In ASME, Inc. v. Hydrolevel Corporation, the Supreme Court ruled that ASME was liable for conspiring to restrain trade in violation of Section 1 of the Sherman Act, where two subcommittee officers, who were volunteers, caused ASME to issue a misinterpretation of a standard to the distinct competitive disadvantage of the plaintiff. The Court's decision received considerable comment in the national press-some of which, unfortunately, was inaccurate. II is not surprising, therefore, that the ruling has given rise to a certain amount of confusion in the voluntary standards community.

Arguments Before the Supreme Court
In its brief to the Supreme Court, ASME made a number of strong arguments-all of which were ultimately accepted by the dissenting justices. Among other things, it was urged that the decision of the Court of Appeals conflicted with existing judicial precedent as well as the policy sought to be effectuated by Congress when it enacted the Sherman Act. Further, ASME argued that the test enunciated by the lower court, which was akin to a vicarious liability theory, was particularly inappropriate in the context of a non-profit membership corporation being sued under a statute that provided for treble damages.

Despite the strength of the arguments advanced by ASME, a majority of the Supreme Court voted to affirm liability on the basis of the "apparent authority" rule articulated by the Court of Appeals. The majority opinion accepts in large part arguments that were made in a friend of the court brief jointly filed by the Department of Justice and the Federal Trade Commission in support of Hydrolevel.

The major theme running throughout the majority opinion is that it is neither inequitable nor unjust to hold ASME liable since ASME stands in the best position to prevent the objectionable conduct engaged in by its members. Perhaps more than anything else, it is this belief that seems to guide the Court to its ultimate resolution of the case.

The legal reasoning employed by the majority to reach this determination, however, is open to serious question. Initially, the majority credits the observation of the Court of Appeals that "under general rules of agency law, principals are liable when their agents act with apparent authority and commit torts analogous to the antitrust violation presented by this case." The apparent authority doctrine is premised, the majority notes, on the proposition that an agent's commission of fraud is facilitated when he seems to be acting in the ordinary course of the business entrusted to him by his principal. Stated slightly differently, the theory presumes that an agent's statements are given weight by a third party by virtue of the principal's reputation.

After exploring the policy underlying the apparent authority theory, the majority states that the theory has "long been the settled rule in the federal system" in a wide variety of areas. As the dissent points out, however. none of the cases cited y the majority on this point involves either the antitrust laws or non-profit membership corporations. Indeed, prior to the decision of the Court of Appeals in the present case, no such ruling existed.

Nevertheless, the majority continues on to conclude that application of the apparent authority theory in an antitrust context is proper and consistent with the intent of Congress, which in enacting the Sherman Act sought to encourage competition. But, as the dissent points out, an examination of the actual legislative history of the Sherman Act lends little support to the majority's conclusion. In fact, the legislative history, as expressed by Senator Sherman himself, seems to "counsel against adopting anew rule of agency law that extends exposure of such [non-profit] organizations to potentially destructive treble damage liability."

The majority decision also points to deterrence as an additional reason for imposing liability under an apparent authority theory:

Only ASME can take systematic steps to make improper conduct on the part of its agents unlikely, and the possibility of civil liability will inevitably be a powerful incentive for ASME to take those steps. Thus, a rule which imposes liability on the standard-setting organization which is best situated to prevent antitrust violations through the abuse of its reputation-is most faithful to the congressional intent that the private right of action deter antitrust violations.

Not surprisingly, the dissent views the matter rather differently:

Whatever the application of agency law in its traditional setting, application of the most expansive rules of liability in the context of antitrust treble damages and nonprofit, tax-exempt associations threatens serious injustice and over deterrence.

Assessing the Hydrolevel Ruling
It should be clear from the discussion above that there is considerable room for disagreement as to the correctness of the Supreme Court's decision. Nonetheless, there is no escaping the fact that the decision represents controlling law that is unlikely to change in the near future, absent some form of Congressional action. The immediate issue, therefore, is precisely what the decision means to those involved in the voluntary standards system. Will significant changes be required? Is the possibility of liability greatly increased? A careful reading of the Hydrolevel decision indicates that the answer to these and similar questions is "no," and that while certain changes in the existing operation of standards developers appear advisable, major revisions are unnecessary.

Initially, it must be recongised that the actual holding in Hydrolevel is a limited one that results from the particular circumstances involved in the case. Indeed, the majority opinion is careful to note that the Court was not reviewing or deciding a case in which a party was challenging "a good faith interpretation of an ASME code reasonably supported by health and safety considerations." Yet, it is precisely this situation which represents the rule in the voluntary standards community.

The fundamental lesson to be learned from Hydrolevel is that the concepts of consensus and due proteas utilized to develop end revise standards moat be extended to the area of standards interpretation. It is through adherence to these precepts that standards developers have sought succesfully, both in the past and today, to guard against the promulgation of anticompetitive standards that might give rise to antitrust liability. Significantly, there was no claim in Hydrolevel that the ASME Code was anticompetitive nor could there have been. Rather, it was the lack of procedures designed to assure consensus and due process in the context of interpretations that ultimately gave rise to the problem.

The problem in Hydrolevel, of course, was that two renegades, operating within the rules of the system, were able to work a significant anti-competitive effect. But the "renegade" problem is capable of solution-the solution lies in the promulgation of procedures that are designed to limit effectively the abilities of one bent on wrongdoing from being in a position to realize his objectives. Procedures of this type, long part of standards development, now must be extended to standards interpretation. If standards developers, and for that matter all non-profit membership organizations, take appropriate steps to delineate who has the authority to speak for them, and under what circumstances, the rule announced in Hydrolevel simply does not present a serious threat.

What has been said above should serve to make it clear that the possibility of personal liability for those who participate in voluntary standards has in no way been changed by the decision in Hydrolevel. The holding of the Court concerned the liability of the standards developing organization, not its members, and resolution of the case turned on the majority's view that applying en apparent authority theory will help to ensure that standard-setting organizations will act with care when they permit their agents to speak for them." Thus, the possibility of increased liability resulting from the Hydrolevel decision is borne solely by the standards developer, not its members, and, as discussed above, the implementation of proper procedures concerning interpretations will assure that even that potential liability will remain very remote.

At the present time, many standards developers have already taken the steps necessary to formulate pro cedures designed to assure adequate review of standards interpretations. It is ANSI's recommendations that any organization that develops standards-if they do officially issue interpretations-should have a written procedure covering the issuance of interpretations. It is suggested that these procedures provide that only one staff person be authorized to issue interpretations and that this fact be printed on the standard itself. This will certainly help rid the organization of the apparent authority problem. It is further recommended that certain committee members be designated as an interpretations subcommittee to review the question and to draft the interpretation. Naturally no committee member with any possible conflict of interest should participate in the review of the question. In addition it would be advisable to publicize the interpretation by sending it to all members of the committee end by notifying all concerned parties. ANSI could, if requested, list the fact that the organization has issued an interpretation in the Standards Action newsletter that goes to over 10,000 people.

The Hydrolevel case is not really a standards antitrust case; it is not a certification antitrust case. It was a conspiracy of two renegades to use ASME for their own selfish purposes. There was never any authority and there never was any ratification by the principal. It was primarily an agency case with the Supreme Court stretching the law of agency to find apparent authority. It was an antitrust case where this type of apparent authority was never used. It called for treble damages, punitative damages, and for an apparent authority case, another first, and it called for the punishment of a non-profit 501 (c) (3) corporation, another first.

I submit it is not good law and in the years ahead its application will be severely limited by the Court in future cases. What it does tell those who work on voluntary standards is that we must be careful in our work to assure that our actions and decisions are carefully handled-that they represent a consensus position, such as that required by ANSI in its standards approval process.