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.
