By: Kristine Little
On September 30, 2015, the Ninth Circuit affirmed in part and reversed in part, the district court’s judgment pertaining to an antitrust lawsuit regarding the National Collegiate Athletic Association’s (“NCAA”) amateurism rules.[1] The Court held that the NCAA’s amateurism rules were an illegal restraint on trade and had an anticompetitive effect on the education market.[2]
The issue began in 2008 when Ed O’Bannon, a former All-American basketball player at University of California, Los Angeles (“UCLA”), visited a friend’s house and discovered that he was depicted in a college basketball video game produced by Electronic Arts (“EA”).[3] In the game, there was a player that resembled O’Bannon, played for UCLA, and wore his jersey number.[4] However, due to NCAA’s compensation rules, O’Bannon was never contacted or compensated for the use of his name, image, or likeness in the game.[5]
Therefore, in 2009, O’Bannon filed suit against the NCAA and the Collegiate Licensing Company (“CLC”).[6] The basis of O’Bannon’s complaint was that the NCAA’s amateurism rules, which prevented student athletes from being compensated for their name, image, and likeness (“NILs”), was an illegal restraint on trade under section 1 of the Sherman Act.[7] In addition, the NCAA’s compensation rules limited the amount of financial aid a student athlete could receive.[8] Around that time, Sam Keller, a former quarterback for the Arizona State University and University of Nebraska football teams, brought suit against the NCAA, CLC, and EA.[9] Subsequently, O’Bannon’s and Keller’s cases were consolidated by the district court and granted the plaintiff’s class certification.[10] The plaintiffs then dismissed their damage claims with prejudice, and with the court’s approval, settled their claims with EA and CLC. [11] The cases were deconsolidated and O’Bannon’s antitrust claims against the NCAA went to a bench trial before the district court.[12]
The district court analyzed the NCAA’s compensation rules and their effects.[13] The district court held that the NCAA’s rules have an anticompetitive effect on the college education market.[14] Holding that the rules effectively created a “price-fixing agreement,” meaning that but for the NCAA’s compensation rules, “schools would compete with each other by offering recruits compensation exceeding the cost of attendance.”[15] The NCAA asserted four procompetitive purposes for its compensation rules: that the rules (1) preserved “amateurism” in college sports; (2) promoted competitive balance in Football Bowl Division football and Division I basketball; (3) integrated academics and athletics; and (4) increased output in the college education market.[16] The court accepted the first and third justifications, but rejected the remainder.[17]
Finding that the NCAA presented two valid procompetitive justifications for the NCAA rules, the district court analyzed whether there was a less restrictive means of achieving the NCAA’s procompetitive purposes as opposed to an outright ban on compensating students.[18] As a result, the district court permanently enjoined the NCAA from prohibiting its members from giving student athletes scholarship up to the full cost of attendance and up to $5,000 per year in deferred compensation.[19]
On appeal, the NCAA argued that plaintiff’s section 1 Sherman act claims fail on its merits and that the Circuit Court was prevented from reaching those merits for three reasons. First, that the Supreme Court ruling in NCAA v. Board of Regents of the University of Oklahoma[20] held NCAA’s amateurism rules to be “valid as a matter of law.” Second, that section 1 of the Sherman Act did not apply since the NCAA’s rules did not regulate commercial activity. Third, that the plaintiffs did not having standing because they did not suffer an “antitrust injury.”[21] The Court rejected these arguments. The Court held that although the Supreme Court discussed the NCAA’s amateurism rules in great length, it was not done with the express purpose of holding them valid as a matter of law.[22] Further, the Court determined that NCAA’s compensation rules are subject to section 1of Sherman Act;[23] and that the plaintiffs suffered an injury in fact, and therefore had standing.[24]
The Circuit Court upheld the district court’s ruling allowing NCAA members to give scholarships up to the full cost of attendance.[25] The Court, however, vacated the order that allowed NCAA members to pay student athletes up to $5,000 a year in deferred compensation.[26]
The Court’s ruling was a necessary step in order to better protect student athletes. By allowing schools to give scholarships up to the cost of attendance, it eliminated “price fixing” and removed the anticompetitive effect the NCAA’s rules had on the college education market. Further, by limiting student athletes’ compensation to scholarships, the NCAA’s amateurism purposes are still intact but are less restrictive on the education market
[1] O’Bannon v. Nat’l Collegiate Athletic Ass’n, No. 14-16601, 2015 WL 5712106, at *1 (9th Cir. Sept. 30, 2015).
[2] Id. at 5-6 (holding that there are two markets being restrained by the NCAA’s amateurism rules. The first market being the college education market for student athletes, the court determined that were it not for the NCAA’s amateurism rules schools would compete with each other by offering student athletes scholarships that exceeded the cost of attendance. The second market being the group licensing market, the court determined that were it not for the NCAA’s compensation rules student athletes would be able to sell group licenses for the use of their NILs).
[3] Id. at 3.
[4] Id.
[5] Id.
[6] Id.
[7] Id.; 15 U.S.C. § 1.
[8] Id. at 2 (meaning that student athletes were prohibited from receiving aid based on athletic ability).
[9] Id. at 3.
[10] Id. at 4.
[11] Id.
[12] Id.
[13] Id. at 5.
[14] Id. at 5-6.
[15] Id.
[16] Id. at 6.
[17] Id.
[18] Id. at 9.
[19] Id. at 9.
[20]See Nat’l Collegiate Athletic Ass’n v. Bd. of Regents of Univ. of Oklahoma, 468 U.S. 85 (1984).
[21] Id.
[22] Id. at 11.
[23] Id. at 13 (holding commerce is any activity where a party anticipates economic gain and that it is undeniable that the student athlete exchanging his labor and NIL rights for a scholarship is within the scope of commerce).
[24] Id. at 16 (finding that video game makers, if allowed to do so would negotiate with student athletes).
[25] Id. at 23.
[26] Id. at 23-25 (holding that compensation to student athletes unattached to education was too great a violation of NCAA’s amateurism principles).
