Supreme Court Reaffirms that Social Benefits Cannot Trump Competition Under the Sherman Act

Antitrust defendants have repeatedly failed to convince the Supreme Court it should recognize social objectives—that do not enhance competition—as defenses to restraints of trade challenged under the Rule of Reason analysis applied to most Sherman Act claims.  The Supreme Court extended that string of losses with its recent decision in NCAA v. Alston, which ruled, once again, that a defendant cannot defend restraints of trade by arguing they serve some social good more important than competition..

In  Alston, plaintiffs, current and former student-athletes, challenged the NCAA’s restrictions on education-related compensation, alleging that the NCAA’s rules violate Section 1 of the Sherman Act.  The NCAA unsuccessfully argued that Rule of Reason analysis—which focuses on a challenged restraint’s effects on competition—should not even be applied to its rules because  maintaining amateurism in college sports serves the societally important non-commercial objective of higher education. The Supreme Court rejected this argument and reaffirmed that a defendant cannot escape the Rule of Reason’s consideration of anticompetitive and procompetitive effects by claiming that its restraints on trade serve important social objectives beyond enhancing competition.

Purported benefits to society that are unrelated to competition do not make unreasonable restraints of trade any less unlawful. Thus, the Supreme Court held that the district court correctly applied the Rule of Reason in declaring the NCAA’s limits on education-related benefits violated the Sherman Act after finding that those rules were stricter than necessary to achieve any procompetitive benefits. 

In so holding, the Supreme Court reaffirmed its rejection of social benefits as justifications for anticompetitive conduct in National Society of Professional Engineers v. United States, 435 U.S. 679 (1978) (rejecting public safety as an affirmative defense under the Rule of Reasons for engineers’ association’s ban on competitive bidding) and FTC v. Superior Court Trial Lawyers Association, 493 U.S. 411 (1990) (rejecting indigent defendants’ access to legal representation as a justification for lawyers’ otherwise unlawful fee agreement to raise rates). The Sherman Act precludes inquiry into whether competition is good or bad, and the Supreme Court has long reasoned that the Act reflects a legislative judgment that competition is the best method of allocating resources and will result in lower prices and better goods and services.

While the Supreme Court’s ruling was limited to the legality of restraints on education-related payments to student athletes, Alston stands for the broader principle that restraints of trade that on their face may have social benefits are nonetheless violations of the Sherman Act if they harm competition.  Alston also recognizes that a nonprofit organization like the NCAA—which is “organized to maximize revenue”—cannot claim immunity from the antitrust laws based on its non-profit status. 141 S. Ct. at 2159.

This most recent antitrust decision from the Supreme Court both reaffirms that defendants cannot escape antitrust liability by dressing up purported benefits to society as defenses to unreasonable restraints of trade and stays the course in following Supreme Court precedent that focuses the Rule of Reason on challenged restraints’ effects on competition.

Edited by Gary J. Malone

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