By Erica Rocush/Shareholder

On September 30, 2015, the Ninth Circuit issued its much-anticipated decision in the case of O’Bannon v. NCAA, Case No. 14-16601, which addressed whether the NCAA’s rule prohibiting student-athletes from being paid for the use of their names, images, and likenesses violates federal antitrust laws.

In the case, a class of student-athletes challenged the portion of the NCAA’s amateurism, rules which prohibit student-athletes from receiving any compensation, including for the use of their names, images and likenesses (“NILs”), based on what the student-athletes considered unauthorized use of their NILs in video games. The District Court held that the NCAA’s amateurism rules, which prohibit student-athletes from being compensated for the use of their NILs, did constitute an unlawful restraint of trade in violation of Section 1 of the Sherman Antitrust Act. Based on this conclusion, the District Court had permanently enjoined the NCAA from prohibiting member schools from compensating student-athletes up to the full cost of attendance, plus $5,000 per year in deferred compensation.

In its review, the Ninth Circuit considered two main issues: whether the NCAA’s amateurism rules are exempt from antitrust scrutiny and, if not, whether the NCAA’s prohibition on allowing schools to compensate student-athletes violates antitrust laws. The Court first found that the NCAA’s rules were not exempt from antitrust scrutiny because the rules at issue, relating to compensation for student-athletes, regulated commercial aspects of the member schools. Having found the NCAA rules subject to antitrust analysis, the Court determined that the compensation rules at issue should be judged under the “rule of reason,” which examines the anticompetitive and procompetitive aspects of a rule and then determines, if there are both anticompetitive and procompetitive aspects of an arrangement, if there is any less restrictive means for obtaining the procompetive aspects. In performing its analysis, the Court concluded that the NCAA rules have an anticompetitive effect because they impact the competitiveness of the “college education market” by fixing one aspect of the price for college education for student-athletes by not allowing the schools to provide compensation above a level that covered only some expenses. The Court also found that the amateurism rules do have some procompetitive effects, in that they integrate athletics and academics and preserve the unique nature of collegiate sports, which is attractive to consumers.

Finally, having found that the compensation rules have both anticompetitive and procompetitive effects, the Court analyzed whether there were less restrictive means to obtain the procompetitive aspects of the amateurism rules. The Court concluded that the District Court had been correct in holding that NCAA member schools must be permitted to give scholarships up to the full cost of attendance to student athletes as a less restrictive measure that still accomplishes procompetitive goals, but that the NCAA did not need to permit member schools to provide any deferred compensation because doing so would not be as effective a means to accomplish procompetitive ends.