulty is that you can not take a simple rule particularly when drafted by engineers, you can not even take one drafted by lawyers, but you can take a general rule drafted by engineers and apply it without understanding the circumstances out of which it grew any more than you can take the Sherman Act and talk about the rule of reason, the per se rule, and all the rest of this, without having some idea of the interpretations made by this and other Courts and indeed the engineers had a formal body known as the Board of Ethical Review which made these interpretations and there are these interpretations and there is a body of testimony relating to this matter which makes it perfectly clear that Mr. Shapiro misinterprets Section, Policy 10-G.

Incidentally earlier in his argument and he referred to Policy 10-F which was superseded by Policy 10-G and simply is not in effect and is not involved and it is not issue in this case —

Byron R. White:

What about simultaneous conversations, Mr. Loevinger?

Lee Loevinger:

Mr. Justice White, I think the difficulty with simultaneous conversations is that they are little bit like simultaneous consultations with the doctors, it is very difficult to see how you could get simultaneous–

That maybe but there is a rule forbidden.

Lee Loevinger:

There is no, there is nothing in the record, nothing in the rule that I am aware of that forbids.

Mr. Shapiro says there is.

Lee Loevinger:

Well there is nothing in the record I am familiar with the record I know the record, I have read the briefs and if there is anything in it, I would like to have it referred to because I am not familiar with it.

The rule is as it stands.

And there is simply no testimony.

What was the basis for his saying then that I guess I should have asked him saying that the rule forbid an engineer to talk to a client, if he is already talking to an engineer until his relationship with the first engineer has terminated now what is basis for that?

Lee Loevinger:

There is testimony that once a client has begun talking to an engineer he is to complete his conversations with that engineer before consulting another that —

Also he is right on that, you just would not find under this rule one engineer dealing with the same client that already has an engineer.

Lee Loevinger:

Barging in, in the middle of the consultation, that is correct, yes sir.

The simultaneous conversations are not permitted under the rule.

Lee Loevinger:

I would not say that they are permitted they are certainly not favored.

Other strict factual question like that I am surprised that counsel are not able to came to a closure agreement.

Lee Loevinger:

The question that as I, there were 17 witnesses I do not believe the question was asked to any of them.

It is certainly not irrelevant, is it?

Lee Loevinger:

I think as a practical matter that —

What if the rule forbids one engineer to see another?

Lee Loevinger:

I think it is not a practical, it is about as impractical a simultaneous consultation with doctors I believe this is the difficulty–

Mr. Loevinger, what does this mean when the rule says, an engineer, according to page 40 of the Government’s brief, requested to submit a fee proposal or a bid prior to the selection of an engineering firm subject to the negotiation of satisfactory contract shall attempt have the procedure change to conform to ethical practices but if not successful he shall withdraw from consideration for the proposed work, what does that mean?

Lee Loevinger:

Means that if an engineer is asked to come in and give a bid prior to the opportunity to discuss with the client, the scope and nature of the work that he shall not do it.

And that the testimony is pretty clear on that.

Warren E. Burger:

Well, let me see if I can get that concretely.

Suppose that a building is pointed to by the perspective client and they say that the engineer, we want a building just like that one, what will it cost would, would you give us a figure right now?

Lee Loevinger:

Mr. Chief Justice, the repetitive bid or the repetitive project is a false issue.

If what a client wants is a building just exactly like the one that has been erected all he has to do is to use the plans, specifications for that building.

He has already got them, by definition he has got the building he has added erecting.

Warren E. Burger:

Well I am speaking now of building that he did not engineer himself, someone else did.

Anything to prevent him from going to the other engineer and getting the plans?

Lee Loevinger:

The testimony is clear that there not two identical buildings, you can not build it in the same place and at different place you have got different problems, you got different problems, subsoil problems, you got different wind problems, you have got different traffic problems.

There are host of different problems and in order even to determine the difference between partially repetitive projects you have to consult with the client and find out where do you want that other building?

Where is it going to be designed?

What is its purpose, what is the soil going to be like?

There are host of problems, there are explored at great length in the record and this is precisely the problem.

Lee Loevinger:

There is not, but there are identical problems, you cannot do this.

And simply, that is so hypothetical simply does not–

And let us suppose I am client and I go to an engineer and have a much talk as Mr. Loevinger thinks I ought to have.

And I talk to him and I want a proposal from him, and the engineer gives it to me and then I would say that the – by the way I am going to take this proposal and submit it to another engineer and I am going to certainly talk to him all he wants to talk about, now what would be wrong with that, why would that be unethical?

Lee Loevinger:

There is nothing under the rule of ethics that relates to this, that is a matter of fact we assume that this is —

Well I thought you said the second engineer should not talk to the first to the client until he is terminated his relationships with the first.

Lee Loevinger:

This point he has, he is – he has got–

He says to the first one he says I am going to come back to you if I cannot get better deal out of the next fellow.

Lee Loevinger:

You can say that but he has terminated, he has terminated those talks with the first man, the consultation has been completed and this in fact does happen as far as —

Thurgood Marshall:

When the word terminate really — I talk to a used car dealer, you say, one guy will give it to you $4400, you say well I will come in a few hours and if it is still there, I will buy and meanwhile you go and talk to three of four others.

Lee Loevinger:

Presumably, this is conceivable.

Let us say I do not know I understand that the practice is not exactly like that of used car dealers but there is nothing that relates to this the testimony is clear that, that there can be and are serial consultation.

Thurgood Marshall:

But terminated is not a word of art.

Lee Loevinger:

Well it is not.

Thurgood Marshall:

Well suppose the man, the first man says number one, I want this to strictly understand, or understood I have not terminated this, I am still perceiving with it, but I want to talk to somebody else.

I do not think you can terminate it, he has to terminate it then.

Lee Loevinger:

I do not know, Mr. Justice Marshall, I have to say that the record again, this is one of those things that despite everything was not explored either on examination or cross examination.

It would seem to me that how the conversations progressed to the point where the first engineer had been fully consulted, had made a fee proposal, it is for the scope of the work, the man said, okay now I want to go see somebody else that that is termination for the purposes of this thing, the point is these are not words of art.

We have no problem with the concept of this maybe and artistically stated, indeed we have stated it from the very beginning that it can be reformulated, that the principle can be restated in any manner that is necessary in order to express it clearly.

Mr. Loevinger you are just using lawyer’s language.

When does this rule require the engineer to withdraw from consideration of the proposed work, it describes some situation in which the engineer has a duty under the rule to withdraw.

What is that, when does that happen?

Lee Loevinger:

When he is asked to give a fee bid before he has had an opportunity to have studied the nature and scope of the work.

I see.

Well Mr. Loevinger would you not have said that the rule at least forbids this.

The client calls up the engineer and he says come over, I want I talk to you about the building, when the engineer arrives there, he finds another engineer there, the client says to both of them, we are going to talk as long and as hard necessary so you both understand the scope of the work and everything else and then I want you, I want you both to listen, ask as many questions you want to, then I want you both to go off and give me a proposal.

Now I take it, the rule forbids that.

Howard E. Shapiro:

The rule forbids that.

And now why would it forbid that?

That certainly is not the impractical.

Lee Loevinger:

The engineers considered impractical Mr. Justice White, they consider simultaneous that their stepping on each others stone —

So that is an example when both engineers should withdraw.

Lee Loevinger:

At least one of them in fact, yes should.

The difference, what this basically all comes down to is, that if you apply per se rule, there is no way to accommodate what the Government and the Court of Appeals concede to be a legitimate objective to the demands of the Antitrust law.

It is only by the application of the rule of reason that the law can be accommodated to what both the Government and the Court of Appeals concede to be a legitimate objective.

Warren E. Burger:

Thank you gentlemen.

The case is submitted.