Wednesday, July 7, 2021
The Supreme Court speaks rarely about the meaning of the Sherman Act. When the Court does speak, its pronouncements have particular resonance and staying power among jurists, scholars and enforcers. NCAA v. Board of Regents of the University of Oklahoma was such a case. There the Court assessed agreements reducing the output and increasing the prices of televised college football games. After announcing that restraints imposed by sports leagues are exempt from per se condemnation, the Court went on to invalidate the challenged agreements under the Rule of Reason because they produced significant economic harm without offsetting benefits. In so doing the Justices also addressed restraints not before the Court, opining that members of the NCAA may collectively restrict the level of compensation that universities provide student athletes.
Announced almost four decades ago, NCAA and its rationale have exerted substantial influence on Sherman Act doctrine, enforcement policy and scholarly discourse well beyond the context of sports leagues. Later this term, in NCAA v. Alston, the Court will revisit the antitrust propriety of collective limitations on the compensation schools pay student athletes. There the Court will review the Ninth Circuit’s condemnation of NCAA regulations restricting the value of education-related benefits, such as post-graduation scholarships, that schools provide student athletes in addition to tuition, room, board and other costs of attendance.
While antitrust scholars and practitioners disagree about the merits of the Ninth Circuit’s decision, all hope the Court will clarify the extent to which the NCAA may limit student athlete compensation. This essay contends that Alston also presents the Court with an opportunity to address more fundamental questions. That is, the case offers the Court a chance to correct NCAA’s erroneous application of the per se standard and derivative errors the Court committed when conducting rule of reason analysis, errors that reverberate throughout Sherman Act jurisprudence.
In particular, the essay demonstrates that NCAA’s sports league exemption from the ordinary per se standard contradicts basic antitrust principles. Moreover, the rationale for the exemption turned partly on the Court’s (correct) assertion that some horizontal restraints can overcome market failures and enhance interbrand competition. Recognition of these potential benefits undermined the Court’s otherwise broad articulation of the per se rule that purportedly created the need for such an exemption in the first place.
Failure to condemn the restraints before it as unlawful per se also distorted the Court’s pronouncements regarding how to conduct rule of reason analysis. For instance, the requirements for establishing a prima facie case should depend upon the nature of redeeming virtues a restraint might produce. However, courts, agencies and scholars have read NCAA as holding that proof that a restraint produces prices exceeding the non-restraint baseline necessarily establishes such a case, even when the restraint may overcome a market failure. Moreover, lower courts, agencies and the Court itself have read NCAA as endorsing a “Quick Look” approach in some rule of reason cases, allowing plaintiffs to bypass any requirement to establish anticompetitive harm. Finally, the Court’s approach to rule of reason analysis lent credence to the dubious assumption that benefits produced by challenged restraints necessarily coexist with harms, bolstering the equally dubious less restrictive alternative test. Hopefully, the Court will take this opportunity in Alston to correct these errors and ensure a more coherent Section 1 jurisprudence that better reflects the teachings of modern economic theory.