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Ninth Circuit Partly Affirms Ruling Against NCAA Compensation Rules in Antitrust Lawsuit

5647809356_5610585af0_z.jpgThe question of whether varsity collegiate athletes should receive some form of compensation for their services to their teams–beyond any scholarship assistance they receive–has been the subject of much controversy for a very long time. The National Collegiate Athletic Association (NCAA) enforces strict amateurism rules that prohibit athletes from receiving multiple forms of compensation, including compensation for the use of their names, images, and likenesses. A district court ruled last year that this particular rule is a restraint of trade that violates Section 1 of the Sherman Antitrust Act, 15 U.S.C. ยง 1. The Ninth Circuit Court of Appeals reversed the part of the order providing deferred compensation to players, but it affirmed the ruling that schools should be permitted to provide scholarships equal to the “full cost of attendance.” O’Bannon v. NCAA (“O’Bannon Appeal“), No. 14-16601, slip op. at 54 (9th Cir., Sep. 30, 2015).

For most people, a combination of intellectual property and privacy laws protects the right to one’s own name, image, and likeness, commonly known as “personality rights.” NCAA athletes, however, are prohibited from deriving any financial benefit from those rights. Schools often require them to sign away the rights to compensation for their personality rights, but no NCAA rule prevents the schools from using those personality rights in their marketing and merchandising. Courts have set some limits on the ability of third parties to use NCAA players’ personality rights, such as in video games, see In re NCAA Student-Athlete Name & Likeness Licensing Litigation, 724 F.3d 1268 (9th Cir. 2013), but the NCAA has held firm in prohibiting players from profiting off their own personality rights.

A group of current and former men’s football and basketball players filed an antitrust class action in 2009 against the NCAA, claiming that the organization’s amateurism rules are an unlawful restraint on trade. The district court conducted a bench trial in 2014 and ruled in favor of the plaintiffs. O’Bannon v. NCAA (“O’Bannon Trial“), 7 F.Supp.3d 955 (N.D. Cal. 2014). The court limited its ruling to the plaintiffs’ claims against “restrictions on the sharing of group licensing revenue,” id. at 1008, meaning that the NCAA can still enforce other aspects of its amateurism rules.

The district court used a three-step “rule of reason” analysis, which holds that a restraint is unlawful if its “harm to competition outweighs its procompetitive effects.” Id. at 985, quoting Tanaka v. Univ. of S. Cal., 252 F.3d 1059, 1063 (9th Cir. 2001). These are:

1. The plaintiff must show that the complained-of restraint “produces significant anticompetitive effects within a relevant market.” O’Bannon Trial at 985 (internal quotations omitted).
2. If the plaintiff does this, the burden shifts to the defendant to produce “evidence of the restraint’s procompetitive effects.” Id.
3. The burden shifts back to the plaintiff to show that “any legitimate objectives can be achieved in a substantially less restrictive manner.” Id. (internal quotations omitted).

The plaintiffs successfully established two less restrictive alternatives, the district court found: scholarships in amounts up to “the full cost of attendance,” id. at 1005, and deferred compensation to players–paid from licensing revenues–of up to $5,000 per year, id. at 1008. The Ninth Circuit ruled that the district court’s analysis was correct with regard to the first alternative. On the issue of deferred compensation, however, it found that this was not a “viable alternative,” citing a trial witness’ statement that “if you’re paid for performance, you’re not an amateur.” O’Bannon Appeal at 57 n. 20.

If you or your business is dealing with a contract dispute, consumer complaint, or other legal matter, a knowledgeable and experienced business litigation attorney can help you understand your rights and duties, and can advocate on your behalf. James G. Schwartz has almost 40 years’ experience representing individuals and businesses in the Bay Area. To schedule a free and confidential consultation to discuss your case, contact us today online or at (925) 463-1073.

More Blog Posts:

Antitrust Lawsuits in California and Elsewhere Target Professional Baseball, Pleasanton Business & Commercial Law Blog, October 30, 2015

Judge Rules that NCAA Rules Restricting Football and Basketball Players’ Compensation Violate Antitrust Law, Pleasanton Business & Commercial Law Blog, September 15, 2014

Merger of Hospital and Physician Group Barred by State and Federal Antitrust Law, Pleasanton Business & Commercial Law Blog, April 30, 2014

Photo credit: Daniel X. O’Neil [CC BY 2.0], via Flickr