College application process violates antitrust law: new suit

May 12, 2014

Revenue at the Common Application is practically infinitesimal by the standards of big business: $13 million in 2011, the last year for which its tax returns are public. But if you’re the parent of a kid who has applied or will be applying to college, you know Common App’s importance bears little relationship to its revenue. The non-profit completely dominates the college application process. More than 550 institutions in the United States are members of Common App, whose online application services permit students to prepare a single application that can be distributed to multiple schools, along with transcripts and teacher recommendations that are also uploaded to Common App’s site. These days, just about every kid applying to a selective college — one that judges applicants on more than just grades and test scores — is doing it through Common App.

Is that a violation of the Sherman Act?

One of Common App’s for-profit competitors claims it is. In a new antitrust complaint, filed Thursday in federal court in Portland, Oregon, CollegeNET alleges that over the last 10 years, Common App has stealthily changed its agreements with member colleges to impede competition from other application processing companies. Selective colleges, according to the suit, are all desperate to increase the number of applicants for admission, not just for the application fee revenue they receive but more importantly, to boost their selectivity, a key metric in rankings by U.S. News & World Report. By pioneering online applications more than 15 years ago, Common App positioned itself to bestow colleges with hordes of applicants they need in order to slash admission rates. Since then, CollegeNET claims, Common App has used its leverage to impose ever-expanding rules to punish members for using other services.

Common App’s fee structure, for instance, gives members a discount if they agree to use only its services, according to the suit. The non-profit also supposedly requires members to use official Common App forms for teacher evaluations and transcripts, extra submissions from art students, early decision agreements and even processing of application fees. According to CollegeNet, the non-profit “aggressively enforces its policies to ensure compliance and, not coincidentally, exclude competitors.” The complaint offers one concrete example of such supposed ruthlessness: After Tulane tried to stanch a drop in applications after Hurricane Katrina by waiving application fees and allowing fast-track admission, Common App expelled Tulane from membership. When Tulane tried to re-join, Common App allegedly demanded that it sign a multi-year agreement to use the service exclusively.

CollegeNET’s lawyers at Perkins Coie claim that Common App’s supposed tactics are illegal restraints of trade — and stunningly effective ones, at that. The suit claims that Common App controls 60 percent of online applications, and its membership roster is growing so fast that it doubled in size between 2005 and 2014 and will double again in five years if it stays on the same growth curve. Competitors, meanwhile, are struggling. CollegeNET alleges that it has lost 229 customers to Common App in the last 10-15 years. Another competitor to Common App once had 80 college clients but the number dropped to 32 in 2013, and two other college application businesses have shut down altogether, according to CollegeNET’s complaint. The suit contends that competition has been severely diminished since Common App changed from a small cooperative designed to serve students into a juggernaut hell-bent on helping colleges enhance their reputations and rankings.

Antitrust suits always have to show that the market — in this case, colleges and the students applying for admission — has been harmed by the defendant’s behavior. That might seem to be an obstacle for CollegeNET, since college applications have boomed like never before thanks to Common App and its online services. More students are using the common application to apply to more colleges than ever. But according to CollegeNET, the elimination of competition means that students and colleges have no alternatives when Common App messes up, as the suit contends it did last year when it implemented a new online application system. According to the suit, the system was filled with bugs and imposed new application rules that kicked up a lot of questions and concerns from students and parents. Despite the complaints, CollegeNet said, Common App’s membership has continued to grow because of its monopoly power.

I was curious about whether for-profit companies can sue non-profits for Sherman Act violations, so I checked in with Harvard Law School antitrust professor Einer Elhauge, who said that they can indeed. The U.S. Supreme Court most famously held that non-profits can be liable under antitrust laws in its 1984 decision in National Collegiate Athletic Association v. University of Oklahoma. Elhauge told me he hasn’t read the CollegeNET complaint, but said that “loyalty discounts” like those Common App supposedly gave to members willing to sign exclusive deals can be the basis of antitrust claims, though those claims are usually subject to rule-of-reason analysis rather than deemed per se a restraint on trade.

Common App spokesman Scott Anderson declined to comment on CollegeNET’s allegations, though he emphasized the non-profit’s “longstanding commitment to college access and holistic admissions.” CollegeNET counsel Susan Foster at Perkins Coie didn’t return my call.

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