unethically, unfairly, or deceptively. But the means the AIA has chosen to address these legitimate concerns is the imposition of a broad and direct restriction of competition after one architect has been "selected or employed," in any and all circumstances where the competition is directed at the same work covered by that selection or employment. Suppression of competition is the essence of this restraint as well; it is, therefore, necessarily anticompetitive.
B. Procompetitive Justifications
Given the anticompetitive nature of Standard 9, the question, under the rule of reason, is whether the Standard is "unreasonably restrictive of competitive conditions." National Society of Professional Engineers v. United States, 435 U.S. at 679, 98 S. Ct. 1355, 55 L. Ed. 2d 637 (citing Standard Oil Co. v. United States, 221 U.S. 1, 65, 31 S. Ct. 502, 55 L. Ed. 619 (1910)). As noted above, the lesson of Professional Engineers for this inquiry is that the Court is "confined to a consideration of impact on competitive conditions." Id. 435 U.S. at 690, 98 S. Ct. at 1364. If a restraint is found to be significantly anticompetitive, it must have "legitimate business purposes whose realization served to promote competition," and "the "anticompetitive evils' of the challenged practice must be carefully balanced against its "procompetitive virtues' to ascertain whether the former outweigh the latter." Smith v. Pro Football, Inc., 193 U.S.App.D.C. at 29, 593 F.2d at 1183.
Even with regard to the activities of professional societies, long thought to be deserving of special treatment under the antitrust laws, it is now clear that an anticompetitive practice cannot be justified merely because, broadly speaking, it is reasonable. National Society of Professional Engineers v. United States, 435 U.S. at 679, 98 S. Ct. 1355, 55 L. Ed. 2d 637 . It is simply not relevant to the section 1 inquiry that an otherwise anticompetitive practice serves positive social values other than the promotion of competition. See id. at 688-96, 98 S. Ct. 1355.
The AIA advances two basic justifications for its broad restriction of attempts to obtain, or undertaking of, a commission until the first "selected or employed" architect is terminated: first, the restriction is said to promote, maintain, or ensure "the integrity of an architect's contract;"
second, the restriction is alleged to prevent professional deception and conflicts of interest, thereby permitting clients to make informed decisions free from undue influence and protecting clients from "unethical practices of architects who libel or slander fellow professionals in order to get work."
In addition, the notice provision is said to help maintain clear lines of architectural responsibility on a project, permit an orderly transfer of functions to a new architect, and ensure that the first architect does not perform needless work.
The second justification stands on the same footing as the ethical justification rejected as a defense by the Supreme Court in Professional Engineers. Although, as the Court there acknowledged, "the problem of professional deception is a proper subject of an ethical canon," 435 U.S. at 696, 98 S. Ct. at 1367, it concluded that that problem cannot justify anticompetitive behavior under the rule of reason: "we may assume that competition is not entirely conducive to ethical behavior, but that is not a reason, cognizable under the Sherman Act, for doing away with competition." Id.
The argument that Standard 9's competitive restraints are justified because they prevent unfair and unethical conduct is not relevant to section 1 inquiry under the rule of reason. Section 1 does not prohibit professional societies from seeking to prevent unethical conduct. But it does mandate that significantly anticompetitive restraints imposed by those societies cannot be justified by reference to social goals other than competition.
If the significantly anticompetitive restraints imposed through the promulgation and enforcement of Standard 9 are outweighed by the procompetitive impact of the rule, therefore, it can only be because it promotes competition by maintaining the integrity of (preventing "interference" with) architects' contracts. In the Court's view, however, this explanation cannot justify those restraints.
First, although there can be little doubt that one of the effects of Standard 9 is to protect architects' contracts, the AIA's brief explanation of the pro-competitive character of the Standard in its opposition is not accompanied by citation to a single source in the record indicating that maintaining the Integrity of contracts is in fact a major purpose of Standard 9.
See AIA Opposition to Plaintiff's Motion for Partial Summary Judgment, at 6-9. And of the three sources cited in the AIA's Statement of Material Facts as record support for its general statement of the Standard's purposes, only one has anything to do with the "maintaining contracts" justification. See AIA Statement of Material Facts, pt. 1, para. 1(f). That is to correspondence between an AIA official and the AIA general counsel which simply notes, in discussing an ethical inquiry on Standard 9, that the Standard "relates" to the legal doctrine of advantageous relations. See AIA Opposition to Plaintiff's Motion for Partial Summary Judgment, exhibit 8 (letter of July 15, 1974).
Second, even assuming that Standard 9 actually has as one of its principal purposes the preservation or promotion of contracts, another basic difficulty with the AIA's position is that promoting contracts is not, as the AIA seems to assume, the same as promoting competition. Although the AIA emphasizes that the Standard promotes contracts by preventing undefined "Interference with contracts," on the undisputed facts of this case it could be said with equal accuracy that Standard 9 prevents Competition with an architect who has been selected or employed, thus leaving the AIA defending the proposition that the Standard promotes competition by preventing competition. Not a single fact is alleged in support of the assumption that the AIA's activities in preventing "interference" with an architect's "selection or employment" promotes competition in the market for architects' services. See id., brief at 6-9.
Although, in hypothetical circumstances, the promotion of contracts might effect other results which, in turn, promoted competition,
the Court has serious doubts as to whether, In and of itself, the promotion of contracts could ever be deemed procompetitive as that concept is used in Professional Engineers. There is, of course, no question that contracts, and their enforceability, are an integral part of our commercial world. See National Society of Professional Engineers v. United States, 435 U.S. at 679, 98 S. Ct. 1355, 55 L. Ed. 2d 637 . But the restraint of trade here at issue is not a contract between two architects for the performance of services, but concerted efforts by the members of a preeminent professional society in promulgating and enforcing a code of commercial conduct.
The Supreme Court long ago recognized that every contract restrains trade within the literal meaning of section 1 of the Sherman Act. Id. at 687-88, 98 S. Ct. 1355. As interpreted, of course, section 1 makes unlawful only those contracts which Unreasonably restrain trade. Id. But to argue, as does the AIA, that promoting contracts is Necessarily equivalent to promoting competition turns the Act on its head. There is clearly nothing wrong with seeking to promote contracts, any more than with seeking to prevent professional deception. The issue here, however, is only whether the AIA's promotion of contracts through Standard 9 promotes competition in the market for architectural services and, if so, whether that positive impact on competition outweighs the anticompetitive aspects of the Standard.
Third, and most important, the AIA must justify Standard 9, not a hypothetical rule which maintains the integrity of contracts in a different or less restrictive way than does the actual Standard. According to the AIA, the Standard maintains the integrity of contracts by preventing interference with contracts. But the inquiry under Standard 9 is whether an architect has "Attempt(ed) to obtain, offer(ed) to undertake or Accept(ed) a commission" for which another AIA member had been "Selected or employed," not whether an architect has Interfered, in some nefarious way, with a member's contract.
The AIA's defense that the Standard merely maintains the integrity of architects' contracts by preventing contract interference is significantly undercut by the fact the rule applies not only to binding contracts, but also at the initial "selection" stage of the owner-architect relationship. Even at the contract stage, as actually applied in the Mardirosian disciplinary case, Standard 9 was held to be fully applicable even where the existing contract of the first architect was terminable at the will of the owner, where that architect was fully compensated pursuant to the terms of his contract, and where there was no contractual right to exclusive performance of services on the project in question. The contract "interference" for which Mardirosian was charged and suspended was Not the inducement of a breach of Auerbach's contract, nor that he tortiously injured Auerbach, nor even that he competed in some unfair or deceptive way, but was only that he attempted to obtain and did in fact undertake work which was covered by Auerbach's contract, and did not give notice of the attempt or undertaking.
Finally, the AIA has intimated that its ethical standard merely "reflects"
the common law tort of interference with contractual relations and suggested that it is reasonable for that reason alone. Yet both that tort and the related tort of interference with prospective (pre-contract) advantage recognize, as a defense, the privilege of "competition." W. Prosser, Law of Torts § 129 at 946 & § 130 at 954 (4th ed. 1971); Accord, Restatement (Second) of Torts § 768 (1979). With regard to the first tort, interference with an existing contract, the privilege is recognized where, as in the Mardirosian case, the contract interfered with is terminable at will. W. Prosser, Supra at 946; Accord, Restatement (Second) of Torts § 768 (1979).
In such a case there is no contract right to have the relation continued, but only an expectancy, which is similar to the expectancy of a business man that a customer will continue to do business with him. With such an expectancy of future relations, and prospective advantage, there has been no doubt that a competitor has the privilege of interfering to acquire business for himself. Accordingly, The considerable weight of authority holds that there is a privilege of competition which extends to inducing the termination of agreements terminable at will, whether they concern employment or other relations.
W. Prosser, Supra at 946 (emphasis added). And with regard to the second tort, interference with contemplated or prospective contractual relations, the competition privilege applies in all cases:
The policy of the common law has always been in favor of free competition . . . . So long as the plaintiff's contractual relations are merely contemplated or potential, it is considered to be in the interest of the public that any competitor should be free to divert them to himself by all fair and reasonable means. Any other rule would tend to the recognition of trade monopolies.
W. Prosser, Supra at 954; Accord, Restatement (Second) of Torts § 768 (1979) (plus additional requirements not here relevant). Therefore, even were Standard 9 otherwise narrowly drawn to encompass only tortious behavior, and even if that were its only purpose and effect, the common law recognition of a privilege to compete, both at the pre-contract stage and where an existing contract is terminable at will, indicates that the "interference" which the AIA is attempting to prevent is far broader than the business interference prevented by the common law.
The Court must conclude, therefore, that the AIA has offered no justification for Standard 9 which need be balanced against the Standard's anticompetitive purposes and effects. Accordingly, both on its face and as applied in the Mardirosian case, the Standard constitutes an unreasonable and hence, under sections 1 and 3, an unlawful restraint of trade, in commerce, which caused plaintiff injury to his business or property.
An order granting plaintiff partial summary judgment on the question of liability on Count I of the amended complaint accompanies this Opinion.