Outline

We focus on one judgment that is part of a wider question of how far one might justify agreements that restrict competition, and what counter-arguments might be seen to be valid, and then how one balances pro and anti competitive effects of a restrictive practice.

Reading 

O’Bannon v National Collegiate Athletics Ass’n 802 F.3d 1049 (9th Cir 2015)

Hovenkamp ‘Antitrust Balancing’ (2016) 12(2) New York University Journal of Law & Business 369

Allensworth ‘The Commensurability Myth in Antitrust’ (2016) 69(1) Vanderbilt Law Review 1

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13 comments on “

  1. Katrine Lillerud says:

    Reaction paragraph to readings in course ‘Competition law: Conservative or Progressive’
    Katrine Lillerud 17 October 2016
    Session 3: Collaboration

    Articles: “The balancing act” of pro- and anti-competitive effects
    In short that author, Hovenkamp, claims that the values currently used to assess competition law cases are impossible to truly balance. A reference is made to the 9th circuit decision 2008 Cosco Wholesale Corp v. Maleng where the consideration done is in reality the states objectives of promoting temperance with the federal interests of promoting competition, which is like balancing “pride against prejudice” (p. 374 of Hovenkamp)

    Rather it is argued one should be satisfied with and inquiry into less restrictive alternatives when assessing competition law cases, after of course, having set out the prima facie case and heard the defense. Thus, balancing is not a good description of the assessment done by courts under the US “rule of reasoning” in antitrust, as there is no metric measures for comparing cost savings and reduction in consumer choice for instance.

    In the second article, by Allensworth, the author strongly argues that commensurability, metric measures, should be the method use in antitrust to avoid subjective judgment calls, since such measures leave little room for debate or judgment in the calculation. Accordingly, if commensurability is not attainable a question is raised whether there should be more administrative and less judicial decision making, simply because specialist are at an advantage when tackling quantification problems – because they have a better opportunity to achieve quality data and assess arguments based on specifics rather than in the abstract. The author appears to promote a heavier burden of proof for the qualitative arguments than for those that are quantifiable, such as welfare effects of price and quantity rather than the assessment of the variety and quality of products. But does this rather complex rule of “balancing” qualitative and quantitative data differently really work in practice. There will always be grey zones where the “proof” is not quantitatively of a sufficient quality to be used or does not exist. Should one then only rely on qualitative data?

    Judgment – does the balancing always work?
    Could one say that the debate in reality is about whether or not the “sport activity” is to be considered “an economic or non-economic activity” in the open market, drawing a parallel to the discussion in state aid for semi-professional athletes on whether or not a reimbursement constitutes an economic activity? It is in fact not the athlete but the college that obtains the larges economic advantage, which it reimburses in free education rather than a full economic compensation to the athlete for the service rendered. (see p. 379 of Hovenkamp)

  2. Maria de la Cuesta says:

    The focus of the readings for this session is on the application of the rule of reason under Section 1 of the Sherman Act. This rule is portrayed as requiring an exercise of ‘balancing’, where the procompetitive and anticompetitive effects of a given agreement are measured against each other to determine its net effect on competition, and therefore, its legality or illegality.
    The approach of the courts when applying the rule of reason is the object of criticism in the two articles by Hovenkamp and Allensworth. Hovenkamp stresses the idea that balancing requires an ‘ordinal unit of measurement’, not just the comparison of two different sets of ideologies or reasonable objectives in order to select the most probable iustum medium between the two. He goes on to argue that real balancing will not be necessary in most cases, because the procedural steps – prima facie case, defence, less restrictive alternative – will suffice, and that in the rare cases where they are not enough, balancing must be limited to comparing effects measured in the same unit.
    Allensworth’s criticism shares with Hovenkamp’s that balancing is not exactly what courts are doing in practice, or what they are actually capable of doing, because in most of their decisions they are comparing apples and pears. This is what she calls the commensurability myth, but in order to break it, it is necessary to recognize that comparing apples and pears requires an unavoidable reference to an external set of values: dietary advantages, sugar content, etc.. Because economics is the new dominant creed in antitrust, it casts shadows of heresy on any intellectual exercise that does not use a quantifiable and measurable language. It is for this reason that courts, by the procedural burden shifts, and authors, like Hovenkamp, hide the value choice facing antitrust under a façade of rationality and objectivity.
    I have some questions in view of this debate. I would like to know a little bit more about the way these questions are addressed in EU competition law. Is it also the case that any public policy concern – be it amateurism, environmental protection, cultural diversity – is only taken into account insofar as it can be translated into economic, quantifiable, measurable terms? For example, I was thinking about the relationship between competition and the common agricultural policy. Art 42 TFEU allows the Commission and the Parliament to make that value choice between the objectives of competition and the CAP objectives, now reflected in the CMO regulation and the 2015 Commisison’s guidelines, but this ‘legislative’ value choice still stresses the idea of balance between the protection of competition and the protection of producers’ revenues (and other objectives), and I do not know much about its application in practice, but I would like to know whether the choice is actually made that easy, or whether at the end of the day, the ‘incommensuability’ persists.

  3. Anna Nowak says:

    I really liked the Allensworth’s idea to foster, or give birth to, a real discussion on the commensurability problem. As far as resolving this problem is concerned, I think it is an extremely difficult question, coming down to the very idea of legal control of Competiton Law decisions. Since there is no answer imposing itself while possible options present obvious shortcomings, such a discussion seems more and more unavoidable.

    Furthermore, Allensworth’s considerations make me wonder about the article of Ware and Winter on Merger efficiencies in Canada where they present the Canadian example of the use of the total surplus approach. Indeed, Allensworth underlines only problems with estimating consumer surplus, mentioning how much more complicated the task would become for the total surplus. Even though the Ware & Winter article was about mergers and not anticompetitive agreements, establishing the “net competitive effect” is still not obvious (Hoverkamp also criticises in this context “general welfare” test of mergers). How the Canadian courts deal with the “commensurability problem” (if they do) and does it make their value-judgments even more “value” than in US? What about the equation (described in the Ware & Winter article) allowing to “calculate” the total surplus (that could theoretically work also in antitrust) – isn’t it a kind of “oversimplifying things” with regard to all discussed issues?

    The Hoverkamp’s article is even tougher on US courts. However, I got impression that what actually bothers the author is this quite unfortunate use of word “balancing”, more than the problem behind it (which was the case for Allensworth). The suggestion that the courts should avoid what they call “balancing” as well as the “burden-shifting” paradigm may be opposed to Allensworth’s claims about shortcoming of such system. Finally, in spite of the interesting and certainly contrasting example of merger control, I cannot really imagine how this technique could be transposed to antitrust in general, the problem that the author also points out.

    In order to do something about all this, maybe the first step should be for the judges to simply stop using these highly criticised word “balancing” or the expression “net competition effect” that, it is true, sit awkwardly with what courts really do. This, of course, to start a discussion about the judges’ role and competence and character of legal review, exactly what Allensworth proposes in her paper.

  4. Magdalen Reeder says:

    Hovenkamp discusses the “balancing” used in rule of reason analysis for general antitrust cases. He acknowledges that the unclear criteria the court weighs does not lend itself to a true balancing test, but seems content to push for a terminology change rather than a clearer standard. He argues that in cases like O’Bannon “real balancing is not necessary” (Hovenkamp, p. 383) because most cases will not be close. That seems conclusory at best, and at worst, inaccurate.

    Take the O’Bannon case, which Hovenkamp uses as a centerpiece: it was heard before three Ninth Circuit judges. Two agreed, one agreed in part and dissented in part, siding with the lower court. Both sides appealed to the Supreme Court, which denied certiorari. Perhaps I don’t understand what Hovenkamp means by “close cases” (Hovenkamp, p. 383), but to me this makes the O’Bannon case close by definition. It seems like precisely the type of case where antitrust would benefit from a more comprehensive or explicit test like those found in other areas of the law.

    However, looking to the Allensworth article, it seems that the tools used in other areas of the law might not adequately address the problem of incommensurate values in antitrust cases. For example, she quotes Justice Scalia describing Constitutional balancing as “incoherent” (Allensworth, p. 14) and it is difficult to determine exactly how simply tweaking the formula so that it looks at both sides in turn rather than at net effects helps here.

    The cost-benefit analysis used in administrative law seems more promising, and I was persuaded by Allensworth’s case for agency decisionmaking. When I studied U.S. securities regulation, I studied a series of multi-factor balancing tests developed by the SEC to help determine whether a company’s behavior had crossed the line. They didn’t seem that different from tests that might be used in antitrust cases. But the SEC is the main enforcer of securities law, and there are very few private rights of action available. Does securities law benefit by having one main enforcer (the SEC), while antitrust is comparatively scattered? To what extent would the antitrust regime need to be reformed to give adequate control to the FTC?

  5. Alexandre Ruiz says:

    Both articles tackle the question of taking into consideration other values than purely commensurate factors. This can be easily seen in the O’Bannon v NCAA case with regard to preserving amateurism. As a general comment, both articles arise one point that was commented on the previous seminar, which is that progressive (should I say Chicagoan/utilitarian?) antitrust partisans feel uneasy and disoriented with an antitrust system that considers non-economic values too.

    Indeed, is this feeling of disorientation what I found in both pieces, although for different reasons. I think this is much more obvious in Hovenkamp’s work, where he is not totally clear when defining the concept of ‘balancing’. He suggests that when the antitrust enforcer takes into account abstract concepts, it is not balancing. The fact that those abstract concepts are related mostly to public policies seems to imply that balancing is only possible in a perfect, progressive antitrust system where everything is measurable. Consequently, a workable balancing function rejects that that cannot be measured; in other words, non-economic values should be refused. This said, I do not think Hovenkamp successfully explains what happened in the O’Bannon decision. He does not explain how the Court could balance the non-economic value of ‘amateurism’. He confines himself to saying that ‘[i]n the vast majority of rule of reason cases, even complex ones such as, O’Bannon, real balancing is not necessary. The series of [rule of reason] steps – first prima facie case, then defense, and occasionally inquiry into less restrictive alternatives – will be sufficient’ (p. 383). Again, taking the O’Bannon case as example, he says that the court ‘applied a purely binary distinction between amateur and professional play’ (p. 377), and he goes on by showing several options that the court could have done. I wonder whether Hovenkamp is limited by his progressive position in order to provide a satisfactory explanation of how courts must deal with cases such as O’Bannon. Amateurism or professionalism are intrinsically incommensurate values. Granted, one could evaluate the impact on the economy if an amateur activity turns into a professional one. But in that calculation one would miss any other non-economic values attached to amateurism.

    With regard to Allensworth’s paper, I think she draws a nice picture of incommensurate values in Antitrust Law, although she seems also a bit disoriented. At the beginning of the paper, Allensworth says that she is not arguing that enforces should ignore public policy values; rather, she intends to explain that the Rule of Reason considers incommensurate values too, ‘and that is as it must be’ (p. 7). In this sense, she seems to keep distance with the Chicagoan creed. In fact, she does a nice critique of Bork’s beliefs. But at the same time, she seems to be attracted by the Chicagoan force and makes a confusing plea for more econometrics (CBA) to solve the incommensurability problem (p. 63 onwards). Another unclear point is when Allensworth deals with the institutional design, and when she asks for an increasing role of the legislative power and, at the same time, for an increasing role of judges in those cases (p. 67). However, she does not explain how Courts can address incommensurate values.

    Picking now up on what was said in the last seminar about the interchangeability of the conservative/progressive labels, if we agree that some incommensurate values are unavoidable (Allensworth p. 66), does this mean that progressive antitrust reveals itself as ill-equipped to deal with public policy values? If so, does this make the conservative approach more progressive than the progressive approach?

    Lastly, this debate makes me wonder if one could build a ‘ranking for commensurability’, and what parameters must be taken into account. Just one brief example. More than 10 years ago, a 13-year-old child died in Spain because his parents and himself rejected a blood transfusion because they were Jehovah’s Witnesses. The Spanish Supreme Court condemned the parents for homicide, and the Constitutional Court annulled the Supreme Court’s decision because it was contrary to freedom of religion. This constitutional law case is interesting because there are a lot of non-economic values at stake – freedom of religion, right to life, parental authority, physical integrity and intervention of public authorities – and it shows that there should be a kind of hierarchy or raking in case of conflict. Thus, could a conservative antitrust system (the EU model?) create that hierarchy (maybe by looking at the Treaties?)?

  6. stavros says:

    In the O’Bannon case a player challenged the NCAA agreements governing compensation for college football players. The first NCAA rule prohibited member colleges from giving student athletes scholarship support up to the full cost of college attendance; the agreement capped compensation at a lower amount (NCAA-rule 1). The second NCAA rule forbade athletes from being compensated by would-be endorsers (NCAA-rule 2). The District Court found an anticompetitive restraint but accepted on principle the NCAA’s defense that the rules were consistent with its efforts to protect amateurism in collegiate athletics (procompetitive purpose and effects). However, the District Court found two less restrictive alternatives: re NCAA-rule 1 it considered that NCAA member schools should be permitted to give students grants that would cover the full cost of college attendance; re NCAA-rule 2 it held that member schools should be permitted individually to set aside deferred compensation for use of the students NILs.

    The Ninth Circuit agreed with the District Court that both restraints were prima facie anticompetitive but could be at least partially justified due to their procompetitive effects since a Rule of Reason analysis was appropriate. The Circuit explored whether there were less restrictive alternatives for achieving the same goals. The Circuit agreed with the District Court that permitting student athletes to be compensated to the full cost of attendance but no more could preserve amateurism. Nonetheless, the Ninth Circuit disagreed with the District Court regarding the appropriateness of the NCAA-rule 2 alternative. Specifically, the Circuit held that permitting students to increase their remuneration beyond the cost of college attendance would undermine amateurism. This holding is sensible because it relied on a reasonable clear-cut benchmark for identifying a public interest (or good) and incorporate it in antitrust analysis: preserving amateurism justifies restrictions of competition so as the student athletes do no make profit out of their activity (they remain amateurs). Yet such restrictions are disproportionate if they are capped below the full cost of college attendance or if they allow compensation in excess of the full cost of college attendance.

    As Hovenkamp notes, by adopting this approach the Court avoids a utilitarian, inherently elusive, balancing and forges a binary switch that helps it draw a clear dividing line (p 378). The Court does not insulate the NCAA rules from antitrust since this would i) provide unfettered discretion on the part of the Commission and ii) mean that antitrust analysis does not take economics seriously. Remarkably, both US and EU Courts do not insulate activities economic in nature from antitrust scrutiny. In the O’Bannon the Circuit said ‘the modern legal understanding of commerce includes almost every activity from which the actor anticipates economic gain’ (p 1065). In the other side of the Atlantic the European Courts have consistently relied on a similar methodology to define the ambit of competition rules. According to the single economic entity doctrine the concept of undertaking encompasses ‘every entity engaging in an economic activity regardless of the legal status of the entity or the way it is financed’ (see Pavlov; Wouters).

    After finding that the said NCAA-rules fall within the ambit of antitrust scrutiny the Circuit examined them under the Rule of Reason framework; specifically it identified and balanced (?) the actual and potential anticompetitive and procompetitive effects of the restraints and enquired whether there are substantially less restrictive alternative. Interestingly, the Circuit incorporated a ‘virtue ethics’ dimension in a consequentialist framework (the virtue approach focuses on considerations that constitute reasons for action). The Circuit asked what it means to be an amateur athlete and by responding to this question identified the scope of a procompetitive purpose of effect. Student athletes remain amateurs as long as ‘any compensation paid to them goes to cover legitimate educational purposes’ (p 1075). Hence, even though not every rule adopted by the NCAA that restricts the market is necessary to preserve the ‘character’ of college sports, the restraints that are compatible with this conception of amateurism are reasonable. This approach offered an operational criterion to the Court so as to identify whether the relevant restraints were patently and inexplicably stricter than necessary to attain the procompetitive objectives.

    In this respect capping the permissible amount of scholarships at the cost of attendance is a less restrictive alternative to the NCAA-rule 1, whereas allowing student to receive small cash payments for their NILs is not. This is because not paying the student athletes is precisely what makes them amateurs (p 1076). Even though small pure cash payment would be less detrimental to amateurism and less influential to consumer demand compared to large payments, they would fundamentally change the character of college football (As Hovenkampf notes this amounts to price regulation and implies that a ‘small’ cartel could be excused in virtue of the potential of a ‘big’ cartel). Accordingly, the Circuit’s approach may support the assumption that antitrust incorporates different patterns of thought and these patterns of though are not necessarily in clash.

    Providing an antitrust immunity to NCAA rules on the basis that they protect amateurism could be seen as a more progressive option. In this scenario NCAA rules would be fully excluded from the market and a public body will be able to regulate college sports as essentially non-commercial relations. In this case of antitrust immunity the regulator will have ample latitude to superintend college athletes. However, the regulator would be susceptible to regulatory capture, always prone to make arbitrary decisions and possibly suffer from insufficient information (which could be provided by college athletes and consumer demand for college sports). In addition, in this scenario colleges and universities will be allowed to free ride on their student athletes and the latter will be always obliged to follow the rules imposed by the authority without being able to internalize their positives externalities. This may disincentivize college students from taking sports seriously and harm amateurism on the whole. Is this a really progressive solution?

    In the same line, one might argue that submitting the NCAA rules to antitrust analysis could be seen as a way to expand the scope of the market and fully commercialize them. However, antitrust is not necessarily confined to such an approach. For instance, the Ninth Circuit recognized that if antitrust rules ignore the specific characteristics of the said product its marketing will become impossible (it will become the same as professional sports). Here comes an important insight: in this case the Circuit recognizes that it deals with a legally created market, a market that is created by what we value in a specific way, by our special perceptions, preferences and sensibilities. Thus ‘in order to preserve the character of this product, athletes must not be paid, must be required to attend class and the like. And the integrity of the product cannot be preserved except by mutual agreement (p 13).’ Therefore, the Circuit highlights that a Rule of Reason analysis is appropriate in this case because the relevant arrangement even though in the form of a restriction of competition (it reduce output, fix prices) should not be deemed as such because it is objectively necessary for the existence of competition in the relevant market (To draw the link with our previous discussion if in many occasions the Court follows Bentham here it echoes Aristotle and virtue ethics).

    The European approach is not that different in this respect. When confronted with the question what is a restriction of competition the European Courts seem to adopt a similar attitude. Even though in the early years the Commission equated restrictions of competition with restrictions on freedom, now we know that not every contractual restriction necessarily results in a restriction of competition. It has also been highlighted that a restriction of competition is an economic concept. In this respect as a restriction of competition could be defined a reduction of competitive constraints or a restraint that increases prices and lowers output. In addition, the ECJ has recognized that a restriction of competition cannot be established in the abstract or in hypothetical terms and that objectively necessary agreements should not be deemed as restrictions of competition (commercial ancillarity see Remia; Societe Technique Miniere; Metropole). Furthermore, in Wouters and Meca Medina the Court did not remain deaf to non-economic considerations even though it did not neglect the value of competition rules. Specifically, in Wouters the doctrine of regulatory ancillarity provided for a balancing of any restriction of competition against the reasonableness of regulatory rules. In addition, like in O’Bannon (p 1067) the ECJ has stressed the need for a counterfactual: the restriction should be assessed against the background of the competition that would have existed in its absence (Cartes Bancaires 161)

    In light of the above, it could be argued that the conservative approach would be an approach that would reduce the whole analysis in two steps coupled with a narrow understanding of the second step. In particular, this approach would, first, examine whether a practice or an agreement limits output or increases prices (if this question is answered in the affirmative, then the agreement should be deemed as a prima facie restriction of competition). The second step would be the balancing of losses and gains of the practice or the agreement. In this case the burden of proof lies on the defendant (See Posner, Antitrust Law, Ch 1). However, even this approach is not necessarily conservative. It heavily depends on the form and nature of the balancing exercise. If for instance the balancing is merely and exclusively a cost-benefit analysis, the scope of exemptions of restrictions of competition will be significantly reduced (and, therefore, antitrust will be applied in a conservative fashion). In this regard, the District Court adopts the most conservative approach since it cares to restraint the free market as less as possible. In other words the District Court’s reasoning allows only for narrow exemptions from the Section 1 of Sherman Act and attempts to identify the least restrictive alternative. By doing so, though, it sets an arbitrary benchmark and it effectively undermines amateurism (slippery slope argument, p 1078).

    Nevertheless, ‘balancing’ could involve a broader in scope exercise that incorporates qualities and quantities and engage in both economic analysis and value judgments (this discussion echoes the debate about the narrow or broad definition of efficiency under Art. 101.3 TFEU see Whish and Bailey p 157-161) and the Circuit’s approach is a good example in this respect.

    Be that as it may I have to notice some lack of analytical clarity in the O’Bannon decision. Under EU law a coordination that reveals in itself a sufficient degree of harm to competition qualifies as a by object restriction (Cartes Bancaires 57). Where an agreement has an anti-competitive object it does not cease to be characterized as such because it has a lawful purpose or pursues the commercial interests of the participants (C-551/03 P General Motors 64). But even a by-object restriction may be exempted where there is an objective justification for it (C-403/04 P Sumimoto Metal Industries 45-46). This justification could not be that the agreement does not have anticompetitive effects (for example a price fixing cartel is an inchoate offense and cannot be exempted by the De minimis). However, the defendant can always argue that her agreement has certain redeeming virtues (even though with limited chances of success).

    Nonetheless, in the O’Bannon case we have an arrangement that clearly looks like a by object restriction (even though we should be careful with these analogies as indicated by Whish and Sufrin ‘Article 85 and the Rule of Reason’) or a per se violation. Both the Circuit and the District Court do not accept this. They are persuaded that the appropriate standard for assessing the arrangement is Rule of Reason. However, the Circuit does not demonstrate significant anticompetitive effects in pp 1070-1072. Specifically, the Circuit compares the NCAA’s compensation rules with the agreement in Catalano (found unlawful per se) and contends that the NCAA rules ‘extinguish one form of competition among schools seeking to land recruits’ and reduce opportunity. But this looks more as a by object or a per se analysis. Certainly, under EU law this analysis of anticompetitive effects is not satisfactory. However, I understand the strategic move of the Circuit since per se violations cannot be excused or justified (contrary to by object restrictions). Yet I think that the European framework is more analytically clear.

    Moreover, it is not clear to me what is the content of the terms procompetitive purpose and procompetitive effects. It seems for example possible to argue that providing an opportunity to earn a higher education or integrating academics with athletics could also have a procompetitive purpose or effect whereas to me it could merely provide an objective justification. In this respect, EU law is again clearer. For instance under 102 TFEU an presumptively abusive behavior may be excused if it is objectively necessary or produces substantial efficiencies (Guidance Paper paras 28-31). However, even in this case the Ninth Circuit in O’Bannon succeeds in respecting and protecting amateurism without ignoring the antitrust rules. On the contrary it uses the latter in order to improve the pursuit of the former.

  7. Maria Ana Barata says:

    Hovenkamp states that “balancing”, as defined by the Sherman Act, requires “values that can be cardinally measured and weighed against each other” (see 1st paragraph of page 370 of the article). Being this said, the author claims that very often the values in conflict in anti-trust cases are not possible to strictly balance.
    Why is that so important? According to the author, because “the need to balance is what justifies application of antitrust’s rule of reason” (see 2nd paragraph of page 371 of the article) within the three-step framework described both by Hovenkamp (see 1st paragraph of page 371 of the article) and by the US Court in the O’Bannon Judgement (see 1st paragraph of 802 F.3d 1071).

    Thus, when “balancing” is not possible (i.e. with the lack of metric measures for comparing two conflicting values), the assessment undertaken by the US Courts will not follow the three-step framework of Rule of Reason, but rather a “binary distinction” – see page 377 of the article – which was exactly what happened in the O’Bannon Judgement when opposing amateurism and professionalism values. In the concluding remarks (see page 383 of the article), Hovenkamp also highlighted the distinction between “balancing” and other sorts of assessments carried out by US Courts: “…if the court cannot articulate a cardinal unit of measurement, such as dollars for assessing competitive harm and offsetting efficiencies, then what it ends up doing is not “balancing”.

    Being this the case and given the often lack of numerical certainty, how many cases actually allow the US Court to “balance” as defined by Hovenkamp?

    As an attempt to answer to the question “How far one might justify agreements that restrict competition”, I would like to generally evoke the “theory of harm” formula, i.e. anticompetitive measures (let’s say, in this case, agreements that restrict competition) will be justified by procompetitive goals and by the absence of less restrictive alternatives. One can also bring to debate the opposition between “consumer welfare” and “total welfare”, which we already discussed in our Seminar 1.
    In relation to the second question “What counter-arguments might be seen to be valid, and then how one balances pro and anticompetitive effects of a restrictive practice?”, one should remember that a lawful measure does not make it procompetitive: “a restraint that serves a procompetitive purpose can still be invalid under the Rule of Reason if a substantially less restrictive rule would further the same objectives equally well” (see 1st paragraph of 802 F.3d 1065). Regarding the second part of the question, I would quickly refer the existence of less restrictive alternatives (see also 802 F.3d 1061) – which in the O’Bannon Judgement seemed to exist.

  8. iulian says:

    In the O’Bannon v NCAA judgment the invocation of “amateurism” as justification seemed to me to be the most interesting and controversial aspect of the case. The court considers amateurism to be a relevant justification insofar as it translates in practice to a concrete pro-competitive effect for the market of college basketball/football. The 9th circuit reduces the concept of amateurism to an economic value. Other facets of this concept, such as its philosophical underpinnings as well as its tradition within the NCAA as historical organiser of college sports are held not to be relevant for the case, as they do not produce pro-competitive effects.

    Yet it appears that the court does not follow this logic to its full conclusion. It should be irrelevant that the NCAA remuneration scheme is based on the concept of “amateurism”. Once the concept has been translated into an economic value, all that matters are practical pro-competitive effects. The NCAA’s remuneration scheme has the purpose of preserving consumer demand for NCAA games and maintaining their popularity. The question which the courts should pose (and which the dissent correctly poses) is whether a remuneration scheme less restrictive of Competition would be “virtually as effective” in preserving this consumer demand and popularity.

    Yet this is not the question the court poses. Instead, it asks whether allowing payment for image rights is “virtually as effective” in preserving amateurism as not allowing such payment.
    In discussing the two remedies put forward by the District Court, the 9th circuit seems to rely on a wider concept of amateurism, which it does not openly articulate. If both a full educational grant and the payment of a fixed sum for image rights do not lead to a lower consumer demand for NCAA products, there is no pure economic justification to distinguish between the two on the basis of amateurism.

    The court is tying itself into knots by amalgamating consumer demand and amateurism: “We cannot agree that a rule permitting schools to pay students pure cash compensation and a rule forbidding them from paying NIL compensation are both equally effective in promoting amateurism and preserving consumer demand.19 Both we and the district court agree that the NCAA’s amateurism rule has procompetitive benefits. But in finding that paying students cash compensation would promote amateurism as effectively as not paying them, the district court ignored that not paying student-athletes is precisely what makes them amateurs.”
    A rule permitting colleges to pay compensations to students for their image rights would definitely be less effective in promoting amateurism. However, such a rule might well be equally effective in preserving consumer demand. Why are these two terms next to each other in this context? Presumably they mean the same in the eyes of the court and there should be no differentiation between them. Furthermore, the court’s subsequent argument that allowing for any kind of cash compensations would open some sort of Pandora’s box in future litigation which would lead to the unravelling of the NCAA rule framework does not make sense according to the court’s own logic: Any future claims would have to show that an alternative measure would be “virtually as effective” in preserving consumer demand. Let’s say a basketball player asks for 10000$ per year as image rights. Would the consumer still watch NCAA events? Maybe yes, maybe not. What about if the player wants 10000$ per month? Would the viewer turn off his or her TV in disgust? Probably yes. In fact, such further litigation might test the boundaries of what is acceptable to he viewer/consumer, thereby minimising the anticompetitive disruption caused by the NCAA rules, while at the same time providing the highest remuneration possible to the athlete. After all, basketball players in the US have no choice but to play NCAA basketball if they later want to turn professional and play in the NBA. They are obliged to play for some years as amateurs, even if they may be at their full physical and technical capacity to play as professionals.

    I believe that what is at stake here is more than the balancing of pro-competitive and anti-competitive practice. The concept of “amateurism” the court has in mind is multi-faceted but the language it uses is economics based and thus reducing “amateurism” to its pro-competitive effects. The way the case is argued it appears that the correct end result should have been what ended up being the dissent, as there are no strong arguments in favour of differentiating between increasing the grant and paying image rights to athletes in terms of these measures harming consumers numbers of NCAA sporting events.

    As the judgment stands, I find the language and reasoning of the court to be conservative. The end result is potentially progressive, although one cannot say for certain, as the court did not engage in substantive discussion about the role of the NCAA as organiser of college sports, which in the US are a multi-billion-dollar business performed by amateur athletes. It also undertook no attempt to define “amateurism” as a value which deserves to be protected as such and comprises more than its alleged pro-competitive effects on consumer demand.

  9. galyna says:

    Case O’Bannon v. NCAA
    In my opinion, the argument of the court that “labor for in-kind compensation is a quintessentially commercial transaction” does not fit the situation at stake. Students-athletes are not in the same position as regular employees. They are combining studies and sport activities, so I would not say that they are in standard employer-employee relations with their schools. Moreover, the court is in favour of a very broad concept of “commercial activities” and it stated that “there is real money at issue here”. I would argue, however, that a nature of competition in amateur sports is different from “pure” competition in professional sports. Therefore, I disagree with the starting point of the judgment that does not point out the differences between competition in professional sport and amateur sport at the first place and the difference between “pure labour relations” and this type of relations between students-athletes and schools.
    The Court then balances price-fixing violation with procompetitive effects. The Court said that “the NCAA would still need to show that amateurism brings about some procompetitive effect in order to justify it under the antitrust law”. I am wondering: if the character of amateur sport is already different from professional sports (Court agrees on that), then justification of procompetitive purpose “preserving the popularity of the NCAA’s product by promoting its current understanding of amateurism” is not completely understandable. Why did the Court decide to analyse the case under the Rule of reason and to apply the circular argument (the amateur sport is a commercial activity, but a special character of amateur sport can justify violations of competiion law)? Would not it better to draw a precise line between professional sports and amateur sports and to decide to what extend competition law can address the situation with amateurs? And to define more precisely what exactly constitute commercial activity in this case?
    To sum up, I do not fully agree with the Court’s reasoning that firstly it applies a very broad concept of commercial activities and includes amateur sports, but then actually states that promoting its current understanding of amateurism is a reason that justifies a competition violation.

  10. Alice says:

    In my opinion, this case is an illustration of the difficulties and legal incoherencies that potentially arise when antitrust courts deal with non economic concepts. It is difficult to assign an economic value to amateurism to integrate it in an antitrust reasoning. The matter of the case is actually remote from antitrust concerns: the problem is that the NCAA earns billion of dollars by selling rights to broadcast college football but athlete-students do not receive a part of this compensation in the aim of protecting amateurism of college sports. The debate about amateurism in college sports is not an antitrust issue. Dealing with this issue under antitrust law creates an odd judgement and many legal incoherencies. The possibility to use antitrust law in such an opportunistic manner may “weaken” the law.

    The case of the Appeal Court is incoherent to the extent that the market in which the plaintiff has suffered an injury is not the same as the relevant market in which the theory of harm is established. The court hold that “because the plaintiffs have shown that, absent the NCAA’s compensation rules, video game makers would likely pay them for the right to use their NILs in college sport video games, the plaintiffs have satisfied the requirement of injury in fact and, by extension, the requirement of antitrust injury” (p 43). This injury occurs on the group licensing market. But for the NCAA’s compensation rules, students would be able to sell group licences for the use of their NILs.
    Then, when the court applies the rule of reason, it considers that the NCAA’s compensation rules have a significant anticompetitive effect on the college education market. The NCAA’s compensation rules “fix the price of one component of the exchange between school and recruit, thereby precluding competition among schools with respect to that component” (p 46). In the college education market, the plaintiffs would have an interest to sue under antitrust laws if they claimed that but for the NCAA’s rules, they would have been able to choose the school that offer them some compensation for the use of their NILs and would have been able to receive a higher amount from their school. The difference is very small, but in one market the NCAA’s rules would restrain trade between the students and the producers of video games, whereas in the other the NCAA’s rules fix a component of the price that schools pay to recruit students-athletes.

    Moreover, it is very odd to show that “amateurism brings about some procompetitive effect in order to justify it under antitrust laws” (p51). This procompetitive effect would be that the amateur nature of collegiate sports increases their appeal to consumers. This appears a bit artificial since amateurism in college sports seems to be valued more for integrating academics with athletics. As Hovenkamp stresses it, amateurism is not something that can be weighted and therefore cannot be integrated in antitrust balancing. The Court in the end refuses to do so and accept a non-economic justification of amateurism. However, it creates incoherencies in the application of the rule of reason. This is what the dissent highlights. To apply the rule of reason properly, the court should have consider the procompetitive effect of the restraint on consumers and consider the existence of a less restrictive alternative in terms of consumer welfare not in terms of preserving amateurism. The court should have determined whether allowing students to be compensated for their NILs is virtually as effective in preserving popular demand for college sports as not allowing compensation.

    In brief, assessing issues that are not related to antitrust laws infringement under these same laws leads to legal incoherence. Moreover, it has the effect to move the initial debate to an unrelated debate: the initial concern is not about the welfare of final consumers of college sports (the viewers of broadcasted games and players of video game) but about the unfairness of a system where the NCAA is earning money on the use of young players’ NILs whereas the players are not compensated at all.

  11. Agnieszka Jabłonowska says:

    In the O’Bannon case, the U.S. Court of Appeals, Ninth Circuit, undertakes a Rule of Reason analysis of the National Collegiate Athletics Association’s (NCAA) member agreements, insofar as they define the possible ways of (and limits to) compensating college football and basketball players for their performance. In particular, the agreements prohibit: 1) the NCAA member schools from giving student athletes scholarships covering the full cost of college attendance (compensation is capped at the level of grants-in-aid), and 2) athletes themselves from receiving compensation for their names, images and likenesses (NILs).

    First interesting observation is that NCAA membership rules are regarded as agreements regulating commercial activity, and therefore falling under Section 1 of the Sherman Act. The arrangements at hand do, indeed, have a contractual and – to some extent – commercial nature, even if they consist of different types of rules designed unilaterally by NCAA. There is no doubt that membership agreements also constitute a form of collaboration, even if they are in fact imposed by one party. At the same time, it would be interesting to see whether an analogous case could also be analysed as a potential abuse of the NCAA’s dominance, at least under EU law.

    The Court of Appeals agrees with the finding of the district court that the agreement at hand constitutes an anticompetitive restraint. Interestingly, the court does not conduct any analysis of the market power exercised collectively by the defendants (that is NCAA and its member organisations, I assume). This conclusion might simply be considered obvious and clearly backed by previous case law. Therefore, the court proceeds directly to establishing whether the agreement reduces or threatens to reduce competition.

    The plaintiffs argue that NCAA’s rules on compensation have an anticompetitive effect on the college education market, in that they fix the prices of NILs at zero thus precluding competition among schools in that respect. If no such rules were in place, schools would be able to offer athletes compensation for their NILs beyond the level of grants-in-aid, and on this basis compete with each other for the attention of prospective students. Both the district court and the Court of Appeals accept this argument. They further admit that arrangements of this nature would normally be considered as price-fixing and therefore illegal per se. However, because the NCAA amateurism rules also serve procompetitive purposes, the courts conclude that the case should be analysed under the rule of reason.

    The rule of reason analysis involves two additional steps. First, precompetitive justifications need to be demonstrated by the defendant, after which counter-arguments are put forward by the plaintiff. The plaintiff should, in particular, demonstrate that eventual competitive benefits can also be achieved by less restrictive alternatives. I agree with Hovenkamp that this exercise can rarely be described as balancing of benefits and costs in the economic sense. It may, admittedly, come closer to the balancing of values or interests, as in the case of establishing whether the protection of personality rights or the freedom of speech should prevail. This kind of values cannot be measured, and, to my mind, the same is true for the procompetitive justifications in the O’Bannon case, irrespective of whether we accept the majority interpretation or the dissenting statement. According to Hovenkamp, “balancing requires that two offsetting effects can each be measured by some common cardinal unit, such as dollars or tons or centimetres, and then weighed against each other”. If we accept this understanding, it does not make any difference if the antitrust concerns are being juxtaposed with the promotion of amateurism or with the preservation of consumer demand for college sports. The case shows that where precompetitive justifications and counter-arguments are not comparable (and even more so, if they are hardly measurable), the economic approach may find it difficult to provide a solution.

    Having said that, it should be considered how the antitrust authorities and courts should therefore approach such cases. In O’Bannon, the Court of Appeal did not consider the deterred payments of $ 5000 per year for the use of NILs to be an appropriate less restrictive alternative. Such a conclusion was reached precisely because the court did not perform any balancing, but rather made a binary distinction between an amateur and professional play. But it seems to me that finding a proper benchmark might, in some cases, be as difficult as performing the balancing exercise itself. I agree with Hovenkamp that antitrust cannot correct every market irregularity. The question remains open, though, if the limit to the economic approach is equivalent to the limit to the antitrust intervention altoghether.

  12. Agnieszka Jabłonowska says:

    In the O’Bannon case, the U.S. Court of Appeals, Ninth Circuit, undertakes a Rule of Reason analysis of the National Collegiate Athletics Association’s (NCAA) member agreements, insofar as they define the possible ways of (and limits to) compensating college football and basketball players for their performance. In particular, the agreements prohibit: 1) the NCAA member schools from giving student athletes scholarships covering the full cost of college attendance (compensation is capped at the level of grants-in-aid), and 2) athletes themselves from receiving compensation for their names, images and likenesses (NILs).

    First interesting observation is that NCAA membership rules are regarded as agreements regulating commercial activity, and therefore falling under Section 1 of the Sherman Act. The arrangements at hand do, indeed, have a contractual and – to some extent – commercial nature, even if they consist of different types of rules designed unilaterally by NCAA. There is no doubt that membership agreements also constitute a form of collaboration, even if they are in fact imposed by one party. At the same time, it would be interesting to see whether an analogous case could also be analysed as a potential abuse of the NCAA’s dominance, at least under EU law.

    The Court of Appeals agrees with the finding of the district court that the agreement at hand constitutes an anticompetitive restraint. Interestingly, the court does not conduct any analysis of the market power exercised collectively by the defendants (that is NCAA and its member organisations, I assume). This conclusion might simply be considered obvious and clearly backed by previous case law. Therefore, the court proceeds directly to establishing whether the agreement reduces or threatens to reduce competition.

    The plaintiffs argue that NCAA’s rules on compensation have an anticompetitive effect on the college education market, in that they fix the prices of NILs at zero thus precluding competition among schools in that respect. If no such rules were in place, schools would be able to offer athletes compensation for their NILs beyond the level of grants-in-aid, and on this basis compete with each other for the attention of prospective students. Both the district court and the Court of Appeals accept this argument. They further admit that arrangements of this nature would normally be considered as price-fixing and therefore illegal per se. However, because the NCAA amateurism rules also serve procompetitive purposes, the courts conclude that the case should be analysed under the rule of reason.

    The rule of reason analysis involves two additional steps. First, precompetitive justifications need to be demonstrated by the defendant, after which counter-arguments are put forward by the plaintiff. The plaintiff should, in particular, demonstrate that eventual competitive benefits can also be achieved by less restrictive alternatives. I agree with Hovenkamp that this exercise can rarely be described as balancing of benefits and costs in the economic sense. It may, admittedly, come closer to the balancing of values or interests, as in the case of establishing whether the protection of personality rights or the freedom of speech should prevail. This kind of values cannot be measured, and, to my mind, the same is true for the procompetitive justifications in the O’Bannon case, irrespective of whether we accept the majority interpretation or the dissenting statement. According to Hovenkamp, “balancing requires that two offsetting effects can each be measured by some common cardinal unit, such as dollars or tons or centimetres, and then weighed against each other”. If we accept this understanding, it does not make any difference if the antitrust concerns are being juxtaposed with the promotion of amateurism or with the preservation of consumer demand for college sports. The case shows that where precompetitive justifications and counter-arguments are not comparable (and even more so, if they are hardly measurable), the economic approach may find it difficult to provide a solution.

    Having said that, it should be considered how the antitrust authorities and courts should therefore approach such cases. In O’Bannon, the Court of Appeal did not consider the deterred payments of $ 5000 per year for the use of NILs to be an appropriate less restrictive alternative. Such a conclusion was reached precisely because the court did not perform any balancing, but rather made a binary distinction between an amateur and professional play. But it seems to me that finding a proper benchmark might, in some cases, be as difficult as performing the balancing exercise itself. I agree with Hovenkamp that antitrust cannot correct every market irregularity. The question remains open, though, if the limit to the economic approach is equivalent to the limit to the antitrust intervention altogether.

  13. Rodrigo Vallejo says:

    By contrasting Hovenkamp and Allensworth article, an interesting conceptual dispute about the notion of balancing in competition law adjudication can be observed. The dispute is interesting because it reveals an underlying controversy about whether the imaginaries guiding contemporary competition law developments towards a “more economic approach” as desirable because of their more rational/scientific foundations vis a vis previous models (regarded as policy-driven/value-laden and thus susceptible of “judicial activism”) are actually sustainable.

    By restricting the concept of balancing in competition law adjudication only to those cases where interests at stake are commensurable, Hovenkamp assimilates balancing with a mathematical exercise of calculation devoid of any value-judgments. Consistently, it attributes balancing only a marginal role in competition law practices beyond which cases could be properly resolved through formal dynamics of legal/economic reasoning. The a-political vision of competition law adjudication is in this way established.

    Allensworth develops an immanent critique about this entrenched perceptions. By showing how value judgments are inherent (but often concealed) within and outside formal processes of legal reasoning based on consumer welfare calculations, she discloses the intrinsic policy-driven/value-laden character of competition law adjudication. Very much in line with Critical Legal Studies tradition, she ends up unveiling how Professor Bork’s ecumenics’ about how the adoption of the economic standard in the 1970s transformed antitrust from “social policy” to “merely law” is to a relevant extent intrinsically flawed. If competition law cannot and should not escape social policy considerations, opens the door to have a more meaningful discussion about the functions of competition law.

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