Harrison (Buzz) Frahn, Michael R. Morey, Wyatt A. Honse
Simpson Thatcher & Bartlett LLP
On March 28, 2018, the U.S. District Court for the Northern District of California partially granted and denied cross-motions for summary judgment in In re: NCAA Grant-in-Aid Cap Antitrust Litigation, No. 4:14-md-02541-CW, 2018 WL 1524005 (N.D. Cal. Mar. 28, 2018) (the “Grant-in-Aid Litigation”).The Grant-in-Aid Litigation is a multidistrict class action antitrust suit brought by current and former Division I student-athletes against the NCAA and eleven of its member conferences for fixing the amounts of financial aid and other benefits that colleges may offer student-athletes to compete for their recruitment.
In the March ruling, Judge Claudia Wilken held that: (1) the Ninth Circuit’s 2015 opinion in O’Bannon v. NCAA did not bar the plaintiffs’ claims under the doctrines of claim or issue preclusion, and (2) the NCAA’s current student-athlete compensation system has significant anticompetitive effects.Whether procompetitive benefits justify the current system and whether less restrictive alternatives to it exist will be argued at trial in December 2018.
The Grant-in-Aid Litigation lies in the wake of the Ninth Circuit’s opinion in O’Bannon v. NCAA, which enjoined the NCAA from prohibiting its member schools from offering student-athletes limited shares of royalties derived from licenses to use their names, images, and likenesses (“NILs”) in addition to traditional “grant-in-aid” scholarships covering the costs of tuition, housing, and required books. 802 F.3d 1049, 1078-79 (9th Cir. 2015). However, the Ninth Circuit permitted the NCAA to cap the total amount of student-athlete compensation at the “cost of attendance,” a figure that included other education-related expenses in addition to the costs of traditional “grant-in-aid.”Id. The crux of the Grant-in-Aid Litigation is whether the NCAA’s post-O’Bannon student-athlete compensation system that caps student-athlete scholarships at the cost of attendance is an unreasonable restraint on trade in violation of Section 1 of the Sherman Act.
O’Bannon v. NCAA
In 2009, Division I student-athletes brought an antitrust class action in the U.S. District Court for the Northern District of California challenging the NCAA’s rules that prevented men’s football and basketball players from being paid, either by their school or outside sources, for the sale of licenses to use their NILs in videogames, live game telecasts, and other footage.O’Bannon v. NCAA, 7 F. Supp. 3d 955, 963 (N.D. Cal. 2014).These rules (the “NIL Rules”) fixed the value of student-athletes’ NILs at zero and capped the amount of financial aid that student-athletes can receive for their athletic abilities at “full grant-in-aid,” defined as “financial aid that consists of tuition and fees, room and board, and required course-related books.”Id. at 971.The “full grant-in-aid” cap excluded additional costs related to college attendance, such as supplies and transportation, which makeup a larger, school-specific figure called “cost of attendance” that corresponds to the full price of attending the college.Id.The O’Bannon plaintiffs asserted that the NIL Rules were an unreasonable restraint on trade in violation of Section 1 of the Sherman Act.
On August 8, 2014, Judge Claudia Wilken, who now presides over the Grant-in-Aid Litigation, held that the NIL Rules amounted to an anticompetitive price-fixing agreement among the NCAA and its member schools to fix the amount of compensation that schools could offer to student-athletes to compete for their recruitment.Judge Wilken further found that the purported procompetitive effects of the NIL Rules identified by the NCAA—namely, preserving amateurism in college sports, driving consumer demand for college sports products, and integrating college academics and athletics—did not outweigh the NIL Rules’ anticompetitive effects.Judge Wilken determined that the NIL Rules violated Section 1 of the Sherman Act because at least two less restrictive alternatives to the NIL Rules could achieve the NCAA’s goals of preserving amateurism in college sports and driving consumer demand for college games and products.One less restrictive alternative would raise the “full grant-in-aid” cap on athletics-based scholarships by allowing schools to award stipends, derived from NIL licensing revenue, to student-athletes up to the “cost of attendance.”Id. at 982-83.Another less restrictive alternative would allow schools to deposit limited shares of NIL licensing revenue above the cost of attendance into a trust fund payable to student-athletes after they left school.Id. 983.Judge Wilken then enjoined the NCAA and its member schools from prohibiting these two less restrictive alternatives to the NIL Rules.Id. at 1007-08.
The NCAA appealed to the Ninth Circuit, which largely affirmed the district court’s ruling on September 30, 2015.O’Bannon, 802 F.3d at 1079.The Ninth Circuit determined that the “full grant-in-aid” cap “ha[d] no relation whatsoever to the procompetitive purposes of the NCAA,” and affirmed Judge Wilken’s injunction directing the NCAA to increase the “full grant-in-aid” student-athlete compensation cap by allowing its member schools to compensate student-athletes up to the “cost of attendance.”Id. at 1075.The Ninth Circuit, however, rejected Judge Wilken’s findings and injunction related to the deferred compensation less restrictive alternative, reasoning that allowing “students to receive NIL cash payments untethered to their education expenses” after they left school would not promote the NCAA’s procompetitive benefits of preserving amateurism in collegiate sports.Id. at 1076.
Thus, O’Bannon permitted the NCAA to allow its member schools to offer student-athlete recruits compensation up to the “cost of attendance.”Following O’Bannon, the NCAA and its member schools implemented rules that capped student-athlete compensation at the cost of attendance and also fixed the prices of additional benefits that student-athletes can receive that fall outside the scope of the cost of attendance, such as benefits that relate to education (e.g., reimbursements for computers, science equipment, and musical instruments) or that are incidental to athletic participation (e.g., reimbursements for meals and travel expenses).
The Grant-in-Aid Litigation
The Grant-in-Aid Litigation began in 2014 and 2015, when Division I student-athletes (collectively, “Plaintiffs”) filed several lawsuits against the NCAA and eleven of its member conferences (collectively, “Defendants”) throughout the country challenging the post-O’Bannon “cost of attendance” cap on student-athlete compensation as an unreasonable restraint on trade in violation of Section 1 of the Sherman Act.Grant-in-Aid Litigation, 2018 WL 1524005, at *3.The actions were consolidated in the Northern District of California before Judge Wilken.Id.Because Defendants settled with respect to all claims for damages, only claims for injunctive relief remain in the case.Id.
In 2017, the parties filed cross-motions for summary judgment.Plaintiffs asserted, inter alia, that the NCAA’s post-O’Bannon system capping student-athlete compensation at the “cost of attendance” had substantial anticompetitive effects, and that a trial was necessary to determine whether less restrictive alternatives exist to accomplish the purported procompetitive benefits of the NCAA’s post-O’Bannon system.Id. at *7.Defendants moved for summary judgment on the bases that O’Bannon precluded Plaintiffs’ claims under the doctrines of claim and/or issue preclusion, or in the alternative, that stare decisis barred all of Plaintiffs’ claims in light of the Ninth Circuit’s and the district court’s opinions in O’Bannon.Id.
Claim and Issue Preclusion
In ruling on the cross-motions for summary judgment, Judge Wilken began by rejecting Defendants’ arguments that the Grant-in-Aid Litigation was barred by the doctrines of claim or issue preclusion following the Ninth Circuit’s opinion in O’Bannon.Id.
Judge Wilken began her analysis by recognizing that, for either doctrine to apply, the Grant-in-Aid plaintiffs must be the same, or in privity with, the O’Bannon plaintiffs.Id. at *5.Because the Grant-in-Aid plaintiffs consisted of at least two categories of plaintiffs that were not involved in the O’Bannon case—male student-athletes who were recruited after O’Bannon and female student-athletes—Judge Wilken concluded that the plaintiffs in the two cases were not the same.Id.Alternatively, Defendants argued that the Grant-in-Aid and O’Bannon plaintiffs were in privity because the O’Bannon plaintiffs purportedly represented the interests of nonparty student-athletes adequately and the O’Bannon opinions “took special care to protect the interests of future student-athletes.”Id.Judge Wilken rejected this argument after reasoning that, in the federal class action context, privity only exists between members of a defined class, and does not extend to non-members.Id. (citing Taylor v. Sturgell, 533 U.S. 880, 900-01 (2008)).Therefore, because the Grant-in-Aid plaintiffs were not within the defined class of plaintiffs in O’Bannon, and because the “Court and the parties in O’Bannon focused their analysis on the claims of class members, the named plaintiffs represented only class members, and only class members were on notice that they were represented,” Judge Wilken held that there was no privity between the Grant-in-Aid plaintiffs and the O’Bannon plaintiffs.Grant-in-Aid Litigation, 2018 WL 1524005, at *5.Accordingly, Judge Wilken denied Defendants’ claim and issue preclusion arguments.
Judge Wilken also noted another justification for rejecting Defendants’ claim preclusion arguments—the Grant-in-Aid plaintiffs challenged a different student-athlete compensation system than the O’Bannon plaintiffs.Id. at *6.For example, the Grant-in-Aid plaintiffs challenged the post-O’Bannon system of capping student-athlete compensation at the “cost of attendance,” while fixing prices of other benefits falling outside the cost of attendance that O’Bannon did not address.Id. at *6-*7.
Section 1 of the Sherman Act
Judge Wilken next considered whether the NCAA’s post-O’Bannon student-athlete compensation rules constituted an unreasonable restraint on trade.To succeed on their motion for summary judgment under Section 1 of the Sherman Act, Plaintiffs had to establish “(1) that there was a contract, combination, or conspiracy; (2) that the agreement unreasonably restrained trade under either a per se rule of illegality or a rule of reason analysis; and (3) that the restraint affected interstate commerce.”Id. at *7 (quoting Tanaka v. Univ. of S. Cal., 252 F.3d 1059, 1062 (9th Cir. 2001)).Because the parties did not dispute the first and third elements, the only issue in the case was whether the post-O’Bannon student-athlete compensation rules satisfied the rule-of-reason antitrust scrutiny standard.Id.Under the rule-of-reason standard, Plaintiffs had the initial burden of establishing that the challenged post-O’Bannon compensation rules produced anticompetitive effects in the relevant market.Id. (citing O’Bannon, 802 F.3d at 1079).If Plaintiffs succeeded, then the burden would shift to Defendants to provide evidence of procompetitive effects resulting from the post-O’Bannon compensation rules.If Defendants succeeded, then the burden would return to Plaintiffs to establish that, despite the procompetitive benefits, substantially less restrictive alternatives exist to achieve the objectives of the post-O’Bannon compensation rules.Grant-in-Aid Litigation, 2018 WL 1524005, at *7.
Before proceeding to the rule-of-reason analysis, Judge Wilken addressed the threshold question of what “relevant market” was affected by the post-O’Bannon compensation rules.Plaintiffs claimed that the relevant market was the same as that in O’Bannon, and Defendants argued that stare decisis under O’Bannon controlled.Accordingly, Judge Wilken granted both parties’ motions for summary judgment on the issue, and found that the relevant market was the same as in O’Bannon, which was “the market for a college education combined with athletics or alternatively the market for the student-athletes’ athletic services.”Id. at *8.Judge Wilken then turned to the three steps of the rule-of-reason analysis.
Judge Wilken first found that Plaintiffs established that the NCAA’s post-O’Bannon compensation rules created significant anticompetitive effects in the relevant market.Id.Specifically, Judge Wilken found that Plaintiffs demonstrated with “undisputed evidence” that “greater compensation and benefits would be offered in the recruitment of student-athletes absent the challenged rules,” and that Defendants, again relying on stare decisis to rebut Plaintiffs’ arguments relating to anticompetitive effects, had not meaningfully disputed that evidence.Id.Thus, the first step of the rule-of-reason analysis resolved in Plaintiffs’ favor.
Defendants next argued that O’Bannon conclusively established, via stare decisis, that the NCAA’s prior rules capping student-athlete compensation at “full grant-in-aid” had at least two procompetitive benefits: “integrating academics with athletics, and ‘preserving the popularity of the NCAA’s product’” by promoting amateurism is college sports.Id. (quoting O’Bannon, 802 F.3d at 1073).In response, Plaintiffs argued that stare decisis was inapplicable because the post-O’Bannon student-athlete compensation rules were different than the pre-O’Bannon rules.Grant-in-Aid Litigation, 2018 WL 1524005, at *8.In addressing this element of the rule-of-reason standard, Judge Wilken explained that, although O’Bannon required the NCAA to implement the “cost of attendance” cap on student-athlete compensation, the current rules challenged by Plaintiffs “have generally increased” and “continue to fix various benefits related to athletic participation that a member school may provide for its student-athletes or permit them to receive from outside sources.”Id. at *9.Because of these and other changes to the pre-O’Bannon rules, Judge Wilken held that stare decisis did not govern the issue of procompetitive benefits.Id.Judge Wilken, however, declined to rule in Plaintiffs’ favor on this issue because she found that Defendants presented sufficient evidence to create a factual dispute over whether the procompetitive benefits identified in O’Bannon continued to apply in the Grant-in-Aid Litigation.Id. at *9-*11.Thus, Judge Wilken held that the issue will go to trial.
Less Restrictive Alternatives
Plaintiffs did not move for summary judgment on the issue of whether less restrictive alternatives exist to the post-O’Bannon compensation rules.Instead, they identified two proposed alternatives that they preferred to address at trial: (1) “allowing the Division I conferences, rather than the NCAA, to set the rules regulating education and athletic participation expenses that the member institutions may provide,” and (2) “enjoin[ing] all national rules that prohibit or limit any payments or non-cash benefits that are tethered to educational expenses, or any payments or benefits that are incidental to athletic participation.”Id. at *12-*13.Defendants, however, did move for summary judgment on the question of less restrictive alternatives and argued that O’Bannon foreclosed Plaintiffs’ proposed alternatives under the doctrine of stare decisis because O’Bannon purportedly addressed the same proposed alternatives.Id. at *11.
Judge Wilken denied Defendants’ motion for summary judgment on this issue after finding that Plaintiffs challenged different rules and proposed different less restrictive alternatives than those at issue in O’Bannon.In particular, Judge Wilken reasoned that Plaintiffs provided evidence supporting two possible less restrictive alternatives “not previously presented for decision or ruled upon,” which created a genuine issue of material fact as to whether “[Plaintiffs] can meet their evidentiary burden to show that such alternatives would be virtually as effective” as the post-O’Bannon compensation rules “in advancing Defendants’ procompetitive objectives.”Id. at *14.Accordingly, Judge Wilken held that the parties will also address this issue at trial.Id. at *15.
Judge Wilken concluded that the case will proceed to trial beginning on December 3, 2018 to resolve whether (1) the two procompetitive justifications found in O’Bannon for the NCAA’s prior “full grant-in-aid” cap on student-athlete compensation apply to the post-O’Bannon rules, and (2) whether less restrictive alternatives exist to the NCAA’s current student-athlete compensation system.Whatever the outcome of trial, the March 28 ruling demonstrates that the NCAA’s antitrust woes regarding student-athlete compensation are far from over.And, should Plaintiffs succeed at trial, the landscape of college sports in the near future could change significantly.
On April 5, 2018, the U.S. District Court for the Northern District of Alabama granted partial summary judgment to healthcare provider and consumer plaintiffs in the Blue Cross Blue Shield Antitrust Litigation, ruling that agreements among the Blue Cross Blue Shield entities to allocate markets and limit competition should be reviewed as a per se violation of the Sherman Act.In re Blue Cross Blue Shield Antitrust Litig., MDL No. 2406, Case No. 2:13-CV-20000-RDP, 2018 WL 1640023 (N.D. Ala. Apr. 5, 2018).
The lawsuit was filed by a number of small employers and healthcare providers against the Blue Cross Blue Shield Association (“BCBS”) and its licensee Blue Plans (collectively, the “Blues”) for allocating geographic markets for the sale of commercial health insurance and/or commercial healthcare financing services.Plaintiffs moved for summary judgment to find that the agreements between the Blues to allocate territories should be accorded per se treatment under the Sherman Act.Plaintiffs also moved for a finding that the BCBS’s rules that limit unbranded competition between the Blues should similarly be treated under a per se standard.
The BCBS organization consists of 36 independent Member Plans (“Plans”) that each sell health insurance.Id. at *4.The Plans are the governing members of BCBS, who may also amend or repeal the BCBS bylaws by vote.Id.The bylaws recognize that each Plan is autonomous in its operation, and is financially independent.Id.The CEOs of each Plan comprise the BCBS board, in addition to a BCBS CEO that the BCBS board elects annually by a majority vote.Id.BCBS grants each Plan the right to use the Blue Cross and Blue Shield trademarks (“Blue Marks”).Id. at *5.Each plan signs a license agreement with BCBS that identifies an exclusive “service area” (“ESA”) where a Plan may use the Blue Marks.Id.BCBS can modify or terminate the license agreements by a three-quarters vote from the Plans.Id.
In 1982, BCBS implemented a long-term business strategy that required consolidation so there would only be one Plan per state.Id. at *8.Then in 1992, BCBS developed the BlueCard Program (“BlueCard”) to require local Plans to provide discounts available locally to all BCBS members nationwide.Id.Under BlueCard, the Plan that the member belongs in will reimburse the local provider with the same rate as the local Plan.Id.In 1994, BCBS adopted the Local Best Efforts Rule which required that at least 80% of a Plan’s annual revenue to come from services under the Blue Mark.Id.BCBS expanded this in 2005 when it adopted the National Best Efforts rule which required a Plan to derive at least 66.6% of its national health insurance revenue from Blue brands.Id. at *9.In 1999, BCBS adopted a Blue Mark Uncoupling Rule that prevented a Plan from uncoupling the Plan’s name from the Blue Mark.Id.A Plan that chooses to use the Blue Mark may not uncouple it from its trade name in the future.Id.
Single Entity Defense Denied Because Genuine Issues of Material Fact Remained
The court began stating that Sherman Act Section 1 only applies to concerted activity among multiple economic actors.Id.at *15.It stated Section 1 does not apply to single entities because there is no concerted conduct between separate economic actors required for Section 1.Id.This raises the single entity defense that can defeat a Section 1 claim.Id.The single entity defense is not an absolute defense as the court found in American Needle, Inc. v. National Football League, 560 U.S. 183 (2010).The U.S. Supreme Court in Am. Needle held a single entity can still violate Section 1 when it is controlled by a group of competitors that join and use the single entity as a vehicle for concerted activity.The key consideration is whether the agreement joins together separate decisionmakers with separate economic interests.Id. at *16.Decisionmakers working together under the appearance of a single entity deprive the market of independent economic actors necessary for competition.Id.
The court noted that the Blue Marks play a central role in the business strategy employed by the Blues and recognized that when the Blues merged, they formed a single entity to license the Blue Marks.Id. at *15.However, this undisputed fact is not dispositive because competitors are still not allowed to make a horizontal agreement vertical by setting up a single licensing corporation.Id.The analysis focuses on the actual role of the actors rather than their labels.Id.The court found that plaintiffs had “presented sufficient evidence to create a genuine issue of material fact as to the validity and/or enforceability of the [Blue] Marks, and it is the licensing of these [Blue] Marks that constitutes the ‘function’ for which Defendants claim single entity status.”Id. at *16.The court further found that it was genuinely disputed whether the Blues were acting as a single entity with respect to enforcing the Blue Marks.Id. at *17.For these reasons, the court denied the parties’ respective motions for summary judgment on the single entity defense. Id.
Court Finds Per Se Rule Applies to the Blues’ Territorial Division and Limit on Unbranded Competition Horizontal Restraints
The court found that BCBS is comparable to a licensee-controlled entity, and thus the ESA should be treated as a horizontal rather than vertical allocation agreement.Id. at *18.In so ruling, the court relied on two controlling U.S. Supreme Court precedents, U.S. v. Sealy, Inc., 388 U.S. 350 (1967), and U.S. v. Topco Associates, Inc., 405 U.S. 596 (1972).
The U.S. Supreme Court in Sealy held that the licensor, Sealy, was an instrumentality of the licensees for purposes of horizontal market allocation.The Court found a horizontal restraint because the licensees agreed to not sell Sealy branded products outside their geographic area. The Court found that the licensee’s price fixing was proof that Sealy was an instrumentality and not a separate entity.In Topco, the Court also held that territorial restraints were horizontal allocations subject to per se condemnation.It found the per se standard appropriate because the licensees owned almost all the licensor’s stock, and the licensor agreed not to allow other competitors into designated licensee areas.
Applying the antitrust principles from these decisions (id., at *15), the court found a horizontal restraint after comparing BCBS’s organization to the licensee-controlled entities in Sealy and Topco.Id. at *18.The BCBS bylaws demonstrated that the Plans controlled and funded BCBS.Id.It also described itself as an organization controlled by the Plans.Id.The BCBS board consists of CEOs from the licensee Plans.Id.The board controls the terms of the license agreement, which it could amend or add regulations to.Id.The BCBS long-term business strategy merged the Plans in a geographic area that extinguished prior vertical restraints.Id. at *19.Thus, the court concluded that the ESA allocations were a horizontal restraint between competitors rather than a vertical one of a licensor.Id.
The court continued to compare the market allocation licensing agreements to Sealy and Topco because the Plans agreed to only sell health insurance plans to a certain geographic region.Id.The Plans agreed not to sell plans and services with the Mark outside of their geographic service areas as part of the ESA license condition.Id. In addition to the ESA, the Plans instituted two more restraints by limiting output of non-branded health insurance in the licensee’s service area and nationwide.Id.These restraints of trade were found to be even more restrictive than those in Topco and Sealy because the licensees from those decisions could still sell non-branded products.Id.BCBS placed strict limits on each Plans option to sell non-branded health insurance plans inside and outside their service areas under the National Best Efforts rule.Id.
The court found that BCBS’s National Best Efforts rule was an output restriction on a Plan’s non-Mark branded business.Id. at *22.The National Best Efforts rule requires a Plan to derive at least 66.6% of its national health insurance revenue from products with the Blue Mark.Id.This would limit any health revenue a Plan could generate from non-branded services.Id.The court concluded that the National Best Efforts rule operated as an output restriction on a Plan’s unbranded business.Id.The court found the output restriction was not essential to the product because health insurance is generally provided to consumers without these restraints from other national providers.Id. at *23.BCBS itself offered health insurance without such restraints until 2005, when it implemented National Best Efforts. Id.The rule limited the extent that Plans could compete with non-Blue Mark brands, which restricted the Plans output.Id.The court held that this restriction constituted a per se violation of the Sherman Act.Id.
BCBS’s arguments to distinguish itself from Sealy and Topco did not persuade the court.Id. at *20.BCBS tried to compare its nationwide health insurance to the joint blanket license agreement created in Broadcast Music, Inc. v. Columbia Broadcasting System, 441 U.S. 1 (1979).Id.BCBS argued that the ESA and other rules helped create a new health insurance product. Id.The court distinguished BMI from the present case because the court did not find that BCBS created a new product.Id.The court found that the plan to go to ESAs constituted a new marketing and sales strategy rather than a new product.It further found that the products before the 1980 market allocation to the present remained the same.Id.Because the product remained unchanged, market allocation was not necessary.Id.Thus, the court held BCBS could not rely on BMI’s unique product defense to avoid the per se standard of review.Id.
Court Finds Rule of Reason Applies to Anticompetitive Pricing and Boycott Claims Asserted Against the BlueCard Program
The court recognized that not all agreements between competitors are price fixing.Id. at *24.Pricing decisions made within a legitimate joint venture are not per se price-fixing violations.Id.A joint venture is considered a single firm if the parties who would normally be competitors pool their capital together and share risk of loss.Id.Joint ventures may not necessarily stifle competition because they can create economies of scale and efficiencies.Id. at *25.The court found that the Plans offered discount rates and integrated assets like a joint venture.Id. at *26.The plans shared profits and risks of loss because they would benefit or be harmed by any one Plan’s discount negotiation.Id. at *26.BCBS functioned as a cooperative purchasing arrangement which may have both procompetitive and anticompetitive effects.Id.The court held that the rule of reason was the proper standard because the integrative aspects of the BlueCard resembled a joint venture.Id.
The court next turned to the standard established in Nw. Wholesale Stationers, Inc. v. Pac. Stationery & Printing Co., 472 U.S. 284, 298 (1985) to review plaintiffs’ group boycott allegations under BlueCard.The U.S. Supreme Court in Nw. Wholesaler Stationers held group boycotts are subject to per se analysis if the boycott blocks access to a necessary market or if the boycotting firm possesses market power in the relevant market.The court found that the plaintiffs did not show BCBS had market power over a market subject to the alleged group boycott.Id.Plaintiffs also did not show BCBS exclusively controlled a portion of the market.Id. at *27.The court concluded both parties needed to submit more evidence to determine what the appropriate standard of review for group boycotts should be.Id.Because plaintiffs had not shown either element yet, the court would review the alleged boycott under the rule of reason.Id.
Applying the reasoning in Clorox Company v. Sterling Winthrop, Inc., 117 F.3d 50 (2d Cir. 1997), the court held that BCBS Blue Mark Uncoupling Rules should be analyzed under the rule of reason.Id.The Second Circuit in Clorox held that the trademark restriction should be examined under the rule of reason because trademark agreements are generally favored by the court, trademark agreements regulating use can be distinguished from trademark agreements that divide the market, and there was no indication of traditional per se violations.Id.
The court in the present case found the Blue Mark Uncoupling Rules were similar to those in Clorox because they only restrained independent competitors from using the Blue Marks for certain products but not from selling products under other trademarks.Id. at *28.The Plans were only prohibited from using the trade names to sell certain core health insurance products and services.Id.The rule was meant to protect the strength of the Blue Marks by preventing transfer of the Blue Marks’ goodwill to other unique marks created by the individual Plans.Id.The court found that the BCBS Uncoupling Rules were not per se restraints because there were potential procompetitive benefits.Id.
The court faithfully applied the Supreme Court’s prior decisions to find that the per se standard of review was appropriate to horizontal restraints, noting that the “Supreme Court jealously guards the precedential effect of its opinions.”Id.The court continued by stating the “Supreme Court has specifically cautioned district courts and appellate courts against reading the tea leaves and predicting which antitrust precedents are now disfavored.”Id.The court used Sealy and Topco as “polestars” to navigate the antitrust issues in this case.Id.The court concluded that BCBS’s market allocation and certain output restrictions would be analyzed under a per se standard as horizontal restraint.Id.But the court would apply the rule of reason to BlueCard associated violations.Id.
Jonathan K. Levine
Pritzker Levine LLP
On April 3, 2018, Northern District of California District Court Judge James Donato dismissed a putative class action asserting privacy claims under the Illinois Biometric Information Privacy Act, 740 Ill. Comp. Stat. 14/1 et seq. (“BIPA”), by collecting plaintiff’s biometric identifiers without notice of consent.Gullen v. Facebook, Inc., Case No. 16-cv-00937-JD, 2018 WL 1609337 (N.D. Cal. Apr. 3, 2018).The factual pattern leading up to Judge Donato’s dismissal order was unique, in that the case was based upon a single photograph of plaintiff Gullen that had been uploaded to an organizational page. Facebook provided uncontested evidence that it does not use facial recognition software on photos uploaded to organizational accounts.Id at *2.
Gullen brought this putative class action asserting Illinois state law privacy claims under BIPA.Plaintiff alleged that Facebook violated BIPA by collecting his biometric identifiers without notice or consent via Tag Suggestions – Facebook’s facial recognition-based system of photo tagging.Facebook moved for summary judgment on a number of grounds.Gullen, 2018 WL 1609337 at *1. In a “supplemental brief,” Facebook presented an additional argument that Gullen’s claims were based on a single photograph uploaded to an organizational page as opposed to a personal page.Id.Facebook asserted in support of its motion for summary judgment that the company did not use its facial recognition technology for organizational pages. Id.
Gullen’s Claims, Being Based on One Photo Uploaded to an Organizational Page, Are Dismissed For Lack of Evidence of Privacy Violations
The undisputed factual record before the court led to only one conclusion.In the course of summary judgment briefing and at oral argument, Gullen conceded that his BIPA claims were based solely on a photograph taken of him that had been uploaded to an organizational account – a Facebook page run by an organization, rather than an individual.Id. at *1.
In support of its motion for summary judgment, Facebook submitted a declaration from a software engineer stating that “facial recognition is not performed on photos that are posted on business or other organization Facebook Pages.”Id. at *2.Gullen criticized the engineer’s declaration as “self-serving”, but was unable to put forward evidence to contradict the engineer’s statements. Id.
In addition to this testimony, Facebook had produced documents in discovery supporting the engineer’s statement that Facebook does not apply facial recognition to photographs uploaded to Facebook organizational pages.Id. at *2.Gullen did not provide evidence to dispute this issue:a deposition of the engineer did not elicit contrary testimony, and Gullen did not put forward a counter declaration or expert testimony to contradict the engineer’s declaration. Id.Gullen also was unable to provide or point to contradictory evidence in the record with respect to Facebook’s organizational page practices.Id. at *3.
On the record before it, and finding no genuine dispute as to whether Facebook runs facial recognition on photographs uploaded to organizational pages, Judge Donato granted summary judgment in favor of Facebook, solely as to plaintiff Gullen.Id. at *3.
While Gullen was dismissed on factual grounds that were specific to this particular plaintiff’s claim, the companion In Re Facebook Biometric Privacy Info. Litigation class action involving Facebook users, N.D. Cal. Case No. 15-cv-03747-JD, also pending before Judge Donato, remains ongoing and raises important legal issues surrounding BIPA, including the scope of the statute as its relates to uploaded photographs and the sufficiency of Facebook’s notice and consent procedures, as well as constitutional issues regarding the extraterritorial reach of BIPA to activities and could-based transactions alleged to occur outside the State of Illinois.
On February 26, 2018, Judge Donato denied Facebook’s motion to dismiss the In Re Facebook Biometric Privacy Info. Litigation class action for failure to allege concrete injury as required by Spokeo, Inc.v. Robins, 136 S.Ct. 1540 (2016).On April 16, 2018, Judge Donato granted plaintiffs’ motion for class certification.The certified class includes “Facebook users located in Illinois for whom Facebook created and stored a face template” since June 2011.Facebook’s motion for summary judgment directed to this class action is pending.