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Thursday, March 05, 2009
 
More on the Less Restrictive Alternative

Rick’s latest post gives me a perfect opportunity to shamelessly plug my new article, “The Misuse of the Less Restrictive Alternative Inquiry in Rule of Reason Analysis,” which was recently published in the American University Law Review and can be found here.

As Rick notes in his post, Mountain West’s proposal could be seen as a less restrictive alternative to the current BCS system. How is that relevant to the antitrust analysis of the BCS? Well, virtually every court (except the Supreme Court) has adopted a form of the less restrictive alternative inquiry as an independent and dispositive prong of the rule of reason analysis under Section 1 of the Sherman Act. Under the traditional rule of reason test (which, by the way, is still the only rule of reason test the Supreme Court has used since 1918), courts are asked to determine the net competitive effect of a restraint by balancing its procompetitive benefits and anticompetitive effects. If the restraint is net procompetitive, it is legal. If it is net anticompetitive, it is illegal. Lower courts, however, have added another step to the rule of reason. Even if the restraint is net procompetitive, it is illegal if there is a less restrictive alternative for achieving the procompetitive benefits. So, if the NCAA could prove that the current BCS system achieves significant procompetitive benefits and is net procompetitive, a plaintiff could still argue that the current BCS system is illegal under Section 1 if there is a less restrictive alternative (for example, Mountain West’s proposal) for achieving these benefits.

As I argue in my article, this use of the less restrictive alternative is fatally flawed from both a practical and theoretical perspective, is inconsistent with almost 100 years of Supreme Court precedent, and creates an unworkable standard for Section 1 analysis. For those interested in reading more, the abstract and full article can be found here.





6 Comments:

I think the justification (or lack thereof) for using the less restrictive alternative may vary depending upon the restraint at issue as well as the context and/or industry in which the restraint is being applied. For example, perhaps it has a greater utility in analyzing ancillary restraints, especially in the context of league sports.

Blogger Rick Karcher -- 3/06/2009 8:09 AM  


Rick—

Thanks for the comment. It raises an excellent point. Use of the less restrictive alternative may be less problematic when used to analyze ancillary restraints of sports leagues (as opposed to when applied to horizontal or vertical agreements in more traditional industries), but I still believe that the analysis is deceptively difficult, if not impossible. Let me give a quick example. Assuming we can agree on a definition of ancillarity (which I believe presents its own challenges as a threshold issue), let’s look at the NFL draft as an example of an ancillary restraint in a sports league (and let’s ignore labor exemption issues). Let’s assume the NFL has implemented an 8 round draft, and the players challenge that draft as a violation of Section 1 of the Sherman Act. If we apply the less restrictive alternative inquiry, we have to answer two threshold questions. First, what are the procompetitive benefits of the 8 round draft? Second, what are its anticompetitive effects? (Note-- those are precisely the same questions that are asked under the Board of Trade balancing test.). Next, we have to identify the procompetitive benefits of any proposed less restrictive alternatives and compare them to the benefits of the 8 round draft to ensure that the proposed alternative achieves the same procompetitive benefits. Then, we have to identify the anticompetitive effects of any proposed less restrictive alternatives and compare them to the effects of the 8 round draft, to ensure that the procompetitive benefits are being achieved with less harm to competition. In other words, the less restrictive alternative inquiry requires courts to compare the competitive effects of an actual restraint versus the competitive effects of hypothetical restraints. Does a 7 round draft achieve the same benefits of an 8 round draft? What about a 6 round draft? What about a 6 round draft where the playoff teams don’t get any picks until the 3rd round? And, what precisely are the anticompetitive effects of these drafts? I don’t see how courts can identify relative competitive effects with that type of specificity, and, even if it could, there would (almost) always seem to be a less restrictive alternative.

Gabe

Anonymous Gabe Feldman -- 3/06/2009 1:40 PM  


Gabe,

Regarding your example, a player or players (presumably amateur) would be claiming that a draft (regardless of the number of rounds) constitutes an illegal restraint on trade because it doesn't permit players to freely market their services to all of the teams in the league (whether that draft consists of 4, 6 or 8 rounds). I guess I'm struggling with why players would argue that 6 or 7 rounds instead of 8 would enable the players to compete in a free market for their services. But if they did argue that as a less restrictive alternative, then I definitely see your point.

On the other hand, if these players proposed an alternative to a draft that would allow for a free market for player services and that would still achieve the league's procompetitive purpose of competitive balance as the draft does, then I think it has utility. Perhaps the Mountain West's playoff alternative is more analogous to this situation than a proposal to change the number of draft rounds.

Blogger Rick Karcher -- 3/07/2009 6:29 AM  


Rick--

Owners argue that some form of draft is necessary to achieve the procompetitive benefit of competitive balance among the teams. So, an amateur player (particularly one not likely to be selected in the first few rounds of a draft) could argue that the competitive balance is achieved by only subjecting the top 30 (or 60, etc.) to the draft, and the allocation of the next 60 players has an insignificant impact on the talent level of the teams. A disgruntled owner could make a similar argument.

Also, I think it's much easier to compare the competitive effects of a 7 round draft versus an 8 round draft than it is to compare the competitive effects of some other completely different alternative versus an 8 round draft. For example, how do we compare the competitive effects of a salary cap or revenue sharing (potential less restrictive alternatives to a draft) versus the competitive effects of a draft? Similarly, how do we compare the competitive effects of Mountain West's proposal versus the BCS system?

Anonymous Gabe Feldman -- 3/08/2009 1:37 PM  


Gabe,

Conceptually, I understand the point you're making with your draft rounds example. But in my opinion, amateur players would not assert that fewer rounds is a less restrictive alternative because it wouldn't do much to eliminate the anticompetitive effects of a draft. For example, players who would have otherwise been drafted in round 7 in an 8 round draft would then be non-drafted free agents in a 6 round draft. Non-drafted free agents have no bargaining power (they get paid less than drafted players), so I don't view a fewer rounds proposal as really eliminating the anticompetitive effect on the players. I also wouldn't consider salary caps and revenue sharing as "alternatives" to an amateur draft rule. [I'm not sure that there is a less restrictive alternative to a draft.]

I don't think the less restrictive alternative inquiry needs to be as complex as you're making it. I don't think it requires a separate step of balancing the net competitive effects of the less restrictive alternative against the net competitive effects of the original restraint (and then determine which one is more procompetitive), as you explained two comments ago. The test is simply, if the less restrictive alternative were imposed, could the underlying purpose or objective of the original restraint (which is what makes the restraint procompetitive to begin with) still be achieved. The Mountain West proposal is interesting because it may just answer that question in the affirmative.

As always, I enjoyed the discussion. You can have the last word.

Blogger Rick Karcher -- 3/09/2009 6:58 AM  


Rick--

I'm not sure I understand your assertion that non-drafted free agents have no bargaining power. In the current NFL draft, undrafted players have minimal leverage because those players not chosen after 7 rounds are relatively interchangeable. But, if the draft were only 2 rounds, it seems to me that the undrafted players (many of whom would be potential if not likely NFL starters) would have tremendous bargaining power because they would essentially be free agents and have the ability to negotiate with multiple teams.

As for your second point, I think the less restrictive alternative (LRA) inquiry is deceptively complex. By definition, the LRA inquiry is a comparative test, and, while simple to state, is difficult to peform. Using the BCS example, as you note, the test asks if the proposed LRA (the Mountain West proposal) can achieve the procompetitive benefits of the challenged restraint (the BCS) in a less restrictive manner. To make that determination, we first need to identify and quantify the procompetitive benefits of the BCS (which, in itself, is a difficult task). We then need to determine if the Mountain West system can achieve the same procompetitive benefits. That is, we need to compare the procompetitive benefits of the actual BCS system with the procompetitive benefits of the hypothetical Mountain West system. Assuming we can determine that the Mountain West system can achieve the same procompetitive benefits, we then need to determine if it can do so in a less restrictive manner. To make that determination, we first need to identify and quantify the anticompetitive effects of the BCS system. We then need to identify and quantify the anticompetitive effects of the Mountain West system and compare them with the anticompetitive effects of the BCS system. In other words, the LRA not only requires balancing or weighing of competitive effects, but it requires balancing or weighing of actual competitive effects versus hypothetical competitive effects.

Feel free to add another word, or we can continue the discussion at a sports law conference near you...

Anonymous Gabe Feldman -- 3/09/2009 8:10 PM  


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