On June 21, the U.S. Supreme Court issued its opinion in NCAA v. Alston, which continues the exploration of the applicability of federal antitrust to sports – and particularly, the business of collegiate sports. In this lawsuit, the Supreme Court was asked to consider whether a narrow range of NCAA restrictions on student-athlete compensation violated the Sherman Act’s prohibition of “conspirac[ies] in restraint of trade.” 15 U.S.C. § 1. Several compensation restrictions were challenged by the student-athletes, but the trial court rejected most of them and found only that limits on certain education-related benefits (such as prohibitions on graduate and vocational school scholarships) ran afoul of the Sherman Act. Accordingly, it imposed an injunction prohibiting those practices, and the Ninth Circuit affirmed.
The Supreme Court took the case, and unanimously affirmed. Put succinctly, the Court noted that “this suit involves admitted horizontal price fixing in a market where the defendants exercise monopoly control” (Slip Op. at 14) – later explaining that what was involved here was a buyer-side monopoly (a monopsony), because the NCAA was restraining the purchase of the services of student-athletes. Of course, the existence of a “monopoly” is not a necessary element for a Section 1 claim, but the NCAA’s concession on that point obviated the exploration of difficult Section 1 questions of market definition and market power – which, as the Court noted, often doom challenges to practices not subject to per se condemnation.
The Court explained that the challenged restrictions were properly analyzed under the Rule of Reason, and concluded that the justifications put forth by the NCAA either were non-cognizable under the antitrust laws (Slip Op. at 22-24) or could have been achieved through “substantially less restrictive means”. Slip Op. at 28-29. The Court dismissed NCAA’s reliance on NCAA v. Bd. of Regents, 468 U.S. 85 (1984) (“NCAA 1984”), explaining that this case could not be resolved through a “quick look” application of the Rule of Reason, either to condemn or salvage the challenged conduct. Slip Op. at 17-19 (citing NCAA 1984, 468 U.S. at 110; American Needle, Inc. v. National Football League, 560 U.S. 183, 203 (2010)).
In the days since the opinion was issued, there have been predictions that it spells the inevitable end of other NCAA practices that escaped condemnation solely because of the posture of this case. To a large extent, such prognostications are based on the statements in Justice Kavanaugh’s concurring opinion, in which he “underscore[d] that the NCAA’s remaining compensation rules also raise serious questions under the antitrust laws” (Concurring Op. at 2), and stated that “[t]he NCAA’s business model would be flatly illegal in almost any other industry in America.” Concurring Op. at 3. This may very well foretell a coming reckoning.
But majority opinion was more cautious, and identified the limits of this decision. Its caution was articulated in several ways: First, the Court noted the limited substantive scope of the dispute as presented, in which a number of key, and sometimes difficult, issues required for an antitrust analysis were conceded. These issues include not only market definition and market power (noted above), but also that the NCAA’s restrictions suppressed compensation to the student-athletes, which, in turn, suppressed their participation in the labor market. Slip Op. at 14.
Second, the Court reiterated the caution expressed in previous cases that intrusive judicial intervention in business arrangements is to be avoided. In doing so, it pointed to the frequently-quoted statement in Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 414 (2004), that the “mistaken condemnations of legitimate business arrangements” through overly expansive application of antitrust rules “are especially costly because they chill the very procompetitive conduct the antitrust laws are designed to protect.” Slip Op. at 27. And it endorsed the usual precaution that “[j]udges must be mindful of their limitations – as generalists, as lawyers, and as outsiders trying to understand intricate business relationships.” Slip Op. at 35.
Third, the Court noted that, when a “quick look” is not suitable to resolve the antitrust issues involved, the very concept of the Rule of Reason generally entails a full exploration of market definition and market power. Quoting California Dental, it explained that “[t]he whole point of the rule of reason is to furnish ‘an enquiry meet for the case, looking to the circumstances, details, and logic of a restraint’ to ensure that it unduly harms competition before a court declares it unlawful.” Slip Op. at 25 (quoting California Dental Ass’n v. FTC, 526 U. S. 756, 781 (1999)). Recognizing this heavy antitrust litigation burden, the Court repeatedly commended the district court for its thorough analysis and for amassing a detailed factual record.
And finally, the Court reaffirmed the basic principle, articulated in NCAA 1984, that some “horizontal restraints on competition are essential if the product” – i.e., collegiate football – “is to be available at all”. Slip Op. at 19 (quoting NCAA 1984, 468 U.S. at 101-02). Thus, the task required of a court confronting challenges to joint venture restrictions is twofold – (1) to determine the appropriate analytic framework – i.e., the “enquiry meet for the case” – and then (2) to develop a record that, pursuant to that framework, enables a determination of the antitrust significance of the challenged conduct. No small task.
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Neil Ellis was a member of the U.S. Department of Justice’s team that participated as amicus in the appellate litigation in the 1982 NCAA lawsuit, which led to the Supreme Court’s NCAA 1984 decision. Please contact us at neil@neilellislaw.com for more information on antitrust issues involving joint ventures among competitors.