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February 2011

Standards and Anti-Competitive Behavior: The Hydrolevel Case

The development of technical standards is one of the most significant ways in which such engineering societies as ASCE contribute to the development of the profession. While these standards may not be mandatory, their promulgation by a professional society gives them enormous weight among practicing professionals and government regulators, who frequently adopt such standards as mandatory codes.

Essential to the value of technical standards is the concept of consensus. Standards committees are designed to reflect a balance between experts and stakeholders within the subject area under consideration. Committee members are expected to contribute their experiences, perspectives, and objectives to the discussion, and through debates involving individuals with differing or conflicting viewpoints they work together to produce a document reflecting the agreement of the affected community as a whole.

Because many committee members have a personal interest that may be advanced or impaired by the finished standards, participation in such committees may seem to contravene the engineer’s ethical obligation to “avoid conflicts of interest.” But when a standards committee comprises an equal balance of interested parties and all fully disclose their personal interests and engage in good faith to produce a document that is fair to all parties, participation is not only ethical but also makes a valued contribution to society as a whole.
Unfortunately, the existence of such conflicts can also create temptation that can lead committee members to subvert the consensus process and use their position on the committee to slant the technical standard or its interpretation in furtherance of their personal interests. The case of American Society of Mechanical Engineers v. Hydrolevel, 456 U.S. 556 (1982), presents a striking example of the ethical and legal issues that can arise when committee members abrogate their responsibilities.

Situation

Some of the many standards adopted by the American Society of Mechanical Engineers (ASME) pertain to boilers and pressure vessels. At the time this case was filed, section IV of the applicable ASME code included a safety measure requiring boilers to have an automatic cutoff that stopped the fuel supply when water in the boiler fell below the lowest visible part of the gauge glass, the goal being to prevent boiler explosions or dry fires.

In 1971, Hydrolevel Corporation, a new entrant in the market for low-water fuel cutoffs, won a major customer away from the market’s leading manufacturer, McDonnell & Miller (M&M). One significant difference between M&M’s float-type cutoff device and Hydrolevel’s probe cutoff was that the Hydrolevel cutoff incorporated a time delay feature to prevent unnecessary cutoffs caused by surges and bubbles of boiling water inside the vessel.

A vice president of M&M, John W. James, served as the vice-chairman of the ASME subcommittee charged with drafting interpretations of the relevant section of the boiler code. In response to this threat to his firm’s market dominance, he and other M&M officials arranged a meeting with the ASME subcommittee chairman, T.R. Hardin. Hardin was an executive vice president of Hartford Steam Boiler Inspection and Insurance Company, an underwriting company owned by an entity that shortly thereafter also acquired ownership of M&M.
As a result of this meeting, the individuals decided to write a letter of inquiry to ASME’s Boiler and Pressure Vessel Committee asking whether a low-water cutoff with a time delay that cut off fuel below the lowest visible part of the gauge glass would satisfy the ASME code. Both James and Hardin participated in drafting the letter, but the letter was sent under the signature of another M&M executive.

In accordance with ASME’s procedure at the time, the Boiler and Pressure Vessel Committee passed the letter along to Hardin for a response, unaware that he had participated in drafting the inquiry. ASME’s procedures allowed a subcommittee chair to issue responses without review by the full subcommittee as long as it was made clear that such responses constituted “unofficial communication.” Accordingly, Hardin drafted an “unofficial” response stating broadly that time delay cutoffs provided “no positive assurance” that water would not fall to dangerous levels before the cutoff.

The letter was sent on ASME letterhead under the signature of an ASME staff member, and M&M immediately began sharing the letter with potential customers to imply that Hydrolevel cutoffs violated the ASME code. Several months later, when Hydrolevel officials learned of this letter, they demanded a correction from ASME. The correction said that a time delay feature itself did not violate the ASME code so long as it operated in such a way that, even with the delay, termination of fuel occurred before the water reached the lowest part of the gauge glass.

Unfortunately, by the time this clarification was issued, the damage had been done. Hydrolevel was unable to secure a sufficient customer base, as many potential clients still believed the Hydrolevel cutoff violated the ASME code. A few years later, during a U.S. Senate subcommittee hearing on antitrust activities, James revealed his role in drafting the letter of inquiry. Hydrolevel immediately filed suit against M&M, the Hartford Steam Boiler Inspection and Insurance Company, and ASME, alleging that the parties acted in restraint of trade and violated federal antitrust laws. Before the case came to trial, Hydrolevel was forced to file for bankruptcy.

Discussion

Had this case involved an ASCE committee and its members, the actions of James and Hardin would have raised concerns under a number of canons in ASCE’s Code of Ethics. Category (a) in the guidelines to practice for canon 4 reads as follows: “Engineers shall...promptly inform their employers or clients of any business association, interests, or circumstances which could influence their judgment or the quality of their services.” Category (b) in the guidelines to practice for canon 3 also is relevant: “Engineers shall be objective and truthful in professional reports, statements, or testimony. They shall include all relevant and pertinent information in such reports, statements, or testimony.” Finally, canon 5 has this to say: “Engineers shall build their professional reputation on the merit of their services and shall not compete unfairly with others.”

While James and Hardin served as volunteers rather than paid consultants, they were nevertheless providing professional services to the subcommittee and had the same duties to asme as to any other engineering “client.” Yet both failed to disclose their involvement in the letter of inquiry, information that probably would have altered the Boiler and Pressure Vessel Committee’s decision to delegate the response to Hardin. Moreover, rather than presenting the question to the full subcommittee, Hardin chose to draft an “unofficial” response on his own, notwithstanding his lack of objectivity, and his response appeared to carefully misstate or omit considerations for the purpose of misleading customers. Lastly, rather than competing in the marketplace through the value of m&m’s products, James and Hardin used their positions on the subcommittee to give m&m an unfair competitive advantage against Hydrolevel. Given these facts, it is likely that ASCE would have construed James’s and Hardin’s actions as being in violation of canons 3, 4, and 5.

In the actual case, both m&m and Hartford quickly settled out of court for sums of respectively $725,000 and $75,000. asme, however, declined to reach settlement, believing it should not be held accountable for the unauthorized conduct of its volunteers. The case ultimately reached the U.S. Supreme Court, which rejected asme’s argument on the precept that a principal is responsible for the actions of an agent operating under the principal’s “apparent authority.” Judgment was awarded against asme in the amount of $4.5 million. Since then, asme and other standards organizations have significantly altered the procedures by which such committees operate, emphasizing the need for consensus not only with regard to the standards themselves but also to their interpretation. —Tara Hoke

Members who have an ethics question or would like to file a complaint with the Committee on Professional Conduct may call ASCE’s hotline at (703) 295-6061 or (800) 548-ASCE (2723), extension 6061. The attorneys staffing this line can provide advice on how to handle an ethics issue or file a complaint. Please note that individual facts and circumstances vary from case to case and that the general summary information contained in these case studies is not to be construed as a precedent binding upon the Society. 

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