STATEMENT OF BRUCE WILSON, ESQ., ACTING ASSISTANT ATTORNEY GENERAL, U.S. DEPARTMENT OF JUSTICE; ACCOMPANIED BY LEWIS BERNSTEIN, CHIEF OF THE SPECIAL LITIGATION SECTION; AND KEITH CLEARWATERS, SPECIAL ASSISTANT TO THE ASSISTANT ATTORNEY GENERAL Mr. WILSON. I would be happy to do that, Mr. Chairman. With me, on my right, is Keith T. Clearwaters, special assistant to the Assistant Attorney General, and, on my left, Mr. Lewis Bernstein, Chief of our Special Litigation Section. We are pleased to be here today to discuss the subject of minimum fee schedules which have been established and in varying measures enforced by a number of State and local bar associations. You have asked for the views of the Department of Justice as to whether such fee schedules are illegal under the antitrust laws. Our short answer is that they are illegal. This conclusion has been expressed by Department officials in a number of speeches in recent years. I have with me today copies of these statements and would like to submit them to the subcommittee for the record. Senator TUNNEY. They will be included in the record.1 The Department has lately focused increased attention upon anticompetitive conduct in the service sector of this Nation's economy. We have become increasingly service-oriented in our purchases, as consumers. Price fixing and other anti-competitive conduct in the service area, therefore, have direct and adverse impacts on the consumer's pocketbook. In line with our increased attention to the service industries, we have brought suit against a number of professional associations charging that various arrangements to eliminate competitive bidding among their members, or otherwise to restrain competition in fees charged by their members, violate Section 1 of the Sherman Act, which prohibits unreasonable restraints of trade. In December 1972 we filed a civil complaint against the National Society of Professional Engineers, charging that the society's code of ethics prohibiting its members from submitting competitive bids for engineering services violated Section 1 of the Sherman Act. While we have never taken the position that price is the only factor to be considered in obtaining the services of a qualified professional, whether he be engineer, architect, doctor, or lawyer, in our view it should be one factor to be considered along with other professional characteristics, and one that should not be controlled by agreement among members of the professions. For that reason we have consistently proceeded against arrangements to eliminate professional bans on competitive bidding. Although we have brought actions, as I have indicated, against a number of professional organizations, we have yet to bring a case against a bar association. I expect that such a case will be brought 1 Set forth on page 174. by the Department in the near future. We now have pending_a number of investigations of bar associations across the country. We are proceeding in these investigations and we have issued civil investigative demands to bar associations, requiring the production of documents relating to minimum fees schedules, their origins, and their enforcement. As these investigations and others are worked up, I would expect a case or two to follow if we find suitable evidence. I might add that we have seen encouraging signs that a number of bar associations have voluntarily abandoned their minimum fee schedules. State bar associations in Florida, Michigan, and Massachusetts, and local associations in Pennsylvania have announced the abandonment of this practice. I should add that this list is not necessarily exhaustive. I would caution, however, that those bar associations which abandoned their fee schedule only after we have commenced an investigation may still be subject to prosecution under the antitrust laws. A price fixing conspiracy which is abandoned only after the Government begins to investigate should not escape prosecution. And we can and will move in to investigate without further warning. I think it may be helpful to describe briefly the typical minimum fee arrangement and then to discuss our views on why we think such arrangements are illegal. Fee schedules are generally developed by a committee of lawyers appointed by a bar association to study lawyers' fees for various kinds of services. These committees, which are in effect groups of competitors sitting down to discuss prices, decide what fees should normally be charged for a variety of legal services. Votes are sometimes taken by the committee, and, indeed, on occasion by the entire membership of the Association. The results of these deliberations are circulated to the members of the bar association in the form of minimum suggested fees. These fee schedules are often more than mere suggestions. They are at times accompanied by a threat of disciplinary action for those who systematically choose to undercut the suggested fees. Members of the bar who prefer to charge fees lower than those suggested may be threatened with loss of the right to practice law because, in competing on fees, they have engaged in so-called "unethical conduct and solicitation." In reality, these fee arrangements can be viewed as little more than classic cartel price fixing. As such they are per se violations of the antitrust laws. One is reminded of the protectionist devices employed by the guilds of the middle ages. But, since 1890, Section 1 of the Sherman Act has prohibited every combination of conspiracy which unreasonably restrains trade and commerce among the several states. The "dread of enhancement of prices" which underlies the Sherman Act early resulted in the rule that arrangements between competitors which affect price, either directly or indirectly, are per se violations of section 1. That the motives of the parties to a pricefixing agreement may not be good, or that the agreed upon price may be "reasonable," offers no defense. The Supreme Court, in United States v. Real Estate Boards, declared that: Price fixing is per se an unreasonable restraint of trade. It is not for the courts to determine whether in particular settings price-fixing serves an honorable or worthy end. An agreement shown either by adherence to a price schedule or by proof of consensual action fixing the uniform or minimum price, is itself illegal under the Sherman Act, no matter what end it was designed to serve. It seems clear that minimum fee schedules of the type I have described raise the cost of legal services to the consuming public, deprive the consumer of a choice based at least in part upon the price of services he must purchase, and invade the right of the legal practitioner to determine on an individual basis his charge for services, reflecting, his own costs and abilities. Such schedules in our view come into direct conflict with the goals of the Sherman Act by enhancing prices and limiting individual competitive freedom. Nor do I think there can be much doubt as to the proposition that minimum fee schedules are indeed intended to affect the prices charged by lawyers. Even one schedule which emphasizes that compliance is voluntary, not mandatory, points out that "the lawyer who fails to make adequate charges fails to meet his obligations to himself, the profession, and to the clients he serves." The same schedule makes clear its purpose. It says the lawyer must *** have a guide as to what to charge for *** [his] time in order to maintain his office, equipment and library, to compensate his employees properly, and to furnish himself with a sufficient income to care for himself and his family, and to provide for his retirement. All these are, indeed, noble goals. But the achievement of goals cannot disregard the means by which the ends are achieved. As the Supreme Court put it less than 5 years ago, "price is too critical, too sensitive a control to allow it to be used even in an informal manner to restrain competition." I think it is also important to note the areas in which minimum fee schedules tend to have their most severe impact. It is obviously not upon the well-to-do, or upon our large business corporations, that may have extensive legal business and the ability to negotiate with counsel as to an appropriate hourly fee. It is not necessarily upon the poor, who in recent years have been the recipients-and properly so of subsidized legal services. But between these two extremes are a large number of middle-income wage earners who must-or at least should-consult the legal profession at least once in their lives, if only as to the purchase of a residence or the disposition of their estates. Here there are no subsidized services nor the ability to pay artificially inflated fees. Here the benefits of free and open competition are most essential. It may well be that any antitrust action challenging minimum fee schedules will be met with a number of asserted defenses by bar associations. Let me discuss these defenses. I believe they will all fail on the merits. Section 1 of the Sherman Act, of course, requires a showing that a particular anticompetitive arrangement constitutes a restraint on interstate commerce. Bar associations may raise the defense that their activities are purely intrastate and do not involve the requisite effect on commerce among the States. As Judge Richard W. McLaron, then Assistant Attorney General, advised in 1970, those who would hang their defense on this theory are placing reliance on "a very slender reed indeed." The commerce clause has been expanded by judicial opinion to reach a variety of conduct which may have at one time been thought to be purely local in nature. In view of the fact that attorneys today deal in transactions involving interstate financing, represent business concerns which ship goods across State lines, and engage in a variety of professional activities having numerous ramifications on interstate commerce, I believe the "commerce defense" will ultimately fail. A bar association might also raise as a defense that it is exempted on the grounds that it is a "learned profession." The Sherman Act, of course, reaches only restraints in "trade or commerce." Thus, the argument goes, the legal profession is not involved in the hurly-burly of the commercial world and enjoys some special professional exemption from the anti-trust laws. Although the Supreme Court has yet to rule on this specific question, there are dicta in decisions which indicate there may be such an exemption. The decisions handed down by the Court in 1934 and again cited in 1932, declare: Whenever any occupation, employment, or business is carried on for the purpose of profit, or gain, or a livelihood, not in the liberal arts or in the learned professions, it is constantly called a trade. In our view, this claim of exemption is flimsy, to say the least. It was raised and relied upon by the U.S. District Court for the District of Columbia in connection with the medical profession in United States v. American Medical Association. But the Court of Appeals reversed on the grounds that the reference to "learned professions" by the Supreme Court was purely casual and not controlling as to the medical profession. On certiorari, the Supreme Court avoided decision of the question whether a "learned profession" exemption existed. Instead, it affirmed the Court of Appeals on the ground that that restraint involved in what case did not affect the practice of medicine, but instead restrained the business of Group Health, a corporation providing medical care and hospitalization on a risksharing prepayment plan. Clearly this so-called exemption has not protected other professions from antitrust attack. And the District Court in a suit against four Virginia Bar Associations, Goldfarb v. Virginia State Bar, declared, rather forcefully, to endorse such an exemption, in a suit brought by one of your witnesses here this morning: The Court has some question whether the adoption of a minimum fee schedule is itself "professional." It seems to the Court that there is a basic inconsistency between the lofty position that professional services, not commodities, are here involved and the position that a minimum fee schedule is proper. The former properly contemplates differences in abilities, worth and energies expended of those rendering the services. Such differences are made as meaningless by a maximum fee schedule as they would be by a maximum fee schedule. Although there is as yet no evidence of this here, the minimum fee schedule does not permit the charging, by an attorney, of more than the services are worth. Certainly fee setting is the least "learned" part of the profession. 24-625-74- -12 We are prepared to test the validity of the alleged "learned profession" exemption, and, based upon our review of the cases, I think there is great risk in a bar association relying on this defense for otherwise anti-competitive conduct. Finally, the bar associations may urge that they are instrumentalities of the State and that antitrust action against fee finding is barred by the doctrine of Parker v. Brown. Parker v. Brown was a suit to enjoin California's director of agriculture from enforcing an agricultural proration program established pursuant to State legislation. Such proration marketing programs were specifically provided for in the legislation, as were the penalties for noncompliance. Further, even though organization of a proration zone was first proposed, according to the Supreme Court, by private parties, that is, the producers, and although the prorate programs had to be approved by a referendum of producers, it was "the State, acting through the commission which adopts the program and which enforces it with penal sanctions, in the execution of a governmental policy." Here, the State Agricultural Prorate Advisory Commission had the final authority to revise, modify, reject or approve proposed proration programs. This was done after a public hearing and on findings that the program would carry out the objectives of the legislation. Thus, the State agency possessed and exercised full control over the establishment of the proration programs. That the State was the ultimate source of these programs was clear. The Supreme Court held that the prorate program in question was lawful under the Sherman Act. Specifically, the Court stated: We find nothing in the language of the Sherman Act or its history which suggests that its purpose was to restrain a state or its officers or agents from activities directed by its legislature. Even so, all actions taken by a State agency will not necessarily be protected from antitrust attack. Judge Coffin, in George R. Whitten, Jr., Inc. v. Paddock Pool Builders, discussed at some length the limitations on Parker. After nothing that the Supreme Court in Parker had found "indications of deliberate government guidance," he stated: The Court's emphasis on the extent of the state's involvement precludes the facile conclusion that action by any public official automatically confers exemption. As one commentator has observed, the assertion that an act is valid governmental action *** suggests inquiry rather than ends it *** Generally, the underlying issue in determining the applicability of such an exemption is the degree of governmental involvement in, and supervision over, the allegedly wrongful private activity. Our reading of Parker convinces us that valid government action confers antitrust immunity only when government determines that competition is not the summum bonum in a particular field and deliberately attempts to provide an alternate form of public regulation. Thus, Judge Coffin read the Parker immunity as applying only to "deliberate governmental occupation of a field normally left to the free winds of competition." In addition, even if such occupation of a field does not exist, "no exemption will be found if state encouragement of price stability falls short of the delegation and approval in Parker." Thus Judge Coffin would not apply the Parker doctrine where the State involvement in the establishment of the restraint of trade does |