Federal appeals court upholds ruling NCAA violates antitrust laws

Steve Berkowitz | USA TODAY Sports

The 9th U.S. Circuit Court of Appeals on Wednesday upheld a lower court ruling that NCAA rules limiting what athletes can receive while playing sports violate antitrust laws, but the three-judge panel also threw out a plan that would have allowed schools to provide deferred athletes compensation of as much as $5,000 per year.

"The NCAA is not above the antitrust laws, and courts cannot and must not shy away from requiring the NCAA to play by the Sherman Act’s rules,” the panel wrote. “In this case, the NCAA’s rules have been more restrictive than necessary to maintain its tradition of amateurism in support of the college sports market. The Rule of Reason requires that the NCAA permit its schools to provide up to the cost of attendance to their student athletes. It does not require more.”

The three-judge appellate panel of Sidney R. Thomas, Jay S. Bybee and Gordon J. Quist was unanimous in finding that the NCAA’s rules violate antitrust laws and that the association must allow schools the option of offering scholarships that cover the full cost of attending college, not the traditional elements of a scholarship -- tuition, room, board, books and fees.

Thomas added in a partial concurrence and partial dissent that he would have concurred with U.S. District Judge Claudia Wilken “in all respects,” including allowing the $5,000 per year above the cost of attendance as part of a package intended to compensate athletes in a variety of ways, including the use of their names, images and likenesses.

MORE: Read the entire ruling by the appeal panel

Both sides found something to like in the ruling.

The appellate panel's rejection of the potential additional compensation for athletes is a "very, very welcome decision," NCAA President Mark Emmert during said during a conference call Wednesday afternoon.

Sathya Gosselin, an attorney for a group of plaintiffs led by former UCLA basketball player Ed O'Bannon, told USA TODAY Sports that the panel's affirmation of Wilken's finding relative to the antitrust laws makes this "a significant legal victory for college athletes, the first of its kind from an appellate court ... that the NCAA and its member schools fixed the price that college athletes pay for their education."

Gosselin said his side disagrees with the panel's conclusion about the deferred compensation, but "it’s significant to us that there’s real force to the injunction that permits compensation up to the full cost of attendance in recognition of among other things, the uses of college athletes’ names, images and likenesses."

That aspect of Wednesday's ruling sets the stage for the NCAA to attempt to seek a re-hearing of the case from a wider panel of 9th Circuit judges or to try to take the case to the Supreme Court. The NCAA's chief legal officer Donald Remy also noted that the association "does not believe it necessary to have an injunction" in place for schools to be allowed to have the option to offer scholarships that cover the full cost of attending college.

Remy said it was too soon for the association to determine whether it will pursue further action, an option also available to the plaintiffs. Remy said it was also too soon to determine how Wednesday's ruling would affect the association's effort to seek a reduction in the nearly $46 million in attorneys’ fees and costs that a federal magistrate judge has awarded lawyers for the O'Bannon plaintiffs

"We will make those judgments in short order," Remy said. The sides basically have 14 days to pursue 9th Circuit rehearing of Wednesday's ruling and 90 days to seek review from the Supreme Court. Gosselin said his side also is reviewing its options about further action.

The stakes could be high for the NCAA. In addition to facing other antitrust challenges -- including one that returns to court Thursday -- the appellate panel ruled that language from a 1984 Supreme Court ruling that the NCAA has relied upon to preserve its amateurism system is "dicta" -- essentially related commentary, but not part of the case's value as precedent.

That case, NCAA v. Board of Regents, was about control of college football TV rights but the Supreme Court’s opinion included the statement that “in order to preserve the character and quality of the (NCAA’s) ‘product,’ athletes must not be paid, must be required to attend class and the like.”

The NCAA has relied upon this – and other -- language from the Board of Regents ruling in successfully defending its amateurism system in many prior legal cases.

But the appellate panel wrote, in part "even if the language in Board of Regents addressing amateurism were not dicta, it would not support the tremendous weight that the NCAA seeks to place upon it."

Gosselin said the importance of that portion of the opinion "cannot be overstated. For decades, the NCAA has brandished the Board of Regents decision and claimed limitless antitrust immunity as to its amateurism rules."

The NCAA is facing further legal challenges about its athlete-compensation rules, and Wednesday’s ruling comes one day before Wilken is scheduled to hold a hearing on whether to grant class-action status to a pair of lawsuits seeking to basically prevent the association from having any limit on what schools can offer athletes in football, men’s basketball and women’s basketball.

The appellate panel appeared to take that case into consideration on a number of levels.

The opinion, written by Bybee, states, in part, “we have little doubt that plaintiffs will continue to challenge the arbitrary limit imposed by the district court until they have captured the full value of their” names, images and likenesses.

Bybee’s opinion also says: "The difference between offering student-athletes education-related compensation and offering them cash sums untethered to educational expenses is not minor; it is a quantum leap. Once that line is crossed, we see no basis for returning to a rule of amateurism and no defined stopping point. … At that point the NCAA will have surrendered its amateurism principles entirely and transitioned from its 'particular brand of football' to minor league status.”

Said Emmert: “I think the ruling does provide greater clarity on a number of fronts … The fundamental notion of pay for play, as it’s often referred to, is at odds with the notion of amateurism and at odds with the fundamental underpinnings of collegiate athletics. The ruling has those statements in there in pretty direct language. I hope that will, in some ways limit some of the legal arguments that are being made.”

Michael Carrier, a Rutgers-Camden law school professor and antitrust expert who has been involved with a friend-of-the-court filing on behalf of the plaintiffs, told USA TODAY Sports via e-mail that type of language could hurt one aspect of the lawsuits that will be going before Wilken for class-certification on Thursday. Bybee's language "makes it hard to see how future attempts to get even more money for students ... would be successful. If even this deferred (money) doesn't fly, nor would greater amounts that have even less to do with educational expenses."

However, one of the cases going before Wilken on Thursday is seeking not only an end to the NCAA's rules on athlete compensation, but also monetary damages based on the difference between the value of the traditional athletic scholarship -- the one based on tuition, fees, room, board and books – and the actual cost of attendance. Because of the number of athletes affected by that difference during the years covered by a case that seeks to reach back to 2010, the suit's financial stakes could be enormous. And Carrier said the case for damages is enhanced by Wednesday's appellate ruling.

The appropriateness of cost-of-attendance-based scholarships is "set in stone after this decision," Carrier said. The damages portion of the case pending before Wilken "will be strengthened as a result."

The O'Bannon case began in the summer of 2009 and eventually boiled down to the plaintiffs seeking an injunction that would heavily overhaul the NCAA's limits on what Bowl Subdivision football and Division I men's basketball players can receive for playing sports and for the use of the names, images and likenesses in in live television broadcasts, rebroadcasts of games and video games.

A trial was held in June 2014 and Wilken ruled in August. She found that the NCAA's rules at the time – which basically limited athletes to tuition, room, board, books and fees -- “unreasonably restrain trade” in violation of antitrust laws.

In her ruling, injunction and a subsequent interpretation of the injunction, she said the NCAA would be able to cap the amount of new compensation that the football and men's basketball players can receive while they are in school, but that cap would not be allowed to be an amount that is less than the athletes’ cost of attending school.

In addition, Wilken decided to let schools and conferences deposit money in trust for football and men's basketball players that will become payable when they leave school or their eligibility expires. Under this setup, the NCAA would be allowed to set a cap on the amount of money that may be held in trust, but that cap cannot be less than $5,000 in 2014 dollars -- now about $5,040 -- for every year the athletes remain academically eligible.

The new benefits were set to be put in place for both incoming and returning athletes, beginning with the 2016-17 school year.

In January 2015 -- taking advantage of a new NCAA governance setup that allows them greater autonomy in rules making -- schools and athlete representatives from the NCAA’s five wealthiest conferences voted to let athletes in any sport receive scholarships that cover the cost of attendance. The rules change means any Division I school can make such awards, beginning with the upcoming fall semester, but none are required to do so.