The Antitrust Attorney Blog
Author: Steven J. Cernak[1]
On June 21, 2021, the U.S. Supreme Court affirmed lower court decisions and held that certain NCAA restrictions on educational benefits for student-athletes violated Sherman Act Section 1. The unanimous opinion was a clear win for the plaintiff class and almost certainly will lead to big changes in college sports.
It was also a clear defeat for the NCAA. While the opinion (as the NCAA’s reaction emphasized) maintained the NCAA’s ability to prohibit non-educational benefits and define limits on educational ones, any such NCAA rules must be defended under a full antitrust rule of reason analysis, not a special deferential standard based on language from a 1984 Supreme Court case. Litigation on such issues is already in the lower courts and more can now be expected.
Justice Gorsuch’s unanimous opinion for the Court, however, contains numerous references, concepts, and phrases that will prove helpful to future antitrust defendants, especially those in joint ventures with competitors. The opinion is a reminder that any effort to aggressively change antitrust’s status quo will need to deal with a judiciary steeped in decades’ worth of precedent. Below are some highlights of the opinion sure to be noted by future antitrust defendants.
American Express, Trinko Alive and Well
The recent House Majority Report on antitrust issues in Big Tech, co-authored by recently confirmed FTC Commissioner Lina Khan, had several general recommendations. One of those recommendations was for Congress to overturn several Court antitrust opinions, including Ohio v. American Express (written by Justice Thomas) and Verizon v. Trinko (written by Justice Scalia). We covered the ramifications of such reversals here and here.
Apparently, the Court disagrees with that recommendation. American Express was cited at least seven times by the Court, both for when the rule of reason analysis should be used and the three-part burden-shifting process of such an analysis. In a heavily criticized part of the American Express opinion, the Court found that the rule of reason analysis needed to account for effects on both sides of a two-sided market. While Justice Gorsuch’s opinion here did not cite American Express for that proposition, it and the parties assumed that the NCAA could try to justify its restraints in the labor or input market with positive effects in the output market, further cementing the American Express analysis.
The opinion cites Trinko at least four times, usually for the proposition that judges should not impose remedies that attempt to “micromanage” a company’s business by setting prices and similar details. Another citation, however, is to Trinko’s admonition to courts to avoid “mistaken condemnations of legitimate business arrangements” that could chill the procompetitive conduct the antitrust laws are designed to protect. This focus on “error costs” has been embedded in antitrust jurisprudence for decades but has come under attack in recent years from commentators who would prefer more aggressive antitrust enforcement. This unanimous opinion ignores that criticism.
Bork and Easterbrook
Many of today’s antitrust principles can be attributed to Chicago School theorists, including Robert Bork and Frank Easterbrook. Their writings, both as academics and appellate court judges, have remained influential, although both recently have come under withering attack. Justice Gorsuch seems to remain a fan of both.
Bork’s opinion in Rothery Storage v. Atlas Van Lines is cited twice, once for the proposition that the reasonableness of some actions can be judged quickly and once that courts should not require businesses to use the least restrictive means for achieving legitimate purposes. Bork’s recently re-released The Antitrust Paradox is also quoted for the proposition that competitors in sports leagues must be allowed to reach some agreements, such as on number of players, in order to have any competitions at all.
The Supreme Court cites two of Easterbrook’s Seventh Circuit opinions. The Court cites Polk Bros. v. Forest City Enterprises for the proposition that a joint venture among firms without the ability to reduce output is unlikely to harm consumers. A page later, the Court uses Chicago Professional Sports v. NBA to explain that different restraints among joint venturers might require different depths of analysis to ascertain their effect on competition. Finally, the Court cites one of his law review articles to support judicial caution in summarily condemning business conduct until courts and economists have accumulated sufficient understanding of its likely competitive effect. Surprisingly, Easterbrook’s most famous article — The Limits of Antitrust — was not used in the discussion of the error-cost framework discussed above, despite continuing to be celebrated as one of the leading descriptions of the concept.
Other Quotable Quotes
In addition to the citations above, several other portions of the opinion are sure to be used by future antitrust defendants. In fact, on June 21 Prof. Randy Picker (@randypicker) put together a Letterman-like Top 10 List of Things that Defense Attorneys will Like in Alston tweet thread. No arguments here with any item on Prof. Picker’s list but two groups of such quotes are worth highlighting.
On both pages 26 and 34-35, the Court states that antitrust courts should not require antitrust defendants to use the least restrictive means to achieve legitimate business objectives. Future defendants likely will caution courts about engaging in “judicial micromanagement” (p. 29) if they go too far in considering alternative methods of achieving some legitimate business objective.
Second, the opinion twice (pages 30 and 35) reminds future courts that judicial action might impair, rather than protect, competition: “markets are often more effective than the
heavy hand of judicial power when it comes to enhancing consumer welfare.” Careful readers also will note how the opinion simply assumes that the goal of antitrust law is the enhancement of consumer welfare, a staple of antitrust jurisprudence for decades but now often under attack by those who would favor a more aggressive approach.
Conclusion
While there are plenty of quotes and concepts that future antitrust defendants will find useful in Justice Gorsuch’s opinion, there is one obvious retort: the NCAA, the defendant, lost. Future defendants will need to be prepared to explain why their different facts mean they should not suffer the same fate as the NCAA, no matter how defendant-friendly the quoted language is.
Two other conclusions from the only antitrust case at the Supreme Court this term: First, the case should give lie to any assertions by new antitrust commentators that “defendants always win” or that changes in antitrust laws are necessary to stop antitrust violations. In this case, the NCAA lost at all levels and never even attracted the support of even one appellate judge or justice.
Second, anyone looking for quick victories by antitrust enforcers in any aggressive antitrust cases must recognize the decades worth of commentary and jurisprudence that judges will be applying, at least under current antitrust law. The narrow focus on consumer welfare and the caution before using antitrust law to interfere in markets are explicit in the commentary and embedded in the opinions cited by Justice Gorsuch. As Chicago School supporters learned decades ago, any significant change in the interpretations of the Sherman Act as currently drafted will take plenty of time.
[1] The author represented the NCAA in prior work but did not work on the appellate aspects of this matter. The views expressed here are not necessarily the views of the NCAA or any other past, current, or future client.
Image by Keith Johnston from Pixabay