The Antitrust Suit That Scares the Hell Out of the NCAA...

...was filed almost three years ago by former UCLA basketball star Ed O’Bannon. It has since evolved into a class-action suit that is being handled by a high profile law firm. It is – at best – halfway through its torturous path through the court system.

The plaintiffs allege that the NCAA and other defendants (game maker E.A. Sports and Collegiate Licensing Co.) violate federal antitrust laws by preventing players from getting paid when their name or likeness is used by the defendants, even after they leave college.

When college recruits agree to participate in Division 1 sports, they sign a release form that gives the NCAA the right to use their names and images in perpetuity.

The athletes are demanding their share of the profits the NCAA sees from the sale of video games, DVDs, trading cards, game films and other products that feature athletes during their college years. Numerous reports have stated that the college licensing business takes in $4.5 billion annually.

As the case has moved along it has picked up several other plaintiffs, including Oscar Robertson and Bill Russell. Russell led the University of San Francisco to 55 straight wins and back-to-back National Championships in basketball in 1955-56.

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DVD’s of Russell’s USF teams in the 1955 Final Four retail today for $150.

Now I’m not a lawyer – but I have played one on Barking Carnival – so here is my attempt to take a look at the basics of the case.

RIGHTS OF PUBLICITY
The plaintiffs allege that the defendants have deprived them of their "Rights of Publicity." The right of publicity generally prohibits appropriating a person's name or likeness for commercial gain without that person's consent. A person's "likeness" is an intangible asset that is broader than a literal image of the person and can extend to other aspects associated with that person. Some of the most notable examples of "Rights of Publicity" in court cases concern impersonators. Bette Midler was approached by Ford Motor Co. to sing their jingle in several commercials. She declined, so Ford found a sound-alike performer. Midler sued and eventually won a $400,000 claim against Ford. Several states, including Texas, have recognized the Right of Publicity via statute, while the majority opinion is that the right exists by common law in every state that has not defined its position through legislation.

The plaintiffs argue that a star athlete's name, nickname, face, voice, image - all are part of a valuable intangible property. The right of publicity protects against the unauthorized commercial use of a person's identity. The right is violated or infringed if an individual's name, likeness or other recognizable part of his persona is used for commercial purposes without the individual's consent.

The plaintiffs are also expected to argue that the NCAA scholarship agreement is a form of a "contract of adhesion." The student-athlete has no choice but to sign away his proprietary rights in perpetuity if he-or-she wants to play in NCAA competition.

A basic defense for all three defendants is expected to be that this is a First Amendment issue. E. A. Sports is expected to argue that that its use of the players' likenesses is constitutionally protected as "transformative." Under the transformative use test, courts consider whether a product containing a person's likeness is so transformed that it has become primarily the defendant's own expression rather than the person's likeness. Recent court cases are encouraging to E.A. Sports as to how this antitrust suit will fare using the "right of publicity" argument. (more on this a little later).

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NCAA

The NCAA lawyers are expected to use "protecting the amateurism" of the athlete in its defense. They say they can’t pay college athletes because of NCAA Bylaw 12.5 which prohibits commercial licensing of a student-athlete’s "name picture or likeness." As to what exactly the $4.5 billion that is produced every year through collegiate licensing is apparently remains to be seen as far as the NCAA is concerned.

It also appears that another part of the NCAA defense will be that: 1) student-athletes have no rights in the use of their athletic endeavors and 2.) even if they did, they signed them away.

The NCAA is also making sure that the discovery phase of this antitrust suit stretches out as long as possible. The NCAA lawyers, according to court papers, have made "a total of approximately two thousand document requests" of the former athletes and served subpoenas on 20 of their associates. One NCAA lawyer told the court that he intended to serve subpoenas on the athletes' "parents and grandparents."

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E.A. SPORTS

In the antitrust suit, the plaintiffs argue E.A. Sports intentionally violates not only the spirit of the NCAA's amateurism rule but also its unambiguous terms, since a video game player can download rosters to assign the real student-athletes' names and personal information to their virtual personas. Electronic Arts also contracts with the in-game play-by-play announcers so the actual student-athletes' names will be spoken after the roster download. Electronic Arts counters that its use of the players' likenesses is protected speech under the First Amendment - specifically, that its use of the players' likenesses is constitutionally protected as "transformative."

In May of 2011, E.A. Sports was dismissed from the suit, when a judge in California ruled that there was no evidence that the game company conspired with the NCAA to deny players compensation. However E.A. Sports was reinstated into the suit just a couple of months later when the judge cited "significant" new allegations that EA agreed to not offer payment to athletes once they left their college sports careers, in addition to NCAA’s rule prohibiting compensation of current student athletes.

A recent ruling in New Jersey gives E.A. Sports reason to feel better about its lot in the antitrust suit. They won dismissal of another suit, filed by former Rutgers QB Ryan Hart. Judge Freda Wolfson, a federal judge in New Jersey, ruled that EA’s right to produce works of creative expression, which the Supreme Court has found video games to be, is protected by the First Amendment and it trumps Hart’s right to privacy and control of his likeness.

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COLLEGIATE LICENSING COMPANY

On its own website CLC states that the retail marketplace for college licensed merchandise in 2010 was estimated at $4.3 billion. The company is the sole licensing agent for 65% of NCAA Universities and controls over 80% of the market. Every year, CLC announces the Top 75 colleges in sales. Beginning with Vince Young and Texas’ dramatic win in the 2005 Rose Bowl, the Longhorns have been the top-selling brand in collegiate apparel and gear for six straight years.

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After the National Championship win over USC in 2006, Texas set a record for licensed apparel sales with over $8 million during the next year.

The U.S. Department of Justice has joined the plaintiffs in its inquiry into CLC’s contracts with the NCAA and their royalty rate.

CLC has other legal issues aside from this particular antitrust suit. They are facing another restraint of trade suit from apparel makers who claim that a new program they are promoting will drive suppliers out of business. Called "Sideline +1" the lawsuit alleges that CLC clients will be restricted in its licensing to one of the three team suppliers (Nike, Adidas, Under Armour) plus only one other additional supplier. This could mean the elimination of suppliers at the mid-tier level where previously there was no restriction on the number of local and regional licensees for a school. The suit alleges the new restrictions will drive up royalty rates and wholesale prices.

As for the former player’s lawsuit, an NCAA loss in the suit could essentially mandate payment to student-athletes. If the plaintiffs do win, there would be a myriad of other questions: would the compensation to players be equal? If student-athletes are entitled to damages, who pays, the NCAA or the licensees?

Should the defendants win, it could cause real shift in how game companies go about getting the rights to player’s likenesses. Currently, Electronic Arts pays large sums to secure licenses to feature professional players' likenesses in games such as Madden NFL or NBA Live. So if the defendants argument that the use of the student-athletes' likenesses is transformative wins out, does that mean that E.A. Sports doesn’t have to pay large sums to license professional players likenesses? The question has occurred to the pros, and several of the professional players' associations have submitted a joint amicus brief supporting the plaintiffs in the NCAA action.

It is going to be a while before any of this is settled. It is expected that pre-trial motions will take at least another year to work through, and that the actual trial probably cannot start before March of 2013. That gives the NCAA plenty of time to work on its defense, although there is a wildcard on the other side that makes them rather nervous.

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SONNY VACCARO – THE WILDCARD

If there is anyone who knows exactly where the NCAA (financial) bodies are buried it is Vaccaro.

He invented the practice of paying college basketball coaches to outfit their players in his company’s gear. Vaccaro worked as a marketing executive for Nike, then Adidas, then Reebok, earning millions of dollars for his employers, the N.C.A.A. and himself. Vaccaro freely admits that he "was part of the problem," and that his employer’s money helped escalate the financial war between Universities and compensation for their coaches.

Now he is on the other side. It was Vaccaro who introduced Ed O’Bannon to the law firm Hausfeld L.L.P. who is handling the antitrust suit.

The Knight Commission on Intercollegiate Athletics, formed in 1989, states its goal is to ensure that intercollegiate athletics programs operate within the educational mission of their colleges and universities. Vaccaro appeared before the Commission in 2001 and he succinctly laid out his former employers vision in doing business with Universities.

"We want to put our materials on the bodies of your athletes, and the best way to do that is to buy your school... or buy your coach."

Commission member Dr. Bryce Jordan (former interim President of the University of Texas 1970-71), sharply asked,

"Why, should a university be an advertising medium for your industry?"

Vaccaro quickly shot back,

"They shouldn't, sir," he replied. "You sold your souls, and you're going to continue selling them and there's not one of you in this room who's going to turn down any of our money."

"You're going to take it. I can only offer it."

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