Antitrust for Nonprofits

Transaction Privilege Tax

The Supreme Court, as recently as 2021, in NCAA v. Alston, has made clear that not-for-profit organizations are subject to antitrust laws the same as for-profit businesses are. This means that nonprofits need to be aware of their obligations under the primary vehicles of antitrust law in the United States: the Sherman Act, the Clayton Act, the Robinson-Patman Act, and the Hart-Scott-Rodino Act.

Who Regulates Antitrust Activities?

Potential antitrust conduct can be challenged by the U.S. Department of Justice, the Federal Trade Commission, state attorneys general, and, in rare situations, private individuals. Most often, nonprofits such as hospitals/healthcare providers, academic institutions, and trade associations are the subject of antitrust scrutiny.

Prohibited Conduct

Antitrust laws prohibit contracts, combinations, or conspiracies which restrain trade. Generally, a court will find a contract, combination, or conspiracy where there is some form of an agreement between parties that unreasonably restrains trade. Nonprofits have faced antitrust challenges for engaging in concerted refusals to deal or group boycotts, price-fixing, and agreements not to compete.

Antitrust laws also prohibit activity that actually or may monopolize trade. Nonprofits that attempt to monopolize or unlawfully exclude competition may trigger enforcement action. Other activities that implicate antitrust law include price discrimination, exclusive dealing and tying arrangements, mergers, acquisitions, and, in certain situations, interlocking directorates.

Exception for Non-Commercial Activities

Although antitrust law applies to nonprofits, a narrow exception exists for non-commercial activities. The commerciality of an activity is determined based on a review of the totality of the circumstances in each case. Courts have found the following activities to be non-commercial:

  • Soliciting charitable donations
  • Political fundraising
  • Determining university admissions criteria (however, the Supreme Court has added cases concerning university admissions criteria to their docket in the 2022 term year, which may change this)

Conversely, courts have found the following activities to be commercial:

  • Student housing
  • Medical school and residency programs
  • Financial aid policies
  • No-poach agreements

The exception for non-commercial activities is narrow, and a court will generally find commercial activity wherever there is an exchange of something of value for certain goods or services. For related information on the commerciality doctrine and 501(c)(3)’s, see our blog post here.

Conclusion

Nonprofits enjoy certain benefits by their charitable nature. Because of this, their officers and directors sometimes do not realize that antitrust laws apply to nonprofit and for-profit organizations.

Nonprofits must be cautious when engaging in commercial activities because antitrust law can be tricky and nuanced. Hospitals, trade associations, and academic institutions are the most common subjects of antitrust scrutiny in the nonprofit sector, but any nonprofit can violate antitrust laws.

Remember that restraints on trade, attempts to monopolize, and excluding competition are illegal. Consulting your attorney and performing due diligence is always worthwhile when nonprofits plan to engage in commercial activities. A little work on the front end can avoid costly litigation, loss of goodwill, and destruction of a nonprofit’s reputation.


Kyler Mejia is a third-year law student at Arizona State University law school and law clerk with Caritas Law Group, P.C. Caritas Law Group, P.C. . Caritas advises nonprofit and socially responsible businesses on corporate, tax, and fundraising regulations nationwide as well as donors with regard to major gifts. To schedule a consultation, call 602-456-0071 or email us through our contact form

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