Full Rule of Reason

Full rule of reason (burden shifting framework):

1. A P must make out a prima facie case showing (a) an agreement (b) in restraint of trade that either (c) has anticompetitive effects or a high likelihood of anticompetitive effects (the D can try to rebut this case)
   • If the restraint of trade is particularly pernicious, then courts will be more likely to consider the high likelihood of anticompetitive effects
2. If the P is successful, the burden shifts to the D to provide a procompetitive justification, which can include evidence of procompetitive effects or an argument for or evidence of a high likelihood of such effects (P can rebut)
3. If the D is successful, the burden then shifts back to the P to show anticompetitive effects of the restraint outweigh any procompetitive benefits or that the restriction is not reasonably necessary to achieve the procompetitive benefits (less restrictive alternative)

Relevant considerations/factors (Chicago Board of Trade): use these factors to assemble a narrative about whether the challenged restraint is likely to have an adverse effect on competition

• Does the restraint "merely regulate and perhaps thereby promotes" competition or "suppress or even destroy competition"
• Courts must examine the nature, scope, and effect of the restraint
• Other relevant factors:
  • Facts peculiar to the business
  • Condition before/after the restraint
  • History of the restraint
  • Reasons for adopting the restraint

Direct vs. indirect evidence of harm:

• Direct evidence of harm: increased price, reduced quantity, reduced quality, reduced variety, worse terms of credit, lessened innovation, evidence of exclusion
• Circumstantial/indirect evidence of harm: look at circumstances that suggest an inference that participants are harmed (market definition, market shares, inference of market power)
  • High market shares in relevant product and geographic market
  • High barriers to entry and other evidence why high market shares are indicative of market power
  • Argument that the restraint, in light of this market power, will have an anticompetitive effect

Caselaw:

NCAA v. Alston (2021) (modern, defendant friendly three-step formulation of ROR)

• Holding: uphold NCAA rules limiting athletic scholarships and compensation related to athletic performance; enjoin NCAA rules limiting education-related benefits
  • Posits 3-step process to evaluate restraints under full rule of reason (although exact language doesn't control in practice):
    1. P shows prima facie case that there was a "substantial anticompetitive effect": change from "likely" to "substantial," lots of room for judicial discretion
    2. Burden shifts to D to show "procompetitive rationale": judges can also read this as procompetitive evidence," which is a higher standard that requires facts
    3. Burden shifts back to P to show that procompetitive efficiencies can be achieved in a less restrictive and less anticompetitive way: jduges can interpret as restraint is "on balance" anticompetitive
  • Anticompetitive effect: students being paid less than they would be in a competitive market
  • Main holding: there is a difference between college and professional sports (prohibition is too broad)
    • NCAA should be allowed to preserve amateurism because it offers consumers an alternative to professional sports, court agrees, allows payment through education-related benefits
    • NCAA should not be allowed to pay based on athletic performance - that looks too similar to professional sports to be excluded by the amateurism argument
  • NCAA arguments:
    • Should be quick look to exonerate: court rejects, NCAA has substantial market share (need low market share for this to even be a discussion)
    • NCAA is a non-profit: doesn't matter, still have anticompetitive harm
  • Court didn't require NCAA to adopt the least restrictive means possible to achieve its ends - just needs to be less restrictive
  • Court notes that markets are better than the judiciary in enhancing consumer welfare, encourages judicial restraint (wary to "set sail on a sea of doubt")
• Facts: student athletes challenged NCAA restrictions on athlete compensation, which effectively reduce student-athlete compensation (compared to world without rules)
• Note: lots of defense bar antitrust critiques here:
  • Provides a formulation of a narrow rule of reason doctrine
  • Courts shouldn't second guess industry participants, nor should they micromanage
    • Courts should similarly avoid making injunctions because doing so would require them to micromanage