In ASME. Inc. v. Hydrolevel Corporation,¹ the United States Supreme Court issued an historically momentous 6 to 3 decision that significantly broadens the potential antitrust hability of non-profit organizations, including trade and professional associations. The Court held that a professional association that sets product standards is strictly liable under the antitrust laws for acts of its agents when the acts are committed with the apparent authority of the association, even though the association's directors and staff neither authorize nor ratify the acts and even though the acts do not benefit the association. In applying the unprecedented "apparent authority" theory to anti-trust law for the first time, the Court stated that a rule that imposes liability on a non-profit standard-setting organization is consistent with the legislative intent that private rights of action under the antitrust laws be used effectively to deter antitrust violations. The Court found that an association is responsible for preventing antitrust violations through the misuse of its reputation by its agents, including members who are merely unpaid volunteers.

The Lower Court Decisions
When Hydrolevel learned of the role of the subcommittee in drafting the letter, it sought relief from ASME, which investigated, found no wrongdoing, and confirmed the challenged interpretation. Hydrolevel then filed suit against ASME and others, alleging violations of Sections 1 and 2 of the Sherman Act. Although the trial judge issued instructions that ASME could only be held liable if it had ratified its volunteer agents' actions or if the agents had acted in pursuit of ASME interests, the jury returned a verdict for Hydrolevel. The District Court entered a judgment against ASME for $7.5 million ($2.5 million in damages, automatically trebled under the antitrust laws). The United States Court of Appeals for the Second Circuit affirmed and held that ASME was liable because its volunteer agents had acted within the scope of their "apparent authority."² The Court of Appeals did reverse the damage award and returned it to the lower court for a new estimation.

The Supreme Court Decision
In as affirming the decision of the Court of Appeals, the Supreme Court sought to "insure that standard-setting organizations will act with care when they permit their agents to speak for them."³ The Court repeatedly referred to the power that trade and professional associations have in affecting the entire economy of the country and noted that ASME was virtually "an extra-governmental agency, which prescribes rules for the regulation and restraint of interstate commerce."⁴ The majority decision pointed out that associations are "rife with opportunities"⁵ to violate the antitrust laws. The Court's principal concern was that ASME had failed to implement any meaningful safeguards that would prevent its reputation from being used to hinder competition in the marketplace. The Court noted that this antitrust violation could not have occurred without ASME's promulgation of product standards and the association's lax methods of administering them.

Three dissenters argued that the Court's holding adopts an "unprecedented theory of antitrust liability. . with undefined boundaries...."⁶ They criticized what they viewed as a novel theory unsupported by law and unnecessary for the resolution of the case against ASME, since the theory was not used in the lower court to produce a jury verdict against ASME.

They particularly attacked the "strict liability" approach of assessing effectively punitive damages against a non-profit organization for the fraudulent activities of volunteer members that may not have been preventable by the exercise of any possible procedures of the association.

Analysis of the Supreme Court Decision
In reviewing the Hydrolevel decision from the point of view of those most affected-non-profit organizations, particularly trade and professional associations engaged in "self. regulation" activities, one must distinguish absolutely the result affirmed by the Supreme Court and the theory used in that affirmation.

Few would argue that there was no wrongdoing on the part of the volunteers and possibly the lower staff of ASME who actually effected the fraudulent interpretation of the association's low-water boiler fuel cutoff valve standard to the detriment of Hydrolevel Corporation. But the theory used by the majority of the Supreme Court to affirm the lower court and appellate court result is another matter altogether. The Supreme Court itself was divided completely on the issue of how to substantiate 1egally the original result. The five member majority led by justice Blackman (plus a concurring Chief Justice Burger who did not accept the theory but did endorse the result) and the three-member minority led by Justice Powell, in their respective opinion and dissent agree on practically nothing in each other's legal approaches, even going to the extent of consistently raising and attacking one another's arguments in their footnotes. If ever there were a Supreme Court decision with no legal middle ground between the opinion and the dissent, it is the Hydrolevel decision. Under the circumstances, the decision is likely also to provoke further debate among those affected by the decision, as well as among lower federal courts which theoretically are bound to follow what was decided by the majority of the Supreme Court.

Without choosing between either the majority opinion or the minority dissent, several points of analysis can be noted for the benefit of organizations that would seek to understand the Hydrolevel theory, and most important, to avoid its application against them in future cases.

One aspect of the majority's opinion that is immediately apparent is that it represents a mustering of several more or less established principles of legal liability joined together for the first time by the Supreme Court in this case. With respect to each principle, the majority has been willing to extend or modify it to fit the circumstances of the case. First, of course, is the principle that a voluntary product standard issued by a non-profit association can be used to restrain competition by limiting entry to the market of innovative products and thereby effect an antitrust boycott in violation of Section 1 of the Sherman Act, which proscribes any "contract, combination or conspiracy in the restraint of trade."⁷ While the Supreme Court has commended association standards-making activity as ordinarily pro-competitive,⁸ it has also condemned an association's use of standards in a way that stifles innovation.⁹ What is new in Hydrolevel is the explicit confirmation that not only the development of product standards, but also interpretation of them, can effect a boycott. This should hardly be considered surprising, however, as it was introduced in previous antitrust pronouncements by the Supreme Court and other authorities.

What makes Hydrolevel new and different is the issue of organizational responsibility for the anti-competitive use of a standard to boycott an innovative entry to the market. It was impossible to argue plausibly that the anti-competitive interpretation of an ASME standard did not occur-the interpretation was memorialized in correspondence using ASME letterhead. So the association argued instead that it was not responsible for that interpretation. At the original trial before the District Court, Hydrolevel attempted to advance the principle of "apparent authority" to attribute responsibility for the interpretation to ASME. The "apparent authority" doctrine is an ancient one in common law cases. It provides that a principal, such as an employer, can beheld liable for the wrongdoing of an agent, such as an employee, when the employee is acting in the ordinary course of employment and "appears" to be authorized by the employer. Many cases that have held principals responsible for the wrongdoing of agents under the "apparent authority" doctrine have required evidence that the principal later somehow approved or ratified the wrongdoing or at least benefited from it. In Hydrolevel, the lower court did require ratification by ASME of the anti-competitive standard as a condition of holding ASME responsible for the interpretation. The court so instructed the jury. The jury concluded the ASME had effectively ratified the interpretation.

Given the lower court finding of ratification by ASME, what occurred in the Supreme Court is curious. The majority held that a finding of ratification by ASME was unnecessary to hold the association responsible and went out of its way to adopt a sweeping and unrestricted principle of Liability. Until future Supreme Court cases narrow this broad interpretation of law, associations-particularly standards-setting organizations-will be required to increase their vigilance against any type of behavior on the part of association officers, staff or volunteers that could raise even the suspicion of anti-competitive activity. In short, associations should heed the advice given by the majority in reaching the Hydrolevel decision: that associations themselves are in the beat position to prevent the misuse of their own influence and power over the marketplace.

Footnotes
1. 456 U.S. 556, 102 S.Ct. 1935, 72 L.Ed. 2d 330 (1982).
2. 635 F2d 118 (2d Cir. 1980).
3. 456 U.S. at 577-78.<
4. Id. at 570, quoting Fashion Originators' Guild of America, Inc. v. FTC, 312 U.S. 957, 465 (1941).
5. 456 U.S. at 571.
6. Id. at 578. (Powell, J., joined by White, J. and Rehnquist, L. dissenting).
7. 15 U.S.C. §S (1978).
8. Maple Hearing Manufacturers Assoc. v. United States, 268 U.S. 563 (1925).
9. Radiant Burner. loc. v. Peoples Gas Light and Oahe Ca.. 364 U.S. 656 (SSel).