Tuesday, May 19, 2020
Panel Interprets Antitrust Law Under ‘Rule of Reason’
By a MetNews Staff Writer
The Ninth U.S. Circuit Court of Appeals yesterday held that, under the Rule of Reason, the National Collegiate Athletic Association may not permissibly enforce rules that cap the education-related benefits that conferences or schools may confer on student athletes.
Chief Circuit Judge Sidney Thomas wrote the majority opinion in which Circuit Judges Ronald M. Gould and Milan D. Smith Jr. joined. Smith offered a concurring opinion.
The panel affirmed the March 8, 2019 ruling by District Court Claudia Wilken of the Northern District of California that the NCAA is “permanently restrained and enjoined from agreeing to fix or limit compensation or benefits related to education.” Her order specifically applied to restrictions on what can be provided to those who play Football Bowl Subdivision (“FBS”) football or Division I (“D1”) basketball.
Wilkin was also the District Court judge who on Aug. 8, 2014 decided the antitrust case brought by former UCLA basketball player Ed O’Bannon against the NCAA based on its rule forbidding student athletes from receiving compensation for use of their names or likenesses. She found the restrictions to be unreasonable restraints of trade in violation of the Sherman Antitrust Law.
The Ninth U.S. Circuit Court of Appeals, in an opinion filed Sept. 30, 2015, affirmed in part and reversed in part, with the majority disapproving Wilkin’s order to the extent that it required the NCAA to permit deferred payments of up to $5,000 for use of athletes’ names or likenesses untethered to their education expenses. Concurring and dissenting, Thomas wanted to affirm Wilkin’s opinion in that case in toto.
That 2015 decision was the starting point for discussion in yesterday’s opinion.
Bybee’s 2015 Decision
In O’Bannon, Circuit Judge Jay Bybee wrote:
“Today, we reaffirm that NCAA regulations are subject to antitrust scrutiny and must be tested in the crucible of the Rule of Reason. When those regulations truly serve procompetitive purposes, courts should not hesitate to uphold them. But the NCAA is not above the antitrust laws, and courts cannot and must not shy away from requiring the NCAA to play by the Sherman Act’s rules. In this case, the NCAA’s rules have been more restrictive than necessary to maintain its tradition of amateurism in support of the college sports market. The Rule of Reason requires that the NCAA permit its schools to provide up to the cost of attendance to their student athletes. It does not require more.”
In yesterday’s opinion, Thomas declared that in the present case, she “properly applied the Rule of Reason in determining that the enjoined rules are unlawful restraints of trade” and that “the record supports the factual findings underlying the injunction and that the district court’s antitrust analysis is faithful to our decision in O’Bannon….”
The NCAA seized on language in O’Bannon that the Rule of Reason (used in interpreting the Sherman Antitrust Law) which requires that schools be allowed to provide benefits up to the “cost of attendance” and nothing “more.” It argued that its rules now comply with that requirement and, under res judicata, the plaintiffs may not seek an uncapping of education related benefits.
Thomas responded that the NCAA, in relying on two sentences in O’Bannon in contending that further litigation is barred, “ignores the inherently fact-dependent nature of a Rule of Reason analysis, which evaluates dynamic market conditions and consumer preferences; the panel majority’s manifest effort to limit its decision to the record before it; and the majority’s mandate that courts must continue to subject NCAA rules, including those governing compensation, to antitrust scrutiny.”
“Far from straying outside O’Bannon’s bounds, the district court here sought to toe the line that the panel majority drew. The court uncapped education-related benefits, but left in place NCAA limits on compensation unrelated to education, consistent with the majority’s observation that ‘student-athletes remain amateurs as long as any money paid to them goes to cover legitimate educational expenses’….”
The NCAA maintained that capping benefits promotes “amateurism” in college sports which is “procompetitive” by giving sports fans a clear choice between viewing amateur or professional games.
Thomas said that Wilken “fairly found that NCAA compensation limits preserve demand” for amateurism “to the extent they prevent unlimited cash payments akin to professional salaries, but not insofar as they restrict certain education-related benefits.”
Students Sought More
The students cross-complained, seeking an uncapping of non-education related benefits.
“If the district court had concluded, as Student-Athletes contend, that NCAA limits on compensation unrelated to education unreasonably restrain trade, then it should have enjoined those limits…,” Thomas wrote. “The problem for Student-Athletes is that the court did not conclude as much; instead, it determined that NCAA limits on education-related compensation are the only challenged rules that flunk the Rule of Reason.”
“In our view, the district court struck the right balance in crafting a remedy that both prevents anticompetitive harm to Student-Athletes while serving the procompetitive purpose of preserving the popularity of college sports.”
Smith said in his concurring opinion that he joins in Thomas’s opinion “in full” because he is bound by O’Bannon, but added:
“I write separately to express concern that the current state of our antitrust law reflects an unwitting expansion of the Rule of Reason inquiry in a way that deprives the young athletes in this case…of the fundamental protections that our antitrust laws were meant to provide them.”
He noted that during athletic seasons, the athletes practice 35-40 hours a week, yet must devote about 40 hours a week to attending classes and studying, remarking:
“In addition to lessening their chances at academic success because of the time they must devote to their sports obligations, Student- Athletes are often prevented from obtaining internships or part-time paying jobs, and, as a result, often lack both income and marketable work experience. Meanwhile, the grueling hours and physical demands of college sports carry significant health risks, such as sleep deprivation, stress, broken bones, and even potential brain damage.”
Yet, he pointed out, “the NCAA and Division 1 universities make billions of dollars from ticket sales, television contracts, merchandise, and other fruits that directly flow from the labors of Student-Athletes.” The jurist commented:
“The treatment of Student-Athletes is not the result of free market competition. To the contrary, it is the result of a cartel of buyers acting in concert to artificially depress the price that sellers could otherwise receive for their services. Our antitrust laws were originally meant to prohibit exactly this sort of distortion.”
The case is In re National Collegiate Athletic Association Athletic Grant-In-Aid Cap Antitrust Litigation, 2020 S.O.S. 19-15566.
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