Do the National Collegiate Athletic Association’s restrictions on “non-cash education-related benefits” for college athletes violate federal antitrust law under the Sherman Act?
This case asks the Supreme Court to decide whether the National Collegiate Athletic Association (“NCAA”) eligibility rules, which limit student-athletes from receiving compensation in order to preserve “amateurism,” violate federal antitrust law under Section 1 of the Sherman Act. The Sherman Act proscribes restrictions on commerce or trade among the several states. The student-athletes assert that the NCAA’s compensation restrictions, under a “rule of reason” standard of federal antitrust law, are unlawful restraints of trade that generate anticompetitive effects. In response, the NCAA argues that the challenged compensation system passes muster under the “rule of reason” standard because it preserves a clear line of demarcation between amateur college sports and professional sports while promoting socially important non-commercial values. This case has implications for intercollegiate athletics, joint ventures, and antitrust law.
Questions as Framed for the Court by the Parties
Whether the U.S. Court of Appeals for the 9th Circuit erroneously held, in conflict with decisions of other circuits and general antitrust principles, that the National Collegiate Athletic Association eligibility rules regarding compensation of student-athletes violate federal antitrust law.
The National Collegiate Athletic Association (“NCAA”) governs intercollegiate sports by administering rules related to its member schools’ student-athletes. Alston v. Nat’l Collegiate Athletic Ass’n at 1244. The NCAA divides its school constituents into three separate divisions, with Division 1 (“D1”) schools sponsoring the most financial aid and athletic programs for student-athletes. Id. In August 2014, the NCAA amended its D1 bylaws to impose limitations on the amount and type of compensation that student-athletes are entitled to. Id. The amended bylaws included an “Amateurism Rule,” which sets forth that student-athletes are not eligible for intercollegiate competition if they use their sports skills for compensation not permitted by the NCAA. Id.
In 2009, University of California, Los Angeles (“UCLA”) basketball player Ed O’Bannon filed an antitrust lawsuit against the NCAA for the unauthorized use of his “names, images, and likenesses” (“NILs”) in a video game, and for prohibiting himself or other similarly-situated players from receiving compensation for such use (including full cost of attendance). Id. at 1245.
The district court in that case found for O’Bannon under the rule of reason and held that the NCAA’s long-held compensation system and bylaws operate as an unreasonable restraint of trade in violation of antitrust law. Id. at 1245–1246. The district court stated that concerns over maintaining college athletics’ “amateurism” did not justify placing broad restrictions on student-athletes receiving compensation for NILs and limited the NCAA to prohibiting large payments. Id. at 1246. Then, the district court issued an injunction requiring the NCAA to allow its schools to implement two less restrictive alternatives (“LRAs”). Id. The Ninth Circuit affirmed this decision in part, vacating part of the injunction. Id. at 1247.
In 2014, while O’Bannon v. NCAA was still being litigated, a class of Football Bowl Subdivision and D1 student-athletes (collectively “Alston”) filed separate antitrust actions against the NCAA in the United States District Court for the Northern District Court of California, challenging the NCAA’s compensation system. Id. at 1247. In 2015, following the Ninth Circuit’s decision in O’Bannon, the NCAA requested that the Northern District of California issue a judgment on the pleadings and preclude student-athletes from pursuing the matter further. Id. In seeking the court’s judgment, the NCAA cited the Ninth Circuit’s O’Bannon proceedings, which only required that the NCAA member schools provide full education-related costs of attendance to their student-athletes. Id. The NCAA additionally asserted that because the NCAA had already amended its bylaws to fulfill the O’Bannon requirement, the student-athletes’ antitrust challenges could not proceed further. Id. The district court, however, denied the NCAA’s motion, finding that the matters at issue in the instant case were significantly different from those in O’Bannon. Id.
Following the district court’s ruling, both parties filed for summary judgment, but the district court again denied the NCAA’s motion and granted student-athletes summary judgment. Id. at 1248. In its ruling, the district court applied federal antitrust law’s rule of reason standard and held that the NCAA’s limits on education-related benefits had unreasonably constrained trade. Id. at 1248–1249. The district court prohibited such limits but left in place the NCAA’s limits on compensation unrelated to education; in doing so, the district court found that the latter does not violate Section 1 of the Sherman Antitrust Act. Id. Furthermore, the district court implemented the student-athletes’ proposed LRAs via permanent injunction. Id. at 1251–1252.
The NCAA subsequently appealed to the United States Court of Appeals for the Ninth Circuit. Id. at 1252. On appeal, the three-judge panel affirmed the district court’s decision, holding that the district court did not err in its conclusion that the NCAA compensation system violated the Sherman Antitrust Act. Id. at 1256. In response, the NCAA, together with the American Athletic Conference et al. (“AAC”), filed petitions to the Supreme Court to hear its appeal in October 2020. National Collegiate Athletic Association v. Alston – SCOTUSblog. The Supreme Court granted a writ of certiorari on December 16, 2020, consolidating this case with American Athletic Conference v. Alston (20-520). Id.
FRAMEWORK FOR ANALYZING UNREASONABLE RESTRAINT
Petitioner NCAA argues that the court should review its rules on the compensation of student-athletes deferentially and without detailed analysis under the rule of reason. Brief for Petitioner, National Collegiate Athletic Association (“NCAA”) at 17–18. The NCAA emphasizes that most restraints on trade are analyzed under the rule of reason—which assesses whether “the restrictive practice imposes an unreasonable restraint on competition.” Id. at 18–19. According to the NCAA, application of the rule of reason does not always demand a detailed analysis, and courts can apply the rule to “prohibit anticompetitive restraints and promote procompetitive ones,” especially regarding to joint ventures. Id. at 19. Accordingly, the NCAA argues that the Court generally defers to sports leagues when they define their own procompetitive restraints and upholds such restraints without detailed rule-of-reason analysis so long as the league offers some justification. Id. at 20. The NCAA asserts that the court applied these principles in Board of Regents v. University of Oklahoma, demonstrating that amateurism is essential to the “product” offered by the NCAA—amateur college sports—and that its procompetitive activity preserves that product. Id. at 21–23. Therefore, the NCAA concludes, the Court should uphold the NCAA’s amateurism rules without detailed rule-of-reason analysis because they are designed to maintain the character of amateur college sports. Id. at 26–27.
The AAC, as co-petitioner, further argues that the NCAA player-eligibility rules should have been upheld under the quick look doctrine. Brief for Petitioners, American Athletic Conference et al. (“AAC”) at 21. The AAC maintains that the Court has demonstrated that some agreements are legal on a limited “quick look,” and so the courts should defer to restraints “reasonably related” to the distinct product of a sports league or other joint venture. Id. at 20–21. In determining whether a restraint is legal under a quick look, the AAC argues, the court assesses whether the restraint is procompetitive. Id. at 21. According to the AAC, any rules that are required for a sports league to exist enjoy a presumption of pro-competitiveness and lawfulness. Id. at 21. Moreover, the AAC contends that Board of Regents has already determined that the amateurism rules are valid and procompetitive. Id. at 23–26. Therefore, the AAC concludes that the district court should have dismissed the case on a quick look, and the Court should reverse the district court’s decision or dismiss the case. Id. at 32.
Respondent Alston responds that the NCAA misconstrues the reasoning of Board of Regents, arguing that the NCAA overstates the amount of latitude that the case affords the NCAA as a joint venture in setting competitive rules. Brief for Respondents, Shawne Alston et al. at 27. Alston argues that the NCAA overlooks a critical feature of the decision: although the Court recognized the need for “ample latitude,” the Court decided that a rule of reason analysis would still govern the claims. Id. Even if a rule of reason inquiry were not supported by Board of Regents, Alston asserts that changed factual circumstances justify not giving Board of Regents, decided in 1984, stare decisis effect. Id. at 29–30. Alston notes that college athletics are significantly larger commercial enterprises than they were when the Court decided Board of Regents. Id. at 30. Thus, Alston concludes that the NCAA’s rules must be assessed under the rule of reason, not some presumptions based on forty-year-old dicta. Id. at 33.
Alston further contends that the quick look doctrine supports a finding of illegality in this case. Id. at 35. Alston first refutes the AAC’s contention that the quick look doctrine could be used to uphold a restriction on trade. Id. at 33. Instead, Alston argues that the quick look doctrine can only be used to prove that a restriction on trade violates antitrust laws and cannot be “turned on its head” to prove a restriction is lawful. Id. at 36. Alston emphasizes that the Court’s cases have described the quick look doctrine as a method to denounce anticompetitive restrictions more quickly. Id. at 34. But even if the lower courts had applied the quick look doctrine to decide whether the NCAA’s rules violated antitrust laws, Alston maintains that his claim would have still succeeded. Id. at 35. According to Alston, the NCAA’s restrictions were “so plainly anticompetitive” that only a “quick look” was needed to show that the restrictions were an illegal restraint on trade. Id.
RULE OF REASON ANALYSIS: GRANULARITY IN STEP ONE AND STEP TWO
The NCAA argues that the district court erred by applying different levels of generality in the first and second step of its rule of reason analysis. Brief for NCAA at 38. The NCAA explains that under the rule of reason, a plaintiff must first prove that restraints have significant anticompetitive effects, then the burden shifts to the defendant to prove that those restraints have procompetitive effects. Id. at 38–39. If the defendant proves that the restraints do, the NCAA maintains, the burden shifts back to the plaintiff to show that those procompetitive effects could have been achieved by a “substantially less restrictive alternative.” Id. at 39. The NCAA claims that because at Step 1 Alston successfully challenged “the NCAA’s entire compensation framework” as anticompetitive, the burden at Step 2 of the rule of reason analysis should have only required the NCAA to prove that its rules as a whole produced procompetitive benefits. Id. Instead, the NCAA notes, the district court required the NCAA to prove that every one of the challenged rules had procompetitive effects. Id. By requiring different levels of generality at the first and second steps of the rule of reason analysis, the NCAA claims, the district court eased the burden on the party challenging the alleged restraint while making it more difficult for the party defending against the claim to show that each challenged rule had a procompetitive effect. Id. at 40.
Alston refutes the claim that the district court applied a different level of generality to claims at the first and second step of the rule of reason analysis. Brief for Respondents at 41. Rather, Alston argues that neither the district court nor the Ninth Circuit required the NCAA to justify each individual rule. Id. According to Alston, the district court instead based its holding on the fact that the NCAA had not shown a procompetitive explanation for its rules in aggregate. Id. Alston points to the testimony of the NCAA’s witnesses in the district court who testified that the challenged rules allow athletes to be compensated in ways inconsistent with the principle of amateurism. Id. at 42. Based on this and other evidence, Alston maintains that the district court, examining “all aspects of the rules in aggregate,” rejected the NCAA’s single “sweeping theory” of amateurism as lacking a clear definition. Id. at 41–42. Alston also asserts that the Ninth Circuit’s decision confirmed this analysis, claiming that the court granted the NCAA even greater flexibility at the second step than otherwise required. Id. at 44. In particular, Alston references language in the concurring opinion mentioning that the district court allowed the NCAA to justify its amateurism rules by showing they had a procompetitive effect on the product market where college sports compete with professional sports rather than on the labor market for student-athletes that the rule directly affects. Id.
RULE OF REASON ANALYSIS: BURDEN-SHIFTING IN STEP THREE
The AAC claims that the district court erroneously required it to prove a negative at the second step: that there was not a less restrictive alternative for each rule challenged, despite this being the plaintiff’s burden to prove at the third step. Brief for AAC at 37. The AAC maintains that since the defendant had failed to make this showing at the second step, the party challenging the rule can simply point to the result of the analysis at the second step to succeed at the third. Id. at 38. Thus, this piece-wise approach, the AAC argues, means that so long as the plaintiff can win at the second step of the analysis of any challenged rule, the plaintiff can almost always succeed at the third step, which would require that the plaintiff show a “less restrictive alternative.” Id. The AAC asserts that this shifts the burden of proof back to the defendant at Step 3, which it is at odds with the burden-shifting principle of the third step of the analysis. Id. at 39.
Alston counters that the AAC’s argument is misguided because the Ninth Circuit requires a stricter showing of alternatives at the third step of the rule of reason analysis than required under Supreme Court precedent. Brief for Respondents at 46. Alston notes that parties challenging a restraint under Ninth Circuit precedent must prove that a restraint is “patently and inexplicably stricter than is necessary to accomplish all of its procompetitive objectives” and that a viable alternative exists that is “virtually as effective in serving the procompetitive purposes.” Id. Alston points out that the district court rejected the two least restrictive alternatives proposed by the student-athletes because they failed to meet this strict test. Id. at 47.
THE FUTURE OF AMATEURISM
The National Federation of State High School Associations (“NFHS”), in support of the NCAA, argues that the Ninth Circuit’s decision, holding that the NCAA’s compensation system is invalid, threatens the “amateurism” deeply ingrained in American sports history. See Brief of Amicus Curiae of National Federation of State High School Associations, in Support of Petitioner at 7. The NFHS contends that the essential component of the principle of amateurism is the non-compensation of student-athletes for their performances; this aspect, the NFHS further argues, enables student-athletes to build a strong work ethic and good sportsmanship while pursuing athletic achievements for their own sake rather than for monetary award. Id. at 4–5. Thus, the Ninth Circuit’s opinion, the NFHS concludes, will erode the merits of amateurism by incentivizing students to seek high-revenue sports over their passion for personal development. Id. at 7–9. Georgia, Alabama, Arkansas, Mississippi, Montana, North Dakota, South Carolina, and South Dakota (collectively, the “Amici States”), also in support of the NCAA and AAC, contend that the Ninth Circuit’s decision will subject every aspect of the NCAA’s amateurism regulations to judicial review, so that any attempt at regulation will face “endless challenges.” See Brief of Amici Curiae of Georgia et al., in Support of Petitioners at 10. The Amici States further contend that this practice mandating that the NCAA ensure all components of the rules are necessary to achieve procompetitive effect would impose an “untenable burden” on regulators. Id. at 12.
Sixty-five professors of law, business, economics, and sports management (collectively, “Law Professors”), in support of Alston, counter that the NCAA’s argument that the challenged compensation system allows the NCAA to preserve socially important values cannot be used to justify trade restraints that are illegal under federal antitrust law. See Brief of Amicus Curiae of Sixty-five Professors of Law, Business, Economics, and Sports Management, in Support of Respondents at 8. The Law Professors contend that the NCAA strives to justify their anticompetitive compensation system by claiming that it promotes socially significant non-commercial values, such as “morality, nostalgia, or other social policy concerns.” Id. at 8. However, the Law Professors argue, it cannot diminish the system’s illegality under federal antitrust law because the only evidence that can is “an improvement in price, quality, or output—as measured by an increase in consumer demand.” Id. at 9. The Players Association of the National Football League et al. (collectively the “Players Associations”), also in support of Alston, adds that the NCAA’s amateurism rules, which prohibit student-athletes from receiving compensation for any conduct unauthorized by the NCAA, deprive those athletes of both important educational and economic opportunities in the name of “amateurism.” See Brief of Amicus Curiae of Players Association of the National Football League et al., in Support of Respondents at 9–10. Meanwhile, the Players Associations notes, the NCAA often mobilizes and uses student-athletes for promoting its member schools’ products and activities; in this context “so laden with contradictions,” the Players Associations concludes, the principle of amateurism cannot be justified in the eyes of student-athletes whose earning potential has been occupied by the NCAA. Id. at 10.
CHILLING EFFECT ON BUSINESS CONDUCT
Antitrust economists, in support of the NCAA and AAC, contend that the Ninth Circuit’s decision will impede the creativity and freedom of economic actors in designing their own products and business models. See Brief of Amici Curiae of Antitrust Economists, in Support of Petitioners at 5. Antitrust economists assert that the NCAA’s product—amateur college sports—is just one such business product, and that its ability to develop its business product in its own way promotes consumer welfare. Id. at 5. Thus, the Ninth Circuit’s decision, the antitrust economics argue, will inhibit innovative product design and lead entrepreneurs to “forego experimentation with product design that would otherwise benefit consumers.” Id. at 7. Antitrust law and business school professors (“Antitrust Professors”), also in support of the NCAA and AAC, contend that the Ninth Circuit’s test—which requires a defendant to prove that its challenged restraint is the least restrictive alternative—will likely have a chilling effect on collaborative business conduct by allowing plaintiffs to cancel all collaborations and joint ventures by simply inventing ways to make them more competitive. See Brief of Amici Curiae Antitrust Law and Business School Professors, in Support of Petitioners at 9, 12–13. Antitrust Professors conclude that the Ninth Circuit’s decision will disincentivize not only the NCAA but also many other joint ventures and collaborations, ultimately impeding the primary objective of antitrust laws: competition. Id. at 14.
The representatives of the plaintiff class in O’Bannon (“Class Representatives”), in support of Alston, counter that the NCAA’s dire projections about the business of college sports are unsupported and therefore should not be accepted. See Brief of Amici Curiae of Plaintiff Class Representatives on Behalf of the Certified Class in O’Bannon v. NCAA, in Support of Respondents at 25. The Class Representatives argue that the NCAA has repeatedly warned of the potential “peril to college athletics” posed by economic competition as an excuse whenever the NCAA’s compensation system has been challenged in previous antitrust cases. Id. However, the Class Representatives contend, permitting schools to freely engage in commercial and trade activities has had “zero impact” on the consumer demand for college sports, which still flourish. Id. at 25–26, 32. Accordingly, the Class Representatives contend, the Ninth Circuit’s decision will not present an “existential threat” to college athletics and consumer demands as the NCAA predicts. Id. at 25–26, 29. Historians, also in support of Alston, corroborate the Class Representatives’ argument by contending that there is neither historical evidence nor credible data indicating that allowing student-athletes greater compensation will have an inimical impact on the NCAA’s business product. See Brief of Amici Curiae of Historians, in Support of Respondents at 14.
- Ngoc Pham Hulbig & Joel Mitnick, Supreme Court to Weigh in College Sports: The Intersection of Antitrust and “Amateurism”, JD Supra (Dec. 21, 2020).
- Steve Berkowitz, Supreme Court Says It Will Hear Case Challenging NCAA’s Athlete-compensation Rules, USA Today (Dec. 16, 2020).