O'Bannon v. Nat'l Collegiate Athletic Ass'n

• Decision Date: 30 September 2015
• Docket Number: Nos. 14–16601,14–17068.,s. 14–16601
• Citation: 802 F.3d 1049
• Parties: Edward C. O'BANNON, Jr., On Behalf of Himself and All Others Similarly Situated, Plaintiff–Appellee, v. NATIONAL COLLEGIATE ATHLETIC ASSOCIATION, aka The NCAA, Defendant–Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

802 F.3d 1049

Edward C. O'BANNON, Jr., On Behalf of Himself and All Others Similarly Situated, Plaintiff–Appellee

v.NATIONAL COLLEGIATE ATHLETIC ASSOCIATION, aka The NCAA, Defendant–Appellant.

Nos. 14–16601

14–17068.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 17, 2015.

Filed Sept. 30, 2015.

Seth P. Waxman(argued), Leon B. Greenfield, Daniel S. Volchok, David M. Lehn, Weili J. Shaw, Matthew J. Tokson, Wilmer Cutler Pickering Hale and Dorr LLP, Washington, D.C.; Glenn D. Pomerantz, Kelly M. Klaus, Luis Li, Rohit K. Singla, Carolyn H. Luedtke, Thane Rehn, Justin P. Raphael, Jeslyn A. Miller, Munger, Tolles, & Olson LLP, San Francisco, CA; Gregory L. Curtner, Robert J. Wierenga, Kimberly K. Kefalas, Suzanne L. Wahl, Schiff Hardin LLP, Ann Arbor, MI, for Defendant–Appellant.

Michael D. Hausfeld(argued), Hilary K. Scherrer, Sathya S. Gosselin, Swathi Bojedla, Hausfeld LLP, Washington, D.C.; Michael P. Lehmann, Bruce Wecker, Hausfeld LLP, San Francisco, CA; Jonathan Massey, Massey & Gail LLP, Washington, D.C., for Plaintiffs–Appellees.

Jonathan M. Jacobson, Daniel P. Weick, Wilson Sonsini Goodrich & Rosati Professional Corporation, New York, NY, for Amici Curiae Antitrust Scholars.

Allen P. Grunes, Maurice E. Stucke, The Konkurrenz Group, Washington, D.C., for Amici Curiae Law and Economics and Antitrust Scholars.

Nathan Siegel, Patrick Kabat, Levine Sullivan Koch & Schulz, LLP, Washington, D.C., for Amici Curiae A & E Television Networks, LLC, ABC, Inc., CBS Corporation, Discovery Communications, LLC, Fox Broadcasting Company, National Public Radio, Inc., NBCUniversal Media, LLC, The Reporter's Committee for Freedom of the Press, and Turner Broadcasting System, Inc.

Martin Michaelson, William L. Monts III, Joel D. Buckman, Hogan Lovells U.S. LLP, Washington, D.C.; Ada Meloy, General Counsel, American Council on Education, Washington, D.C., for Amici Curiae American Council on Education, Association of Governing Boards of Universities and Colleges, and National Association of Independent Colleges and Universities.

Duncan W. Crabtree–Ireland, Danielle S. Van Lier, Screen Actors Guild–American Federation of Television and Radio Artists, Los Angeles, CA; Jonathan Faber, Luminary Group LLC, Shelbyville, IN, for Amici Curiae Screen Actors Guild–American Federation of Television & Radio Artists and Luminary Group LLC.

James B. Speta, Chicago, IL; Ernest A. Young, Apex, North Carolina, for Amici Curiae Intellectual Property and First Amendment Scholars.

Steve W. Berman, Hagens Berman Sobol Shapiro LLP, Seattle, WA; Jeff D. Friedman, Jon T. King, Hagens Berman Sobol Shapiro LLP, Berkeley, CA, for Amicus Curiae Alston Kindler Group.

Jeffrey L. Kessler, David G. Feher, David L. Greenspan, Timothy M. Nevius, Joseph A. Litman, Winston & Strawn LLP, New York, NY; Steffen N. Johnson, Winston & Strawn LLP, Washington, D.C.; Derek J. Sarafa, Winston & Strawn LLP, Chicago, IL, for Amici CuriaeMartin Jenkins, Nigel Hayes, and Alec James.

Steven N. Williams, Adam J. Zapala, Cotchett, Pitre & McCarthy, LLP, Burlingame, CA, for Amici Curiae Economists and Professors of Sports Management.

Richard G. Johnson, Richard G. Johnson Co., L.P.A., Cleveland, OH, for Amicus CuriaeAndrew A. Oliver.

Michael J. Boni, Joshua D. Snyder, John E. Sindoni, Boni & Zack LLC, Bala Cynwyd, PA, for Amici Curiae Sports Management Professors.

David Martinez, Robins Kaplan LLP, Los Angeles, CA, for Amici Curiae Twenty–Six Scholars of Antitrust and Sports Law.

Appeal from the United States District Court for the Northern District of California, Claudia Wilken, Senior District Judge, Presiding.D.C.No. 4:09–cv–03329–CW.

Before: SIDNEY R. THOMAS, Chief Judge, JAY S. BYBEE, Circuit Judge and GORDON J. QUIST,^*Senior District Judge.

Partial Concurrence and Partial Dissent by Chief Judge THOMAS.

OPINION

BYBEE, Circuit Judge:

Section 1 of the Sherman Antitrust Act of 1890, 15 U.S.C. § 1, prohibits “[e]very contract, combination ..., or conspiracy, in restraint of trade or commerce.”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).The question presented in this momentous case is whether the NCAA's rules are subject to the antitrust laws and, if so, whether they are an unlawful restraint of trade.

After a bench trial and in a thorough opinion, the district court concluded that the NCAA's compensation rules were an unlawful restraint of trade.It then enjoined the NCAA from prohibiting its member schools from giving student-athletes scholarships up to the full cost of attendance at their respective schools and up to $5,000 per year in deferred compensation, to be held in trust for student-athletes until after they leave college.As far as we are aware, the district court's decision is the first by any federal court to hold that any aspect of the NCAA's amateurism rules violate the antitrust laws, let alone to mandate by injunction that the NCAA change its practices.

We conclude that the district court's decision was largely correct.Although we agree with the Supreme Court and our sister circuits that many of the NCAA's amateurism rules are likely to be procompetitive, we hold that those rules are not exempt from antitrust scrutiny; rather, they must be analyzed under the Rule of Reason.Applying the Rule of Reason, we conclude that the district court correctly identified one proper alternative to the current NCAA compensation rules—i.e., allowing NCAA members to give scholarships up to the full cost of attendance—but that the district court's other remedy, allowing students to be paid cash compensation of up to $5,000 per year, was erroneous.We therefore affirm in part and reverse in part.

I

A.The NCAA

American colleges and universities have been competing in sports for nearly 150 years: the era of intercollegiate athletics began, by most accounts, on November 6, 1869, when Rutgers and Princeton met in the first college football game in American history—a game more akin to soccer than to modern American football, played with “25 men to a side.”Joseph N. Crowley, In the Arena: The NCAA's First Century 2 (2006), available at https://www.ncaapublications.com/p-4039-in-the-arena-the-ncaas-first-century.aspx. College football quickly grew in popularity over the next few decades.

Fin de siècle college football was a rough game.Serious injuries were common, and it was not unheard of for players to be killed during games.Schools were also free to hire nonstudent ringers to compete on their teams or to purchase players away from other schools.By 1905, these and other problems had brought college football to a moment of crisis, and President Theodore Roosevelt convened a conference at the White House to address the issue of injuries in college football.Later that year, the presidents of 62 colleges and universities founded the Intercollegiate Athletic Association to create uniform rules for college football.In 1910, the IAA changed its name to the National Collegiate Athletic Association(NCAA), and it has kept that name to this day.

The NCAA has grown to include some 1,100 member schools, organized into three divisions: Division I, Division II, and Division III.Division I schools are those with the largest athletic programs—schools must sponsor at least fourteen varsity sports teams to qualify for Division I—and they provide the most financial aid to student-athletes.Division I has about 350 members.

For football competition only, Division I's membership is divided into two subdivisions: the Football Bowl Subdivision(FBS) and the Football Championship Subdivision(FCS).FBS schools are permitted to offer more full scholarships to their football players and, as a result, the level of competition is generally higher in FBS than in FCS.FBS consists of about 120 of the nation's premier college football schools.

B.The Amateurism Rules

One of the NCAA's earliest reforms of intercollegiate sports was a requirement that the participants be amateurs.President C.A. Richmond of Union College commented in 1921 that the competition among colleges to acquire the best players had come to resemble “the contest in dreadnoughts” that had led to World War I,¹ and the NCAA sought to curb this problem by restricting eligibility for college sports to athletes who received no compensation whatsoever.²But the NCAA, still a voluntary organization, lacked the ability to enforce this requirement effectively, and schools continued to pay their athletes under the table in a variety of creative ways; a 1929 study found that 81 out of 112 schools surveyed provided some sort of improper inducement to their athletes.

The NCAA began to strengthen its enforcement capabilities in 1948, when it adopted what became known as the “Sanity Code”—a set of rules that prohibited schools from giving athletes financial aid that was based on athletic ability and not available to ordinary students.SeeDaniel E. Lazaroff, The NCAA in Its Second Century: Defender of Amateurism or Antitrust Recidivist?, 86 Or. L.Rev. 329, 333(2007).The Sanity Code also created a new “compliance mechanism” to enforce the NCAA's rules—“a Compliance Committee that could terminate an institution's NCAA membership.”Id.

In 1956, the NCAA departed from the Sanity Code's approach to financial aid by changing its rules to permit its members, for the first time, to give student-athletes scholarships based on athletic ability.These scholarships were capped at the amount of a full “grant in aid,” defined as the total cost of “tuition and fees, room and board, and required course-related books.”Student-athletes were prohibited from receiving any “financial aid based on athletics ability” in excess of the value of a grant-in-aid, on pain of losing their eligibility for collegiate...