The Abuse of Offsets as Procompetitive Justification: Restoring the Proper Role of Efficiencies After Ohio v. American Express and Ncaa v. Alston

• Publication year: 2022

The Abuse of Offsets as Procompetitive Justification: Restoring the Proper Role of Efficiencies After Ohio v. American Express and NCAA v. Alston

Ted Tatos
ttatos@econone.com

Hal Singer
hsinger@econone.com

[Page 1179]

THE ABUSE OF OFFSETS AS PROCOMPETITIVE JUSTIFICATIONS: RESTORING THE PROPER ROLE OF EFFICIENCIES AFTER OHIO V. AMERICAN EXPRESS AND NCAA V. ALSTON

Ted Tatos and Hal Singer*

Abstract

Under the rule-of-reason framework, litigation involving the NCAA has condoned the practice of crediting purported benefits to one group as an "offset" to antitrust injury suffered by another. Although the Ohio v. American Express decision addressed countervailing effects on merchants versus cardholders within the same two-sided market (credit cards), NCAA v. Alston, consistent with the 1986 NCAA v. Board of Regents decision, acknowledged procompetitive justifications that occur in an entirely different market (the output market for viewing sporting events) than the market in which harm occurred (the labor market for college athletes). Both cases elevated the welfare of consumers above that of injured workers (Alston) or other input providers (American Express). In Alston, the Supreme Court muted any intent it may have had to cabin its American Express decision to two-sided transactional platforms defined by indirect network effects. Further, the blind search for offsets in single-firm monopolization cases such as American Express and in wage-fixing cases such as Alston evinces a clear incongruity with the prohibition against cross-market offsets in merger evaluation. This Article discusses how a logical error in NCAA v. Board of Regents opened the door to justifying harms to workers through even the feeblest claims of consumer benefit. As American Express and Alston have blurred the lines between offsets that cross-market lines, we explain that the terms "intergroup" and "intragroup" offsets accurately

[Page 1180]

describe benefits and harms that occur to different constituencies versus those that affect the same, respectively. Although the rule-of-reason lens properly concerns itself with the latter, the former falls under the ambit of the legislative branch. As such, we argue for statutory repeal of American Express and a prohibition on judicial balancing of claimed benefits to any group other than the group that suffered antitrust injury. The search for offsets has resulted in the justification of harms to labor even in the presence of direct evidence of antitrust injury to workers, a clear erosion of per se adjudication of cartel behavior by expanding the definition of ancillary restraints. Consistent with the broader policy of protecting labor from anticompetitive conduct, including the exercise of monopsony power, legislative intervention should prohibit such balancing. In wage-fixing cases involving multiple defendants, the no-offset rule would immediately condemn the restraint and bar courts from considering any claimed efficiencies, regardless of whom they benefit. In single-firm monopsony cases, the no-offset rule would bar courts from considering any offsetting benefits to parties other than the injured group of workers or input providers.

[Page 1181]

CONTENTS

Abstract..............................................................................1179

Introduction.......................................................................1182

I. Intragroup and Intergroup Offsets and Balancing Under the Rule of Reason.........................................1184

A. The Ambit of Procompetitive Offsets.......................1185
B. Board of Regents, Alston, and Broadening American Express Beyond Transactional Platforms................1192

II. The Consumer Demand Offset in NCAA Antitrust Litigation.....................................................................1195

A. The Inductive Fallacy in Board of Regents's Reasoning ..................................................................................1196
B. The Specter of Board of Regents Haunts the O'Bannon and Alston Decisions................................................1201

III. How Antitrust Law Should Treat Offsets............1205

A. Benefits Offsetting Harms Should Accrue to the Injured Group........................................................................1206
B. Compromise View: The Burden Should Be on Defendants to Prove the Offset Is Not Possible Absent the Restraint and to Quantify the Magnitude of the Offset........................................................................1210
C. The Need for Legislative Intervention.....................1214

Conclusion..........................................................................1215

[Page 1182]

Introduction

If the Supreme Court's decision in Ohio v. American Express presaged the hurdles that both private plaintiffs and regulatory agencies would face when bringing antitrust claims in its wake,¹ its ruling in NCAA v. Alston offered new hope, or at least a glimmer of it. Antitrust scholars, left simultaneously puzzled and disheartened by the incomprehensible logic of American Express, warmly embraced the Court's unanimous condemnation in Alston of the National Collegiate Athletic Association's (NCAA) restraint on education-related athlete compensation.² Justice Kavanaugh's concurring opinion echoed the sentiment of Judge Milan Smith's concurrence in the Ninth Circuit's earlier decision in Alston and signaled that, while antitrust enforcement against entrenched market power may be handicapped, it can still wield a sword when it so chooses.³

Although regulatory agencies, scholars, practitioners, and journalists have dissected American Express, the Alston opinion remains in its infancy, and its precedential effects are still unclear. This decision warrants attention not only regarding what the Court said but also as to where it remained silent. Our Article focuses on the latter and the concomitant implications for interpreting American Express, whose repeal via statutory intervention we join other antitrust scholars in supporting. In particular, by cabining its opinion to the narrow confines of the restraint at issue, namely education-related benefits, the Court in Alston declined to address the broader cap on athlete labor compensation. Likewise, although Justice Barrett posed the question to Solicitor General Prelogar during oral arguments, the Court ultimately sidestepped the issue of offsetting anticompetitive harms in

[Page 1183]

the relevant market with claimed procompetitive justifications that occur elsewhere.⁴ Nonetheless, the question's lack of answer has cast a cloud of uncertainty over the interpretation of such offsets. And the fact that the court would even consider an offset to a party distinct from the one that suffered antitrust injury (before ultimately rejecting it due to lack of empirical rigor) leaves open the door for future defendants to pursue these offsets in defense of anticompetitive conduct.

We do not intend to understate the importance of the Alston ruling in both acknowledging the anticompetitive harms wrought by the leverage of monopsony power and in correcting lower courts' misinterpretation of its prior dicta in NCAA v. Board of Regents as settled law.⁵ Notwithstanding its significant limitations, this decision was long overdue. Even so, a somewhat wounded NcAA cartel still maintains its collusive restraint on athlete compensation and continues to seek out an antitrust exemption in an effort to preserve by statute what market realities continue to expose as indefensible under antitrust law. For the moment, however, the surviving restraint on direct compensation for athlete labor proffers a stark reminder of antitrust's failure to enjoin this conduct even in the face of clear and obvious direct evidence of worker harm, despite Justice Scalia's reference to collusion as "the supreme evil of antitrust" in Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, LLP.⁶ To wit, the most significant current cracks in the NcAA's hegemony over intercollegiate athletic labor did not result from Alston, but rather result from statutory intervention loosening the cartel's grip over athletes'

[Page 1184]

abilities to monetize their own name, image, and likeness (NIL)—a result more appropriately attributed to Alston's predecessor, O'Bannon v. NCAA.⁷

This Article is organized as follows. Part I begins with an overview of offsets and argues that inter- and intra-market offsets signal a formulaic rather than substantive distinction in the wake of American Express and Alston.⁸ It then focuses on the specious economic justifications for balancing direct harm to one group (athletes) through nebulous justifications of benefits to another group (sports fans), which are amply underscored in the latter.⁹ In Part II, we revisit the Supreme Court's Board of Regents decision and explain how a logical error therein has permeated throughout its judicial progeny and continues to stave off attempts to correct direct harms to labor under antitrust law.¹⁰ Part III concludes by offering policy prescriptions that would remedy the current use of offsets by courts and defense experts as an economic trump card that permits the most ill-defined and specious defenses to negate even direct and irrefutable evidence of antitrust injury to workers or other input providers.¹¹ Antitrust law clearly aims to protect workers and other input providers, yet the application of the consumer welfare standard has rendered their interests subservient to those of consumers. Redressing this asymmetric application of antitrust law warrants a narrowly tailored legislative intervention to restore the protections to input providers.

I. Intragroup and Intergroup Offsets and Balancing Under

[Page 1185]

the Rule of Reason

This Part begins by explaining the general definition of balancing antitrust harm against procompetitive benefits within antitrust's rule of reason.¹² It then explains why the incongruence of...