Tag: Antitrust

March (Appellate) Madness re: O’Bannon NCAA Antitrust Case

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It has been a few months since we updated on the O’Bannon antitrustcase, where federal judge Claudia Wilken ruled last summer that theNCAA’s amateurism rules violated federal antitrust laws. But this week, as the rest of the country filled out their brackets and geared up for the start of the NCAA tournament, the NCAA was getting ready for another battle – in the Ninth Circuit.  On Tuesday, the appeals court heard oral argument from both the NCAA and plaintiffs’ counsel, as the parties debated the lower court’s decision, which allowed limited compensation for the use of athletes’ name, image, and likenesses.

Central to the parties’ argument was the interpretation of NCAA v. Board of Regents of the University of Oklahoma, a 1984 case regarding football television rights. While the NCAA lost that case, one statement in that case has become central to the NCAA’s current “amateurism” defense:  “To preserve the character and quality of the ‘product,’ athletes must not be paid.”  In Tuesday’s arguments, some of the judges seemed skeptical of the NCAA’s shifting definition of “pay,” they were also concerned about opening the door to “pay for play.”

We can expect a ruling in the upcoming months, though this is unlikely to be the final appeal in the case.

ARTICLE BY

Amanda Norris Ames
Womble Carlyle Sandridge & Rice, PLLC

The Unhappy Intersection of Hospital Mergers and Antitrust Laws

McBrayer, McGinnis, Leslie and Kirkland, PLLC

The rapidly-evolving field of health care has been moving lately towards a single-minded goal – coordination of patient care in the name of efficiency and efficacy. Hospital systems are more and more often merging with other medical practices to better achieve the standards and goals of the Patient Protection and Affordable Care Act (“ACA”). TheNinth Circuit Court of Appeals, however, recently provided a stark reminder that the ACA isn’t the only law hospitals need to consider compliance with in these mergers.

Saltzer Medical Group in Nampa, Idaho, had been seeking to make a change from fee-for-service to risk-based reimbursement and approached St. Luke’s Health System in Boise in 2012about a formal partnership. They entered into a five-year professional service agreement that contained language about wanting to move away from fee-for-service reimbursement but without any clear language on making that change. Saltzer received a $9 million payment on the deal. Other hospital systems in the area, the FTC, and the Idaho Attorney General all filed suit to enjoin the merger.

The Ninth Circuit affirmed the district court’s holding that St. Luke’s violated state and federal antitrust laws when acquiring Saltzer. St. Luke’s argued that acquisition of the other provider would improve patient outcomes and care in the community of Nampa, Idaho, where Saltzer operates, but both courts agreed that the anticompetitive concerns surrounding the merger outweighed the benefits to quality care.

This case and other similar cases brought by the FTC provide a bleak outlook for health care providers looking to merge with other entities to provide care and efficiency under the aims of the ACA. While the court ultimately found that St. Luke’s aims were beneficial and not anticompetitive in and of themselves, antitrust laws only truly take the effect on competition into account, and courts are not ready to place quality of care under the ACA on equal footing.

ARTICLE BY

Molly Nicol Lewis
McBrayer, McGinnis, Leslie and Kirkland, PLLC

Congress Begins With Renewed Efforts to Repeal Insurer’s Antitrust Exemption

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Early into the 114th Congress, multiple bills have already been introduced that would repeal the insurance industry’s limited antitrust exemption granted by the McCarran-Ferguson Act (15 USC 1011 et seq.).

On January 6, Representative John Conyers (D-Mich.) introduced the “Health Insurance Industry Antitrust Enforcement Act of 2015,” (H.R. 99). The legislation would amend the McCarran-Ferguson Act, which currently provides the insurance industry with an exemption from the federal antitrust laws for conduct that is “the business of insurance,” is “subject to state regulation,” and does not constitute “an act of boycott, coercion or intimidation,” (15 USC 1013), by removing the exemption for health insurers and medical malpractice insurers. Notably, the bill would not eliminate the exemption with respect to other lines of insurance, and is similar to McCarran repeal bills that Representative Conyers has introduced in prior sessions of Congress. Representative Conyers has previously stated that his bill would “end the mistake Congress made in 1945 when it added an antitrust exemption for insurance companies.”

Subsequently, on January 22, Representative Paul Gosar (R-Ariz.), who was a practicing dentist for many years, introduced similar McCarran repeal legislation, entitled the “Competitive Health Insurance Reform Act of 2015” (H.R. 494). Representative Gosar’s bill would only eliminate the exemption as to health insurers. In introducing his legislation, Representative Gosar stated that “Since the passage of Obamacare, the health insurance market has expanded into one of the least transparent and most anti-competitive industries in the United States,” and that there is “no reason in law, policy or logic for the insurance industry to have a special exemption” from the antitrust laws.

Both H.R. 99 and H.R. 494 have been referred to the House Judiciary Committee for further action. Whether these bills will gain traction this Congress remains to be seen, but the fact that the bill has supporters on both sides of the aisle certainly increases the chances that the legislation will, at a minimum, be considered by the House Judiciary Committee (which failed to take up similar legislation in the 113th Congress).

ARTICLE BY

James M. Burns
OF
Dickinson Wright PLLC

Hospital Antitrust Skirmish Over Economist

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Antitrust law is designed to help the Davids of the world maintain a level playing field with the Goliaths. That objective was realized when Boise, Idaho-based hospital operator St. Alphonsus Health System, Inc. (“St. Al’s”) sued rival St. Luke’s Health System, Ltd. (“St. Luke’s”), to block St. Luke’s acquisition of the Saltzer Medical Group (“Saltzer”), one of Idaho’s largest and oldest independent medical groups.

St. Al’s argued that St. Luke’s acquisition of Saltzer would give St. Luke’s such a dominant market share of the adult primary care market in Nampa, Idaho that it could raise prices and block referrals to St. Al’s by having Saltzer steer patients to St. Luke’s. St. Al’s fears certainly seemed well-founded: Saltzer accounted for 43% of the adult primary care physicians, and about 90% of the pediatric physicians in the Nampa market. Since St. Luke’s accounted for about 24% of the primary care physicians in Nampa, the combined entity would have about 67% of the adult primary care physicians in Nampa.

The Federal Trade Commission (FTC) and Idaho Attorney General (AG) launched their own investigations and ultimately joined St. Al’s lawsuit. Things didn’t go well initially for St. Al’s as the judge refused to preliminarily enjoin the acquisition, concluding that St. Al’s was unlikely to suffer irreparable harm before a trial could be held in the case. St. Luke’s proceeded to complete the transaction.

However, in January 2014, after a bench trial, the judge concluded that the deal would have anti-competitive effects in terms of raising health care costs due to the increased negotiating leverage of the combined entity. The judge directed St. Luke’s to unwind the transaction, and divest itself of Saltzer’s assets. St. Luke’s has appealed to the Ninth Circuit. At oral argument, St. Luke’s contended that the trial court had failed to adequately consider the deal’s benefits.

Along the way, the trial court had an opportunity to decide a motion by the FTC and Idaho AG to exclude the testimony of St. Luke’s economist, Dr. Alain Enthoven, concerning the quality-related benefits of the acquisition. Saint Alphonsus Med. Ctr. – Nampa, Inc. v. St. Luke’s Health Sys., Ltd., No. 1:12-CV-00560-BLW, 2013 WL 5637743 (D. Idaho Oct. 15, 2013). A major thrust of the objection was that Dr. Enthoven had not read any of St. Luke’s physician service agreements (“PSA’s”), and therefore could not credibly testify as to “whether the acquisition creates the requisite integration to achieve the purportedly greatest benefits of integrated patient care.”

The Court denied the motion. After reviewing the facts shared in the decision, the argument seems like a stretch and we feel the Court reached the right result. As the Court observed, despite not having read the PSA’s, Dr. Enthoven interviewed six top executives from St. Luke’s and Saltzer, and reviewed thirty depositions. The Court believed this effort enabled Dr. Enthoven to testify credibly concerning the quality-enhancing benefits of moving away from the fee-for-service model of compensation and toward the quality-based model of compensation.

The judge also rejected the FTC’s contention that Dr. Enthoven was unqualified to testify regarding how the use of health information technology, such as electronic medical records, promotes higher quality care in light of Dr. Enthoven’s admission at his deposition that he was not a “healthcare IT expert.” Observing that Dr. Enthoven was testifying as an economist, not a programmer, the judge ruled that Dr. Enthoven was qualified to explain how various healthcare IT tools promoted higher  quality care even if he didn’t understand the mechanics of how those tools worked. This conclusion also seems correct, and not really a close call at all.

Do you agree with our conclusion that the Court made the right call in denying the motion to exclude Dr. Enthoven’s expert testimony?

ARTICLE BY

Joshua Fruchter, Esq.
OF
IMS ExpertServices

U.S. Sentencing Commission Weighing Recommendation to Increase Criminal Antitrust Penalties

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In June, the United States Sentencing Commission, which is appointed by the President to make recommendations to Congress on the criminal penalties for the violation of federal law, issued a request for comments regarding whether the guidelines for calculating antitrust fines should be modified. Currently, corporate fines for cartel price fixing are calculated on a sliding scale, tied to the amount of the “overcharge” imposed by the violators, with the standard maximum fine under the Guidelines for a corporation capped at $100 million and, for an individual, capped at $1 million. The deadline for such comments was July 29, and the views expressed on the issue varied considerably.

Contending that the current Guidelines do not provide an adequate deterrent to antitrust violations, the American Antitrust Institute urged the Commission to recommend an increase in the fines for cartel behavior. The AAI stated that the presumption in the Guidelines that antitrust cartels, on average, “overcharge” consumers for goods by 10% is greatly understated, and thus should be corrected to reflect more accurate levels. Pointing to economic studies and cartel verdicts, the AAI suggests that the median cartel “overcharge” is actually in excess of 20%, and therefore the presumption should be modified in the Guidelines. If adopted, the AAI’s proposal would double the recommended fines under the Guidelines for antitrust violations.

Perhaps surprisingly, the DOJ responded to the Commission’s Notice by stating that it believes that the current fines are sufficient, and that no increase in antitrust fines is warranted at this time. The DOJ indicated that the 10% overcharge presumption provides a “predictable, uniform methodology” for the calculation of fines in most cases, and noted that the Guidelines already permit the DOJ to exceed the fine levels calculated using the 10% overcharge presumption in some circumstances. Specifically, the DOJ noted that the alternative sentencing provisions of 18 USC 3571 already permit it to sidestep the standard guidelines and seek double the gain or loss from the violation where appropriate. Notably, the DOJ utilized this provision in seeking a $1 billion fine from AU Optronics in a 2012 action, although the court declined the request, characterizing it as “excessive”. The court did, however, impose a $500 million fine, an amount well in excess of the cap under the standard antitrust fine guidelines.

Finally, D.C. Circuit Court of Appeals Judge Douglas Ginsburg and FTC Commissioner Joshua Wright offered a completely different view on the issue in comments that they submitted to the Sentencing Commission. Suggesting that fines imposed on corporations seem to have little deterrent effect, regardless of amount, they encouraged the Commission to instead recommend an increase in the individual criminal penalty provisions for antitrust violations. Notably, they encouraged the Commission not only to consider recommending an increase in the fines to which an individual might be subjected (currently capped at $1 million), but also to recommend an increase in the prescribed range of jail sentences for such conduct (which currently permit for imprisonment of up to 10 years).

The Commission will now weigh these comments and ultimately submit its recommendations to Congress by next May. If any changes are adopted by Congress, they would likely go into effect later next year. Stay tuned.

ARTICLE BY

James M. Burns
 
OF 
Dickinson Wright PLLC

Sizing Up the Competition: Antitrust Enforcement and the Bazaarvoice Ruling

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High-profile or highly profitable firms are no longer the sole targets of post-merger divestitures by antitrust enforcers. Today, firms that have little or no revenues, including some that operate in emergent industries with little or negative profits, also find themselves subject to merger inquiries, as demonstrated by the recent merger review of Bazaarvoice’s 2012 non-reportable $160 million acquisition of PowerReviews. 

Bazaarvoice merger antitrust

These competing firms were both operating at a loss in the relatively small Ratings and Review (R&R) market. Yet, the nature of competition in the industry and the industry’s potential importance to adjacent industries – combined with statements by the acquirer’s executives prior to the transaction – attracted the scrutiny of antitrust enforcers. Ultimately, Bazaarvoice agreed to divest all of its PowerReviews assets, including employees and client base, to a small competitor, Viewpoints – which had initially entered R&R space by building a solution for Sears – for $30 million.  

This article considers the economic arguments and evidence used by the court to reach its decision in United States v. Bazaarvoice.

Background

R&R platforms offer an online interface for customer reviews of different products, which can help to drive sales, increase product visibility, and offer valuable information on customers to brands and retailers, allowing brands to respond to customer concerns in real time. Leading platforms offer clients the following services: confirmation of the authenticity of customer reviews; moderation of reviews (e.g., removing offensive language); syndication that combines reviews from multiple retailers to increase the visibility of a product; data on retailers and social media analytics to support marketing; and search engine optimization to drive traffic. Bazaarvoice and PowerReviews offered clients all of these services, but Bazaarvoice generally provided more customizable features at higher price points to larger clients. Bazaarvoice offered human moderation of customer reviews, for example, while PowerReviews offered only automated monitoring.

The Department of Justice (DOJ) applied competitive analysis that ignored more traditional focuses on supracompetitive pricing, high margins, and immediate harm to consumers.

In 2012, Bazaarvoice had 800 employees and revenue of $106.1 million; in 2011, the privately held PowerReviews employed just 80 people and reportedly had revenue of $11.5 million. Although PowerReviews did not publicly report its profitability, according to Bazaarvoice executives, the smaller firm was operating at a loss. Similarly, Bazaarvoice itself reported consistently negative operating margins in 2011–2013 that were no higher than -23%.

At the time of the court ruling (January 2014), actual competition from other platforms in the R&R market was marginal, composed primarily of a handful of start-ups with inferior products or of larger firms that offered complementary products. Direct competitors like Pluck, Gigya, Practical Data, Rating-system.com, and European Reevoo were tiny, with few customers and weak services. More established firms that might have acted as potential competitors, such as Google, Facebook, Oracle, and Salesforce, were more interested in partnering with Bazaarvoice than in competing in the R&R market. Meanwhile, Amazon accounted for 28% of e-commerce revenue and maintained (and still does, as of August 2014) its own R&R platform, which was not available to competing retailers. 

Competitive arguments and evidence 

In its review of the transaction, the U.S. Department of Justice (DOJ) applied competitive analysis that ignored more traditional focuses on supracompetitive pricing, high margins, and immediate harm to consumers. The analysis focused instead on the nature of competition in the R&R industry, including barriers to entry and the anticompetitive potential for long-run harm to consumers as detailed in the assessments of Bazaarvoice senior staff.

Low margins: The parties were losing money. Their profits were a far cry from the supracompetitive profits often associated with companies targeted by antitrust litigation. In previous antitrust cases against Microsoft, for example, the company’s margins on Windows and MS Office had played a significant role at trial. Similarly, the potential for enhanced market power and exceptional margins contributed to the DOJ decision to prevent Microsoft from acquiring Intuit in 1994–1995.

Barriers to entry: Bazaarvoice’s extensive syndication network, in particular, became a major component of the case. The DOJ argued that it would be extremely difficult for competitors to develop a comparable syndication network of retailers and brands, allowing Bazaarvoice to leverage anticompetitive economies of scale across many important clients. These advantages, combined with the difficulty of switching from one R&R platform to another – as demonstrated by the reluctance of PowerReviews customers to switch to the Bazaarvoice platform – would effectively block new entrants from the market. While the DOJ’s argument was much less convincing with respect to other barriers to entry, such as the company’s technology and reputation, clearly antitrust enforcers had seized on important elements of the relationship between Bazaarvoice’s value proposition and the growth of the R&R market.

Bad documents: These potential anticompetitive implications were explicitly referenced in Bazaarvoice’s own internal documents, which became instrumental in court. The firm’s current CEO remarked that there were “literally, no other competitors” beyond PowerReviews, and the former CEO wrote that after the proposed acquisition of PowerReviews, Bazaarvoice would have “[n]o meaningful direct competitor.” Bazaarvoice senior executives openly acknowledged that syndication networks created high barriers to entry in the R&R industry and clearly described that the elimination of Bazaarvoice’s “primary competitor” would provide “relief from price erosion.” The DOJ seized on these documents, arguing that the merger would increase prices and eliminate the “substantial price discounts” that retailers and manufacturers received as a result of competition between Bazaarvoice and PowerReviews.

Court’s opinion 

In this case, the court noted these apparent competitive weaknesses and remained on the lookout for changes in the R&R market. In fact, in the 18 months from the time of the acquisition on June 12, 2012, until the case’s ultimate outcome on January 8, 2014, the only post-merger evidence that was considered dispositive by the court was
the absence of serious entry to the market. The court explicitly rejected the use of pricing data, suggesting that it could be manipulated. The same pricing data that regulators might have expected to rise above competitive levels – and that therefore could have created space for new entrants in the R&R market at lower price points – was viewed as suspect. The DOJ case was structured instead around the absence of a credible entry threat in the R&R space, despite Bazaarvoice’s annual margins of around -30%. 

For Bazaarvoice, the challenge was less about responding to customer concerns or even to actual prices than it was about addressing the incendiary internal paper trail left by the company’s senior executives.

Discussion 

The court’s focus on the entry threat and its dismissal of pricing policies is curious, because the two issues are highly related. In an industry characterized by prices so low that the market leader is highly unprofitable, new firms have no incentive to enter. To become profitable, Bazaarvoice would have had to double its prices, and yet no evidence presented in the case demonstrated that entry would be impossible at that much higher price level. Surprisingly, the court did not connect these two issues in a meaningful way.

For Bazaarvoice, the challenge was less about responding to customer concerns or even to actual prices than it was about addressing the incendiary internal paper trail left by the company’s senior executives. In fact, as the testifying expert for Bazaarvoice/PowerReviews, Dr. Ramsey Shehadeh, pointed out, customers expressed no reservations about the merger, and Bazaarvoice had not raised prices. Ultimately, the court discounted Bazaarvoice’s arguments related to the absence of actual anticompetitive effects, noting that the firms could moderate their behavior while under antitrust scrutiny and focused instead on the firm’s own internal documents, which had detailed a plan to block competitive pressure. Bazaarvoice found itself fighting its own internal assessment of the competitive effects of the proposed merger, in addition to the DOJ’s economic arguments. The internal documents and emails were far more difficult to explain away than the economic circumstances, resulting in a full divestiture.

ARTICLE BY

Rebecca Kirk Fair
 
OF 
Analysis Group, Inc.

SawStop Dismissal Explained: Opinion Crosscutting SawStop’s Antitrust Lawsuit Released

Mintz Levin Law Firm

Judge Claude M. Hilton of the Eastern District of Virginia recently issued a Memorandum Opinion following up on his June 27, 2014 order (on which we previously wrote here and here) dismissing the complaint filed against the power tool industry bySawStop, LLC.

To recap, according to the February 2014 complaint, in 2000, Stephen Gass, inventor of “SawStop” and a patent attorney, began licensing negotiations with several companies now named as defendants in the lawsuit. As a result, the companies allegedly held a vote on how to respond to SawStop and shortly thereafter ended their individual licensing negotiations with Gass. The complaint also alleges the companies conspired to alter voluntary standards to prevent SawStop technology from becoming an industry standard.

In his opinion dismissing SawStop’s antitrust claims, Judge Hilton wrote:

An alleged antitrust conspiracy is not established simply by lumping ‘the defendants’ together.

Judge Hilton found no evidence that any of the named manufacturer defendants conspired through their industry organization, the Power Tool Institute, Inc. (PTI), not to license SawStop’s safety technology. Judge Hilton also found that the conspiracy allegations were belied by SawStop’s admissions in the complaint that it was actively negotiating with Emerson, Ryobi, and Black & Decker “well after the alleged group boycott began in October 2001,” concluding that “[s]uch history fails to show an agreement to restrain trade.”

The judge also pointed to other contradictions in SawStop’s complaint, including evidence that Ryobi signed an agreement with SawStop regarding royalties related to SawStop’s technology licensing during the time period of the alleged conspiracy. In addition, the judge ruled that Black & Decker’s proposed a licensing agreement with the SawStop, which was negotiated 6 to 8 months after the alleged conspiracy was formed, similarly contradicted SawStop’s allegations. The judge further dismissed SawStop’s arguments that Black & Decker’s 1% royalty payment offer was disingenuous, noting that even if that were the case, such actions do “not sufficiently infer conspiratorial conduct” and cannot be characterized as refusals to deal.

Finally, the judge found that SawStop failed to adequately plead that the defendants corrupted the standard setting process or otherwise agreed to a boycott, pointing out that the complaint alleged that only 5 of the 24 defendants had representatives on the relevant standards-setting committee. Moreover, the court found SawStop’s allegations of competitive harm resulting from the conspiracy (lost sales and profits from UL failing to mandate its safety technology on the market) insufficient, stating:

‘Lost sales’ do not amount to competitive harm because [users] were not ‘in some way constrained from buying [SawStop’s] products’ . . . and failing to mandate [SawStop’s] proposed safety standard does not thereby harm their market access.

Finding no support for an inference that defendants had entered into an agreement to boycott SawStop’s product or otherwise restrain trade, the court dismissed SawStop’s complaint in its entirety.

In addition to the antitrust lawsuit, SawStop technology is at the center of an ongoing rulemaking by the U.S. Consumer Product Safety Commission (CPSC). You can read more about the CPSC’s rulemaking here.

Article By:

Helen J. Kim
Charles A. Samuels
Of:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

Do Public School Athletic Leagues Have To Admit Private Schools?

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Liberty Christian Academy (LCA), a private high school in Lynchburg, Virginia, has filed an antitrust action against the Virginia High School League (VHSL), a non-profit organization of public high schools in Virginia.  The lawsuit was filed June 2, 2014 in the Charlottesville Division of the Western District of Virginia.

The VHSL organizes public schools into districts and regions for purposes of conducting athletic competitions and statewide playoffs.  LCA filed its lawsuit because, as a private school, LCA is barred from membership in the VHSL and claims to be unable, with limited exceptions, to schedule athletic games with the nearby public schools.  LCA complains that it has to travel far distances to play games against inferior opponents.  LCA argues that the VHSL’s rules are akin to a group boycott and constitute an unreasonable restraint of trade in violation of federal and state antitrust laws.  The relevant markets alleged in the Complaint are the markets for commercial exhibition of high school football contests and basketball contests in Virginia.

Although some states allow private high schools to join their public high school athletic leagues, other states have separate private and public leagues, such as Virginia, Maryland and Texas.  In the lawsuit, LCA argues that the prohibition on non-public high school membership in the VHSL has no pro-competitive purpose and cannot be justified on any claimed basis that it is necessary to promote fair on-field competition.  I suspect that the ability of private schools to recruit and give scholarships to football and basketball players from a wide geographic area (unlike public schools who have to find players within their own geographic district) would be one of the reasons for the VHSL’s rule.

The Complaint’s reference to the “integration of public and private schools into one athletic association” appears to suggest a strained analogy to civil rights and the racial integration of public schools in Virginia.  LCA should be very careful in suggesting any such analogy, given that LCA was specifically founded in 1967 as a segregation academy in response to the integration of public schools in Virginia.  There is no small amount of irony in LCA’s complaint that it is being excluded and segregated from public school athletic competition.

Several public high school athletic programs are described in the Complaint.  These schools are very familiar to my ears: T.C. Williams in Alexandria, famous from the movie Remember the Titans; football powerhouse Oscar Smith High School in Chesapeake; and Brookville High School outside Lynchburg, my fathers’ almar mater and the arch rival of my high school, Jefferson Forest.

Article By:

Jason C. Hicks
Of:
Womble Carlyle Sandridge & Rice, PLLC

New Antitrust Suit Takes Aim at NCAA Model

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The NCAA’s amateurism model is once again under fire — this time in an antitrust lawsuit filed by sports labor attorney Jeffrey Kessler. Kessler, on behalf of four named current men’s basketball and football players (Clemson football player Martin Jenkins, Rutgers basketball player Johnathan Moore, Texas El-Paso football player Kevin Perry, and University of California basketball player William Tyndall), alleges the NCAA and the five major conferences (the Atlantic Coast Conference, the Big 12 Conference, the Big Ten Conference, the Pac-12 Conference, and the Southeastern Conference; these conferences currently include 62 member institutions) have entered into “cartel agreements” that unlawfully cap the compensation paid to student-athletes.

The suit seeks to eliminate current NCAA and conference amateurism regulations and  create a market where institutions compete for the services of men’s basketball and football players in a less regulated way. This would be a major shift from the NCAA’s current amateur model to one similar to free agency in professional sports that would permit student-athletes to attend the highest bidding institution.

“We believe that the business has grown so big in Division I men’s basketball and in the football championship series system that we believe that judges, jurors, the public, the media and many in college sports themselves recognize that change has to come,” Kessler told The Wall Street Journal.

Currently, student-athletes are eligible only to receive tuition, room and board, and course-related books from the institutions they attend. The suit refers to these limitations as “an artificial and unlawful ceiling.”

The current restrictions on student-athlete compensation also are characterized in the suit as a “patently unlawful price-fixing and group boycott arrangement.” The suit alleges the NCAA and its member institutions “have lost their way far down the road of commercialism, signing multi-billion dollar contracts wholly disconnected from the interests of ‘student athletes,’ who are barred from receiving the benefits of competitive markets for their services even though their services generate these massive revenues.”

Valuing the current broadcast rights for the NCAA Tournament at $11 billion and the College Football Playoff at $5.64 billion, the suit alleges student-athletes are not sufficiently rewarded for the financial success of men’s basketball and football.

“The main objective is to strike down permanently the restrictions that prevent athletes in Division I basketball and the top tier of college football from being fairly compensated for the billions of dollars in revenues that they help generate,” Kessler told ESPN. “In no other business — and college sports is big business — would it ever be suggested that the people who are providing the essential services work for free. Only in big-time college sports is that line drawn.”

The suit questions why coaches, and not student-athletes, should benefit from the massive, and growing, revenues of college football and men’s basketball. It says that, “flush with cash and unable to compete for athletes on the basis of financial remuneration, colleges have directed their resources and competitive efforts to, among other things, the hiring of head coaches, instead of players.”

The suit seeks to permanently enjoin the alleged antitrust violations and to recover individual damages for the named plaintiffs.

Michael Ackerstein also contributed to this post.

Article by:

Gregg E. Clifton

Of:

Jackson Lewis P.C.

NCAA Compensation Cartel Allegations Take Center Court – National Collegiate Athletics Association

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On March 17, 2014, a class action lawsuit was filed against the National Collegiate Athletics Association (NCAA), alleging that capping compensation to college athletes violates Sherman Act Section 1.

The lawsuit was filed on behalf of all Division I college football and men’s basketball players, and named five major conferences within the NCAA as co-defendants:  the Atlantic Coast (ACC), Big Ten, Big 12, Pacific-12, and Southeastern (SEC).  The suit alleges that “Defendants have entered into what amounts to cartel agreements with the avowed purpose and effect of placing a ceiling on the compensation that may be paid to these athletes for their services.”  Currently under NCAA rules, colleges may only compensate student athletes with a “full grant-in-aid” (the amount of tuition, room and board, and textbooks).

The complaint goes on to state that the NCAA “rules constitute horizontal agreements” among the defendants who drafted and agreed upon the rules, yet “compete with each other for the services of top-tier college football and men’s basketball players.”  In addition to monetary damages, the plaintiffs are seeking injunctive relief that would allow colleges to freely negotiate with and compensate student athletes.  The case is filed in the U.S. District Court of New Jersey.

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