U.S. Supreme Court Unanimously Rules Against NCAA in Antitrust Case, Providing Valuable Insights on the Rule of Reason Standard
June 22, 2021
By Colin P. Ahler and Mary Colleen Fowler
On June 21, 2021, the U.S. Supreme Court issued its highly anticipated NCAA v. Alston opinion. The unanimous decision affirmed that, under federal antitrust law, the NCAA cannot restrict benefits related to education for student athletes.1 In so doing, the Court provided valuable insights on the application of the “rule of reason” test to evaluate whether agreements to restrain competition—whether entered as part of a joint venture between competing businesses or some other arrangement—violate Section 1 of the Sherman Antitrust Act (“Section 1”).
“Most restraints challenged under the Sherman Act—including most joint venture restrictions—are subject to the rule of reason,” which the Court “described as ‘a fact-specific assessment of market power and market structure’ aimed at assessing the challenged restraint’s ‘actual effect on competition’—especially its capacity to reduce output and increase price.”2 The rule of reason typically requires a multi-step assessment of: the anti-competitive effects of the challenged restraint, the pro-competitive justifications for the restraint, and whether the pro-competitive benefits could be obtained through less restrictive means.3 Through this fact-intensive evaluation of the current “market realities,” courts determine whether a restraint on competition is “undue,” such that it violates Section 1.4
The NCAA, however, raised various arguments as to why the lower courts should have applied a more deferential standard than rule of reason analysis. The Court’s majority opinion, authored by Justice Gorsuch, rejected them all.
Limited Scope of Quick Look Review. The NCAA argued that its restrictions on student-athletes should have received “quick look” review. “Quick look” is based on the recognition “that sometimes” courts “can determine the competitive effects of a challenged restraint in the ‘twinkling of an eye.”’ 5 In these circumstances, a court can decide that a competitive restraint either complies with or violates Section 1, without going through the burden of the multiple steps of a complete, rule of reason analysis.
The Supreme Court rejected the NCAA’s attempted reliance on quick look review, explaining that this form of abbreviated review is the exception, not the rule. More specifically, quick look review only applies to “restraints at opposite ends of the competitive spectrum”—it does not apply to “restraints in the great in-between.”6 At one end of the competitive spectrum, for example, the Court explained that joint ventures involving a small, combined market share can receive approval under quick look review because such ventures are unable to pose a real threat to competition. At the other end of the spectrum, “some agreements among competitors so obviously threaten to reduce output and raise prices that they might be condemned as unlawful per se or rejected after only a quick look."7
Social Justifications Not Sufficient to Avoid Rule of Reason Analysis. The Court also rejected the NCAA’s argument that the rule of reason should not apply because amateurism in college sports serves a “societally important non-commercial objective” of “higher education.”8 The Court explained that “‘the social justifications proffered for respondents’ restraint of trade…do not make it any less lawful.’”9 Of note, the Court recognized that amateurism—and its associated impact on consumer demand to watch and attend college athletics—could be a relevant factor in the rule of reason analysis. But the Court also explained that only Congress can provide a blanket exemption to antitrust law based on the alleged public benefits provided by an industry.
Antitrust Scrutiny Cannot be Avoided by “Re-Labeling” a Competitive Restraint. Lastly, the NCAA argued that amateurism is a critical product feature of college sports and that the lower courts “improperly redefined” the NCAA’s product by not accepting the NCAA’s “views about what amateurism requires.”10 The court rejected that argument, again explaining that the supposed benefits of amateurism was simply one factor to be considered in the rule of reason analysis. But the Court flatly rejected the notion “a party can relabel a restraint as a product feature and declare it ‘immune from §1 scrutiny.’”11
Although the Court ruled against the Defendant NCAA, the Court repeatedly harped on the importance of giving deference to business decisions in the context of antitrust analysis. The Court explained, for instance, that “[f]irms deserve substantial latitude to fashion agreements that serve legitimate business interests—agreements that may include efforts aimed at introducing a new product into the marketplace.”12 Thus, “antitrust courts must give wide berth to business judgments before finding liability.”13 Despite this deference, Alston affirms that the rule of reason analysis continues to apply to most competitive restraints—and not all restraints will pass this fact-intensive test.
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