Ninth Circuit Judge Jay Bybee

SAN FRANCISCO — Colleges can’t be required to let star athletes cash in on their celebrity status, a Ninth Circuit panel ruled Wednesday, reversing part of a landmark antitrust decision that had called into question the NCAA’s entire business model.

The U.S. Court of Appeals for the Ninth Circuit found providing athletes with money not related to school expenses undermines the National Collegiate Athletic Association’s commitment to amateur sports. The 2-1 panel vacated a decision from U.S. District Judge Claudia Wilken of the Northern District of California that had required the NCAA to allow athletes up to $5,000 a year as compensation for use of their names, images and likenesses in TV broadcasts and video games.

“The district court ignored that not paying student-athletes is precisely what makes them amateurs,” Circuit Judge Jay Bybee wrote on behalf of the majority. He was joined by U.S. District Judge Gordon Quist of the Western District of Michigan. Chief Circuit Judge Sidney Thomas dissented.

Once schools start paying athletes even a small amount, there is no going back to amateurism, Bybee wrote. “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,” he wrote.

The opinion vacates a key part of Wilken’s 2014 bench ruling, which proponents had hailed as a major step forward for student-athletes’ rights. However, all three circuit judges agreed with Wilken that the NCAA’s rules are subject to scrutiny under U.S. antitrust law, and the majority affirmed her ruling striking the NCAA’s forced scholarship caps.

Hausfeld LLP partner Sathya Gosselin, who represents plaintiffs, said his team views the mixed opinion as a win, “and a further affirmation that the NCAA and its member schools have participated for decades in an illegal price-fixing conspiracy.”

Michael Hausfeld argued the appeal for plaintiffs. Wilmer Cutler Pickering Hale and Dorr partner Seth Waxman, who argued for the NCAA, declined to comment. In a statement posted online Wednesday, NCAA President Mark Emmert wrote his organization was still reviewing the opinion, but agrees that the $5,000 per year allowance was erroneous.

In his dissent, Thomas argued Wilken was right to allow the cash compensation.

“The NCAA insists that this multibillion-dollar industry would be lost if the teenagers and young adults who play for these college teams earn one dollar above their cost of school attendance,” he wrote. “That is a difficult argument to swallow.”

The NCAA already had abolished its scholarship limits for the start of the current school year. Still, the ruling could encourage more litigation against the organization, said W. Stephen Smith, global co-chair of Morrison & Foerster’s antitust practice.

“The court does leave that door open,” he said.

Wilken is scheduled to weigh class certification Thursday in a similar case over student athlete compensation—Jenkins v. NCAA—brought by Winston & Strawn.

On Wednesday the majority made clear its intent to set a high bar for future challenges to NCAA rules.

“We are not declaring that courts are free to micromanage organizational rules or to strike down largely beneficial market restraints with impunity,” Bybee wrote, adding that a court should only strike a rule if it is “patently and inexplicably stricter than is necessary” to maintain amateurism.

But the majority’s ruling also emphasized that the NCAA should receive no special treatment under the Sherman Act. As did the lower court, the panel rejected the NCAA’s argument that its rules are exempt under antitrust law because they are rules governing player eligibility, not commercial activity.

“The NCAA is not above the antitrust laws,” he wrote, “and courts cannot and must not shy away from requiring the NCAA to play by the Sherman Act’s rules.”

The court’s approach seemingly creates a split with the U.S. Court of Appeals for the Sixth CIrcuit, which held NCAA rules were noncommercial.

Wednesday’s ruling also could jeopardize the $46 million in attorney fees snagged by plaintiffs lawyers in the case. U.S. Magistrate Judge Nathanael Cousins approved the award in July, commending the Hausfeld team for a decisive victory in a case he said “could significantly change American college sports.” The award is awaiting final approval from Judge Wilken.

The appellate ruling “underscores the significant victory obtained for college athletes,” said Hausfeld’s Gosselin, “and should only support our efforts to obtain attorney fees in this landmark antitrust action.”

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