1. What is the court’s reasoning for ruling that the NCAA rules have an anticompetitive effect?

2. Why does the court use a rule of reason analysis rather than a per se rule

3. If college athletes were paid, how would that impact higher education generally? Should college athletes receive any other compensation from their schools? Does it strike you as fair that universities are profiting off the talent of their students? Does that occur in any case other than athletics?

For more than a century, the National Collegiate Athletic Association (NCAA) has prescribed rules governing the eligibility of athletes at its more than 1,000 member colleges and universities. Those rules prohibit student-athletes from being paid for the use of their names, images, and likenesses (NILs). Until 2014, these rules also capped the total amount of scholarship money that student-athletes could receive. In 2008, O’Bannon, a former All-American basketball player at UCLA, learned he was depicted in a college basketball video game produced by Electronic Arts (EA), a software company that produced video games based on college football and men’s basketball from the late 1990s until around 2013. O’Bannon saw an avatar of himself—a virtual player who visually resembled O’Bannon, played for UCLA, and wore O’Bannon’s jersey number. O’Bannon had never consented to the use of his likeness in the video game, and he had not been compensated for it. 

O’Bannon sued the NCAA and the Collegiate Licensing Company (CLC), the entity which licenses the trademarks of the NCAA and a number of its member schools for commercial use, in federal court. O’Bannon argued that the NCAA’s amateurism rules, insofar as they prevented stu-dent-athletes from being compensated for the use of their NILs, were an illegal restraint of trade under the Sherman Act. The trial court ruled that the NCAA’s compensation rules were an unlawful restraint of trade. It then ordered the NCAA to cease from prohibiting its member schools from giving student-athletes scholarships up to the full cost of attendance at their respective schools and to pay up to $5,000 per year in deferred compensation, to be held in trust for student-athletes until after they leave college. The NCAA appealed on the basis that (1) the NCAA rules are not subject to antitrust laws, and (2) even if they were subject to antitrust laws, their amateurism rules do not constitute unlawful restraint of trade. 

The U.S. Court of Appeals for the Ninth Circuit concluded that the trial court’s decision was largely correct. Although the court acknowledged that many of the NCAA’s amateurism rules are likely to be procompetitive, they held that those rules are not exempt from antitrust scrutiny. Rather, they must be analyzed under the rule of reason. The court applied the rule of reason and concluded that one alternative to the current NCAA compensation rules, allowing NCAA members to give scholarships up to the full cost of attendance, was proper. However, the court reversed the trial court’s remedy of allowing students to be paid cash compensation of up to $5,000 per year.

“The combinations condemned by the [Sherman] Act also include price-fixing . . . by purchasers even though the persons specially injured . . . are sellers, not customers or consumers. . . . At trial, [O’Bannon] demonstrated that the NCAA’s compensation rules have just this kind of anticompetitive effect: they fix the price of one component of the exchange between school and recruit, thereby precluding competition among schools with respect to that component. The [trial] court found that although consumers of NCAA football and basket-ball may not be harmed directly by this price-fixing, the student-athletes themselves are harmed by the price-fixing agreement among FBS football and Division I basketball schools.’ The athletes accept grants-in-aid, and no more, in exchange for their athletic performance, because the NCAA schools have agreed to value the athletes’ NILs at zero, ‘an anticompetitive effect.’ This anticompetitive effect satisfied [O’Bannon’s] initial burden under the Rule of Reason."