No slam dunk in Ninth Circuit antitrust ruling in O'Bannon v. NCAA

|The Volokh Conspiracy |

The Ninth Circuit just handed down a partial victory for the NCAA in its antitrust case, O'Bannon v. NCAA. The NCAA's amateurism rules prevent student athletes from being paid for the use of their names, images, and likenesses (these are so-called "NIL payments"). Judge Claudia Wilken of the Northern District of California ruled that these amateurism rules were an unlawful restraint of trade and thus violated the Sherman Act. The district court's ruling enjoined the NCAA from prohibiting member schools from giving student athletes (1) scholarships up to the full cost of attendance at their schools and (2) up to $5000 in NIL payments, deferred to the time they leave school. (Previously, scholarships were capped at the amount of a full "grant-in-aid", which is generally slightly lower than the full cost of attendance—it doesn't include optional books and supplies, transportation, etc.)

I signed on to a brief of 15 antitrust scholars, written by Daniel Sokol at University of Florida and his colleagues at Wilson Sonsini, Jonathan Jacobson and Daniel Weick. (Jonathan Jacobson is the incoming vice chair of the ABA Antitrust Section.) The brief argued:

The court below took an excessively broad view of its authority under the Sherman Act to invalidate a restraint based on the possibility that a less restrictive approach could be taken. Once the court found that restricting payments to students was reasonably necessary to the amateurism/integration justifications, it should not have condemned the restraints solely because it thought a different level of athlete compensation was preferable to the level chosen by the NCAA.

But that is just what it did. The injunction below simply elevates the compensation caps from existing athletic scholarship levels (full grant-in-aid) to cost of attendance plus a deferred $5,000 per year payment. In other words, the court below rested a finding of antitrust liability on the court's disagreement with the details of the restraint's implementation rather than a finding that the restraint itself was unreasonable. Absent a showing by the plaintiff class that an approach other than restriction of student-athlete compensation would have achieved the valid justifications with equal efficacy, the restraints should have been upheld.

The district court's decision to read what amounts to a "least restrictive alternative" inquiry into the rule of reason, if accepted, would authorize courts to substitute their judgments regarding the details of a restraint for the judgments made by the actual market participants seeking to achieve admittedly procompetitive goals. This goes well beyond judicial enforcement of Section 1 of the Sherman Act and instead imbues courts with rate-setting and other powers analogous to those of regulatory agencies, but without the benefit of detailed statutory guidance and without the institutional expertise of such bodies. This Court should clarify that courts do not possess such regulatory authority and reverse the judgment below.

In today's opinion, the Ninth Circuit partly agreed. (The panel consisted of Judge Bybee, Chief Judge Thomas, and senior district judge Gordon Quist (from the W.D. Mich., sitting by designation). Bybee wrote the majority opinion, and Thomas concurred in part and dissented in part.) Judge Bybee wrote (citations omitted):

The NCAA, along with fifteen scholars of antitrust law appearing as amici curiae [that's us!], warns us that if we affirm even this more modest of the two less restrictive alternative restraints identified by the district court, we will open the floodgates to new lawsuits demanding all manner of incremental changes in the NCAA's and other organizations' rules. The NCAA and these amici admonish us that as long as a restraint (such as a price cap) is "reasonably necessary to a valid business purpose," it should be upheld; it is not an antitrust court's function to tweak every market restraint that the court believes could be improved.

We agree with the NCAA and these amici that that, as a general matter, courts should not use antitrust law to make marginal adjustments to broadly reasonable market restraints. The particular restraint at issue here, however—the grant-in-aid cap that the NCAA set below the cost of attendance—is not such a restraint. To the contrary, the evidence at trial showed that the grant-in-aid cap has no relation whatsoever to the procompetitive purposes of the NCAA: by the NCAA's own standards, student-athletes remain amateurs as long as any money paid to them goes to cover legitimate educational expenses.

As to the matter of the $5000, though:

In our judgment, however, the district court clearly erred in finding it a viable alternative to allow students to receive NIL cash payments untethered to their education expenses. Again, the district court identified two procompetitive purposes served by the NCAA's current rules: "preserving the popularity of the NCAA's product by promoting its current understanding of amateurism" and "integrating academics and athletics." The question is whether the alternative of allowing students to be paid NIL compensation unrelated to their education expenses[] is "virtually as effective" in preserving amateurism as not allowing compensation.

We cannot agree that a rule permitting schools to pay students pure cash compensation and a rule forbidding them from paying NIL compensation are both equally effective in promoting amateurism and preserving consumer demand. Both we and the district court agree that the NCAA's amateurism rule has procompetitive benefits. But in finding that paying students cash compensation would promote amateurism as effectively as not paying them, the district court ignored that not paying student-athletes is precisely what makes them amateurs.

So this is a partial victory for the NCAA. (Side note: one of the NCAA's lawyers is Daniel Volchok [no relation] of WilmerHale, a law school classmate of mine.)