Distribution, Competition, and Antitrust / IP Law

The NCAA Ruling : How Far Should Courts Go In Redefining Market Rules?

English: National Collegiate Athletic Associat...

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In O’Bannon v. National Collegiate Athletic Association, Case No. 14-16601 (9th Cir. Sept. 30, 2015), the Ninth Circuit applied the Rule of Reason to the NCAA’s amateurism rules, and concluded that while the NCAA can ban cash compensation to student athletes for the use of their names, images and likenesses (“NILs”), it cannot bar member colleges from offering full “cost of attendance” scholarships.(*)

Much has already been written about this opinion – its application of the Rule of Reason to NCAA rules; its finding that the amateurism rules have anticompetitive effects in the college education market; and its determination that, while promoting amateurism is pro-competitive – because it tends to increase consumer demand for college sports, and may marginally help integrate academics with athletics – there is a less-restrictive way to achieve the same result.

The interesting part of the opinion is what it portends for future cases – including outside the area of college athletics. Some amici argued that the Ninth Circuit’s approach would open the floodgates to numerous challenges to organizations’ rules, and that an antitrust court’s function is not “to tweak every market restraint that the court believes could be improved.”

Acknowledging this concern, the Ninth Circuit wrote:

We agree . . . that, as a general matter, courts should not use antitrust law to make marginal adjustments to broadly reasonable market restraints . . . .

in holding that setting the grant-in-aid cap at student-athletes’ full cost of attendance is a substantially less restrictive alternative under the Rule of Reason, we are not declaring that courts are free to micromanage organizational rules or to strike down largely beneficial market restraints with impunity. Rather, our affirmance of this aspect of the district court’s decision should be taken to establish only that where, as here, a restraint is patently and inexplicably stricter than is necessary to accomplish all of its procompetitive objectives, an antitrust court can and should invalidate it and order it replaced with a less restrictive alternative.

Id. at 55 (emphasis in original). It’s a good thing the Court was so explicit about its intentions. But time will tell whether the Court’s discussion is truly strong enough to prevent future judicial micro-management of “broadly reasonable” market restraints.

(*) The NCAA already allows “grant in aid” scholarships for tuition and fees, room and board, and required course-related books. “Cost of attendance” includes these items ask well as non-required books and supplies, transportation, and other expenses related to attendance at the institution. The difference between a grant in aid and the cost of attendance is a few thousand dollars at most schools, so striking down the scholarship limit will have little practical effect.

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