Legal Comment
James F. Clark, Legal Counsel, Isaksen, Lathrop, Esch, Hart & Clark
Antitrust liability of school districts
Antitrust legislation exists both at the federal and state
levels. The overriding purpose of all antitrust law is the
preservation of a free and competitive economic system.
Competition assures a broader choice of goods and services to consumers at the lowest possible price.
But how can school districts possibly have an effect
on free enterprise? Wisconsin school districts spend
millions of dollars per year to purchase needed equipment,
books and other school apparatus. For example, school
districts contract with automobile dealerships to lease
driver education cars, or agree to buy sports equipment
for the football team from a local sporting goods store.
In addition to money spent directly by a school district,
students and teachers make numerous school-related purchases; for instance, seniors may purchase photographs
from a photographer with whom the school district has
contracted.
In all of these examples, the behavior of the school
district and the business or individual with whom it contracts may be anticompetitive. Perhaps a contract is signed without ascertaining whether a cheaper supplier is
available. And, quite possibly "kickbacks" to schools or
school officials are given to guarantee awarding of a contract. Not only may these practices be unfair because they
destroy competition and increase costs to taxpayers and
students, they may also be illegal.
Federal antitrust law
Generally, federal antitrust law, embodied in the Sherman and Clayton Acts, regulates only private conduct2
Therefore, to a large extent, where federal and state regulations supplant the competitive market and control it, antitrust laws will not apply. As long as the state's restraint
on competition is derived from the legislative command
of the state, there is an exemption from federal antitrust
attack. 2
Impliedly, this immunity is applicable to school districts.
In Wisconsin, Article X of the state constitution and ch.
120, Wis. Stats., set forth the powers and duties of school
districts. The powers of school boards and school district
officers are limited and can only be exercised as the
statutes provide. There appears to be a high degree of interaction of state regulation and local school district action. Therefore, many school district actions that are anticompetitive are nonetheless exempt from federal antitrust
law as long as such actions can be viewed as furthering
or implementing the clearly articulated and affirmatively
expressed state policy regarding public education.
Yet the freedom of local governments from federal antitrust liability is not unlimited. In a recent case, Community
Communications Co. v. City of Boulder, Colorado, ~ the
United States Supreme Court held that where the state
does nothing to interact with local action, does not comprehend or remains neutral as to a particular action by the
municipality, the state itself has not directed or authorized an anticompetitive practice and the municipality must
obey the antitrust laws.
Therefore, school district officials should be cognizant
of the potential for federal antitrust law applicability to actions which are either unauthorized by statute or may be
viewed as outside the parameters of acknowledged state
policy regarding education.
Federal anti-price discrimination law
Under the Robinson-Patman Act 4 it is unlawful for persons engaged in commerce to discriminate between different purchasers of commodities of like grade and quality when there could be a substantial decrease in competition. Both the seller who offers and the preferred buyer
who knowingly receives discriminatory prices violate the
Act.
The effect of the Robinson-Patman Act on school
districts is greatly reduced by an exception found in the
Nonprofit Institutions Act. 5 Anti-price discrimination laws
do not affect schools not operated for profit when they
purchase "supplies for their own use." Not all school purchases are exempt; only those purchases for uses that are
a part of and promote the school's intended institutional
operation in the overall education of its students fit within
the meaning of "supplies for their own use."
In a 1980 federal district court case, Burge v. Bryant
Public School Dist., 6 a photographer challenged the
district's selection process for the photographer for school
and senior pictures. The school district used an open bidding procedure, but the successful bidder had to either
give the school district a discount or pay a ten percent
commission based on student orders.
First, the court found that the photographs were "supplies" due to the number of school purposes for which
they were used, most importantly the school yearbook.
Moreover, the court held that the uses for the photographs
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February 1983
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were legitimate and served important roles in the education of the students. Therefore, the school district's purchase of the photographer's services fell within the exemption of the Nonprofit Institutions Act.
Finally, the district court found (and the Eighth Circuit
Court of Appeals held on review) that the school district
had earned the ten percent commission by rendering
valuable services to the photographer. The school district
had assisted in organizing a shooting schedule and helped
with collecting money and setting up studio space. This
exchange of services for commissions was not violative of
the Robinson-Patman Act.
Wisconsin antitrust law
Chapter 133, Wis. Stats., is basically a reenactment of
the first two sections of the Sherman Act but applicable
only to intrastate transactions. Its purpose, as with federal
antitrust law, is to "foster and encourage competition by
prohibiting unfair and discriminatory business practices ..Y
Activities prohibited under ch. 133 include:
(I) unlawful contracts, which are in restraint of trade
(sec. 133.03);
(2) price discrimination, either directly or indirectly,
between purchasers of commodities of like grade and
quality in order to injure or destroy competition (sec.
133.04); and
(3) secret rebates, commissions or unearned discounts,
or extending special privileges or services to some purchasers but not others, which could injure a competitor
or destroy competition (sec. 133.05).
School districts are explicitly covered by ch. 133, as
provided by the 1979 amendment to the chapter.
Moreover, the Wisconsin Antitrust Law has no state
counterpart to the federal Nonprofit Institutions Act, so
there is no express exemption for school district purchases
of supplies for their own use. It is conceivable, then, that
a school district's purchasing policy could be legitimate
under federal antitrust law but be subject to fines of up
to $50,000 or imprisonment under Wisconsin law.
Recognizing a similar paradox under Wisconsin law,
the Wisconsin Supreme Court in Town of Hallie v. City of
Chippewa Falls8 discussed a possible exemption to ch. 133
for municipalities. The Court pointed out that often there
is a conflict between two or more statutes. Certain statutes
authorize a municipality to act in a certain way; but, on
the other hand, the state antitrust law brands the same
activity as anticompetitive.
Therefore, the test developed to determine whether
the Wisconsin antitrust law applies or does not apply to
the particular action of a municipality is whether the
Legislature intended to allow the municipality to undertake such action. The important factors to look at are the
constitutional and statutory powers of the municipality,
the type of conduct undertaken in a particular instance,
and the general statutory framework set up by the
Legislature in a particular field.
A significant reason for the Court's holding that ch. 133
was not applicable in Town of Hallie is the fact that,
generally, when a city provides services it performs a
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Wisconsin School News
governmental rather than a proprietary service. Governmental services, such as police and fire protection, are
often monopolies for the public good. Because there is
no profit motive involved, a monopoly exercised by the
city is more appropriate than competition with respect to
the furnishing of such public services.
Chapter 133 applicability to school districts
The Town of Hallie test may be used to determine
whether or not Wisconsin antitrust law applies to particular
school district activity. Article X of the Wisconsin Constitution and ch. 120, Wis. Stats., provide the constitutional and
statutory framework for this analysis. As with
municipalities, the fact that school districts generally provide a governmental service rather than a proprietary one
should carry great weight. However, school districts cannot ignore the state antitrust law in all cases merely by
relying on statutory powers. There are limits to anticompetitive behavior. Unfortunately, because school
districts have been subject to ch. 133 since only 1979, it
is uncertain what these limits are.
To maximize the chances that the Wisconsin antitrust
law will be found inapplicable, a school district should consider the following recommended procedures:
(I) Although a school district may not be bound by
statutory bidding requirements in a particular situation, 9
a bid procedure should be considered. Open bidding helps
prevent secret dealings and kickbacks which would violate
sec. 133.05, and tends to legitimate school district contracts. Moreover, a bid procedure is one way for a school
district to furnish the best possible education at the best
price.
(2) School boards should consider setting reasonable
standards of grade and quality of goods and services purchased by the school district or made available for sale
to students. Suppliers will then know in advance what type
of product is desired and this should increase the number
of potential bidders.
(3) If goods or services from other suppliers are less
efficient or are of lower quality, a school board or district
may legitimately choose to deal with only one supplier,
generally someone the district has contracted with in the
past. In these instances, there is no illegal price discrimination because the commodities involved are not of like
grade and quality.
-FOOTNOTES 1. Sherman Act, 15 U.S.C. secs. 1-7; Clayton Act, 15 U.S.C. secs.
12-27.
2. Parker v. Brown, 63 S. Ct. 307 (1943): Federal antitrust immunity
under the "state action" doctrine.
3. 102 S. Ct. 835 (1982).
4. 15 U.S.C. sec. 13.
5. 15 U.S.C. sec. 13c.
6. 520 F. Supp. 328 (1980), affirmed, 658, F.2d 611 (Sth Cir. 1981).
7. Section 133.01, V~/is. Stats.
8. 105 Wis. 2d 533 (1982).
9. For a discussion of the legal considerations relevant to contracting
by school boards, see "School Construction Contracts," Wisconsin School News (May, 1977).