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Courts follow the three-step framework of the antitrust Rule of Reason. The plaintiff bears the initial burden of showing that the restraint produces significant anticompetitive effects within a relevant market. If the plaintiff meets this burden, the defendant must come forward with evidence of the restraint's pro-competitive effects. The plaintiff must then show that any legitimate objectives can be achieved in a substantially less restrictive manner.
For more than a century, the National Collegiate Athletic Association (NCAA) 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). In 2008, Ed O’Bannon, a former All-American basketball player, 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 had never consented to the use of his likeness in the video game, and he had not been compensated for it. In 2009, 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. According to O’Bannon, the NCAA’s amateurism rules, insofar as they prevented student-athletes from being compensated for the use of their NILs, were an illegal restraint of trade under Section 1 of the Sherman Act, 15 U.S.C. § 1. Around the same time, Sam Keller, the former starting quarterback for the Arizona State University and University of Nebraska football teams, separately brought suit against the NCAA, CLC, and EA. Keller alleged that EA had impermissibly used student-athletes' NILs in its video games and that the NCAA and CLC had wrongfully turned a blind eye to EA's misappropriation of these NILs. After a bench trial, 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.
Were the NCAA’s compensation rules subject to the antitrust laws, and, if so, were they an unlawful restraint of trade?
The Court held that NCAA rules barring compensation to student-athletes for the use of their names, images, and likenesses were subject to antitrust laws since the amateurism rules were not categorically valid, involved commercial activity in which the student-athletes and the users anticipated economic gain, and had a significant anticompetitive effect on the college education market. According to the Court, while the compensation rules had pro-competitive effects in integrating academics with athletics and promoting amateurism, and raising the cap on compensation to the full amount of the costs of attending college was a substantially less restrictive alternative means of accomplishing the pro-competitive purposes, allowing the student-athletes to receive deferred compensation untethered to educational expenses was not an appropriate alternative since it would defeat the student-athletes' status as amateurs.