Antitrust Intellectual Property NCAA Violations

Part 2, Marshall v. ESPN: Former Student-Athletes Claim Violation of Sherman Antitrust Act (filed 10/3/14)

Last week I wrote an article describing Marshall v. ESPN (see the Complaint here), the latest federal class-action lawsuit in which college athletes are seeking damages against the broadcasting firms, college athletic conferences, and licensing firms they allege violated their rights of publicity. Now I will analyze the fourth cause of action of the lawsuit, which alleges that the defendants, through their conduct and dealings with each other, violated Section 1 of the Sherman Antitrust Act. Specifically, the Complaint states, “[d]efendants and the NCAA entered into and engaged in a contract, combination, or conspiracy in an unreasonable restraint of trade in violation of Section 1 of the Sherman Act.”

Sherman Antitrust Act Historical Summary

“Congress passed the Sherman Antitrust Act (15 U.S.C. §§ 1-7) in 1890 to combat anticompetitive practices, reduce market domination by individual corporations, and preserve unfettered competition as the rule of trade.” Amended by the Clayton Act (15 U.S.C. § 12-27) in 1914, “[t]he Sherman Antitrust Act forms the foundation and the basis for most federal antitrust litigation.” Designed to be broad and sweeping in scope, Section 1 of the Act states that “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.”

“Violations under the Sherman Act take one of two forms – either as a per se violation or as a violation of the rule of reason. Section 1 of the Sherman Act characterizes certain business practices as a per se violation. A per se violation requires no further inquiry into the practice’s actual effect on the market or the intentions of those individuals who engaged in the practice. Some business practices, however, at times constitute anticompetitive behavior and at other times encourage competition within the market. For these cases the court applies a totality of the circumstances test and asks whether the challenged practice promotes or suppresses market competition. Courts often find intent and motive relevant in predicting future consequences during a rule of reason analysis. A presumption exists in favor of the rule of reason for ambiguous cases.”

Marshall v. ESPN Complaint

The student-athlete plaintiffs in Marshall v. ESPN argue a per se violation and “an unreasonable and unlawful restraint of trade.” At first blush, the per se rule appears to fit (I explain below why the court will not use it). The Complaint alleges that “[t]he contract, combination, or conspiracy . . . has resulted in concerted action among the Defendants and the NCAA whereby as a result of these actions the price student-athletes receive for the use of their images is fixed at zero.” If the defendants wish to ask the court to apply a rule of reason analysis, they will need to argue that there are certain times when their alleged practices actually encourage competition within the market. This will be a difficult argument to pursue, since the facts alleged do not suggest much ambiguity in the anticompetitive nature of the defendants’ practices. Additionally, the plaintiffs allege a willful conspiracy among the defendants. Certainly, the court in its analysis will consider the intent of the defendants and the consequences that flow from their actions.

Previous Sherman Antitrust Claims in College Sports

Some background is helpful to more fully understand why the former college athletes are claiming a Section 1 violation, why they have named these particular defendants, and the likelihood of success of their claim.

In the 1984 case NCAA v. Board of Regents of the University of Oklahoma, the Supreme Court held that the NCAA violated Section 1 of the Sherman Act by restricting the freedom of its member schools to negotiate and enter into their own television contracts for the broadcasting of their football games. The NCAA retained sole control over negotiating TV rights with CBS and ABC, and limited any individual school to no more than 6 televised games. The Supreme Court applied a rule of reason analysis in that case, and in so doing rejected the NCAA’s argument “that its television plan can have no significant anticompetitive effect since it has no market power[.]”

The court reasoned that “[t]he NCAA television plan on its face constitutes a restraint upon the operation of a free market . . . Under the Rule of Reason, these hallmarks of anticompetitive behavior place upon the NCAA a heavy burden of establishing an affirmative defense that competitively justifies this apparent deviation from the operations of a free market.” Justice Stevens, delivering the opinion of the Supreme Court, made an important distinction: that only an unreasonable restraint of trade is prohibited by the Sherman Antitrust Act.

The Supreme Court decision in NCAA ultimately changed the landscape of college football broadcasting. In 2005, Notre Dame signed a five-year exclusive contract with NBC to broadcast its home games. Around the same time, conference and team-specific television networks began to emerge, such as the Big Ten Network, SEC Network, and Longhorn Network, whom are all defendants in the Marshall suit.

Marshall is essentially the offspring of the O’Bannon v. NCAA case, and the 2 lawsuits make parallel claims with regard to Section 1 of the Sherman Antitrust Act. O’Bannon claimed that the NCAA and the Collegiate Licensing Company created an unreasonable restraint of trade by conspiring to “fix the price for the use of his image at zero[]”, thus violating Section 1. Now, Marshall is bringing a near identical allegation against 3 new groups of defendants – the Broadcast defendants, the Conference defendants, and the Licensing defendants. These defendants are alleged to have also acted in concert with the NCAA in restricting the competitive market for the athletes to profit from their names and images.

In O’Bannon (at the District Court level), Judge Claudia Wilken held that the NCAA violated Section 1. The NCAA is appealing that decision, so the outcome of the appeal could affect Marshall. In her decision, Judge Wilken cites American Needle, Inc. v. Nat’l Football League (2010), where “[t]he Supreme Court . . . specifically held that concerted actions undertaken by joint ventures should be analyzed under the rule of reason.” As mentioned above, the Supreme Court had also applied the more flexible rule of reason in NCAA.

In sum, although Marshall asserts a per se violation, precedent dictates that his claim will undergo a rule of reason analysis. However, the difference in legal standard is not likely to have much of an effect on the likelihood of success of his claim, especially since O’Bannon was able to prevail under the same standard. The burden of proof will rest with the defendants to provide a competitive justification for their alleged departure from a free market system. There is currently a case management conference scheduled for December 8.