September 30, 2015 Practice Points

NCAA's Compensation Rules Not Exempt from Antitrust Scrutiny

O'Bannon wins again, but players still can't receive compensation for use of their likeness.

By Casey G. Perkins

In July 2009, after discovering his likeness was being used in a video game, former UCLA basketball standout Ed O’Bannon sued the National Collegiate Athletic Association (NCAA), alleging antitrust violations, in Edward C. O’Bannon v. NCAA. In the class action suit, the former first-round NBA draft pick argued that former student-athletes should be entitled to financial compensation for the NCAA’s commercial use of his or her name, image or likeness (NIL). On August 8, 2014, the district court entered judgment for O’Bannon and the plaintiffs, concluding that the NCAA’s rules prohibiting student-athletes from receiving compensation for the use of their names and likenesses were an unlawful restraint on trade in the college education market. The NCAA appealed, and on September 30, 2015, the Ninth Circuit Court of Appeals issued an order affirming in part, and reversing in part, the district court’s decision. The Ninth Circuit agreed with the district court that the NCAA’s rules were subject to antitrust law and had significant anticompetitive effects within the college education market by fixing the “price” that recruits pay to attend college. At the same time, the court also struck down a plan approved by the district court that would have allowed student-athletes to receive payment beyond education costs for the use of their NIL.

On appeal, the NCAA argued not only that the plaintiffs’ Sherman Act claim failed on the merits but also that the Ninth Circuit was precluded from even reaching the merits because (1) the U.S. Supreme Court held in NCAA v. Board of Regents of the University of Oklahoma that the NCAA’s amateurism rules are “valid as a matter of law,” (2) that the NCAA’s compensation rules are not covered by the Sherman Act at all because they do not regulate commercial activity; and (3) that the plaintiffs lacked standing because they had not suffered an “antitrust injury.” The court rejected each of those arguments. Most significantly the court rejected the contention that the Board of Regents case stood for the proposition that the NCAA’s rules are presumed valid or exempt from antitrust scrutiny. Rather, the court held that the NCAA’s rules must be analyzed under the rule of reason, as the district court had done, and that even a restraint with a procompetitive purpose can be invalid under the rule of reason if a substantially less restrictive rule would further the same objectives. In short, at least in the Ninth Circuit, the NCAA must prove the validity of its rules rather than rely on a presumption.

On the merits, the court applied the three-step framework of the rule of reason: (1) the plaintiff must show that a restraint causes significant anticompetitive effects in a relevant market; (2) the defendant must then provide evidence of the restraint’s procompetitive effects; and (3) the plaintiff must then show that any legitimate objectives can be met through substantially less restrictive means. Relying on the district court’s factual findings, the Ninth Circuit agreed that the NCAA’s compensation rules have a significant anticompetitive effect on the college education market and that those rules also serve the procompetitive purposes of integrating academics and athletics and preserving the popularity of the NCAA’s product by promoting amateurism. The court then concluded that the district court did not err in finding the plaintiffs’ proposed alternative of allowing NCAA member schools to give scholarships to cover the full cost of attendance would be a substantially less restrictive alternative, but it reversed the district court’s ruling to the extent it would have allowed students to receive direct cash payments, not tied to their education expenses, for use of their NIL, because such payments are contrary to the amateur nature of college sports.

The Ninth Circuit’s opinion marks a departure from previous cases in which other courts of appeal have given substantial deference to NCAA rules based on the expansive view that the Supreme Court “blessed” those rules in the Board of Regents case. The ruling also effectively prohibits the NCAA from reversing its August 2014 decision to allow schools to issue scholarships for the full cost of attendance. Perhaps most significantly though, the Ninth Circuit’s decision provides the NCAA with another ruling affirming its current amateurism model and another hurdle for those advocating greater financial compensation to student-athletes.

Casey G. Perkins, Snell & Wilmer, Las Vegas, NV

 


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