NCAA’s Battle Continues in the Fight Over Who Should Pay for the Use of Student-Athlete Likenesses

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Since 2009, former student-athletes have been litigating the issue of whether the apparent commodification of student-athlete likenesses in video games entitles the athletes to compensation.  Defendants in these lawsuits include the National Collegiate Athletic Association (NCAA), Collegiate Licensing Company (CLC) and Electronic Arts Inc., the parent company of EA Sports.

 

The Game-Changing O’Bannon Suit

 

Perhaps most noteworthy among these lawsuits is the U.S. District Court, Northern District of California class action headed by putative class representative, Edward C. O’Bannon, Jr. (the O’Bannon suit).  O’Bannon v. NCAA, No. CV 09-3329 (N.D. Cal. July 21, 2009). The O’Bannon suit seeks remedy on behalf of current and former student-athletes who competed for NCAA member colleges or universities on those schools’ (1) Division I men’s basketball athletic teams; and (2) Football Bowl Subdivision men’s football athletic teams, whose images have been licensed or sold.

 

Relying on an 1890 federal statute, the O’Bannon suit charges the NCAA with violating the Sherman Antitrust Act, which prohibits certain business activities that are deemed anticompetitive.  The class members allege that the defendants violated antitrust law by conspiring to fix at zero the amount of compensation athletes can receive for the use of their names, images and likenesses in products or media while they are in school.

 

The O’Bannon suit seeks a constructive trust for the benefit of the class members that will hold a percentage of revenue generated from television contracts, rebroadcasts of “classic” games, DVD game and highlight film sales and rentals, “stock footage” sales to corporate advertisers and others, photograph sales, video game sales, and jersey and other apparel sales.

 

Challenging Enforceability of Releases and Adhesion Contracts

 

NCAA Bylaw 12.5.1.1 (as it existed at the time the suit commenced in 2009) provides that the NCAA may use the name or picture of an enrolled student-athlete to generally promote NCAA championships or other NCAA events, activities or programs. Before a student-athlete commences athletic participation each year, the NCAA requires that he or she sign “Form 08-3a” titled, “Student-Athlete Statement.”

 

It is this form that is at the center of the dispute because of its provision regarding student-athletes’ release of rights in connection with use of their images. The form is mandatory; without it, the student-athlete is ineligible.

 

Relying on the NCAA bylaws and form described above, the O’Bannon suit alleges that the NCAA has placed an unlawful restraint on trade in order to commercially exploit former student-athletes. The NCAA is alleged to accomplish this by interpreting the bylaws and Form 08-3a as expressly relinquishing all rights, in perpetuity, including after the student-athlete graduates. However, the O’Bannon suit class members have called “foul” on this interpretation.

 

The class members argue that upon graduation, a former student-athlete should become entitled to financial compensation for commercial use of his or her image, without limitation.  If accurate, the NCAA and by extension, CLC and EA Sports, would have had no enforceable rights to license the use of likenesses that were referenced in the creation of video games based on notable competitive NCAA teams. In addition, the student-athletes would be entitled to control the method and terms by which the NCAA contracts rebroadcasts of “classic” games, DVD game and highlight film sales and rentals, among others.

 

Taken to its logical conclusion, the student-athletes’ argument requires a reversion of all rights granted that established their student-athlete eligibility. But this reversionary effect the student-athletes seek is not a written term within the releases signed.  Moreover, the releases signed were presumably signed by a person with legal capacity.

 

Even if a forward-thinking athlete had attempted to negotiate such an amendment before ever playing at a member institution, how likely is it that the NCAA would have accepted it? And, if accepted, would not the NCAA open up all of its bylaws, forms and regulations to negotiation? Is this a reasonable expectation given the sheer number of institutions and athletes who are signatories? Conversely, by being impervious to change or negotiation, the parties are essentially faced with analyzing whether the releases are enforceable adhesion contracts.  Short of trial on the merits, it appears that resolution of the issue of enforceability and scope of release granted will require a judicial declaration.

 

Defending Use on the Basis of Constitutionally Protected Expression

 

Aside from contractual interpretations, where use in video games is at issue, the defendants have been relying on the First Amendment.  Specifically, the defendants cite to the transformative character of the likenesses that appear in the video games. Courts are asked to look beyond the recognizability of players and instead consider the video game avatars as mere components within the video game medium.  In so doing, the defendants argue that the likenesses are merely “referenced” in the creation of the video games, and the players’ likenesses are simply “raw materials” or inspirations used in the development of a final product. Moreover, the video games are devised such that the consumer controls coaching decisions, how the avatar will perform, who the avatar will play, whether the avatar stays in its designated position on the field (or on the court), and, among other things, whether the avatar’s skill sets will be utilized in a manner similar to the student-athlete while in school.

 

This principle of transformative use asks whether a putative fair user has simply used protected expression in a more or less verbatim fashion or has added new expression, meaning or message. If the expression is new, the use is transformative and is more likely to be held shielded from liability.

 

New Jersey Court Shoots Down the Defense

 

In an opinion filed by the U.S. Court of Appeal, Third Circuit, the court ruled that there was an insufficient showing of transformative use.  Hart v. Electronic Arts, Inc., 717 F.3d 141, 170 (3d Cir. 2013)(Hart). The court reasoned that there could be no doubt that video games such as NCAA Football are the product of great effort, skill, and creative and technical prowess. However, the court found insurmountable the interest protected by the right of publicity, which, in that instance, outweighed the constitutional shield of the First Amendment.

 

Catalyst for Resolution

 

In July 2013, the NCAA announced that it would end its contract with EA Sports. However, the association remained steadfast in its position that it would not settle in the O’Bannon suit. A representative for the NCAA is reported to have said that the association is prepared to take the case to the Supreme Court as it is not prepared to compromise.

 

Perhaps not inclined to continue to fight an epic battle, on September 26, 2013, a press release announced that a settlement had been reached between Electronic Arts Inc., the parent company of EA Sports, CLC and thousands of [potential] plaintiffs.  Although confidential, the terms have been reported to include a significant financial payment of $40 million, which will be paid to more than 100,000 current and former athletes. In addition, EA Sports has agreed to change the way it develops future games featuring NCAA athletes in order to protect the rights to their likenesses. Notably, the September 26, 2013 settlement excludes the NCAA. With no regulatory changes in effect, it appears that if a current student-athlete accepts payment, he or she may risk eligibility.

 

Although the receipt of money in advance of trial is generally viewed as a technical victory, it seems this is not the case for former Rutgers quarterback Ryan Hart. On October 21, 2013, Hart—currently the proposed class representative in the Hart suit, advised the District Court of New Jersey that he neither knew of nor agreed to settlement.  In fact, Hart reportedly learned of the settlement from an article on The Wall Street Journal website. Shortly thereafter, Hart terminated his relationship with his attorneys and then retained new counsel. As a result, it is unclear what it will take to fully and finally resolve Hart’s alleged injuries.

 

NCAA Soldiers On

 

At stake are potentially billions of dollars in television revenues and licensing fees as well as alteration of the method and manner by which the NCAA regulates and conducts business with players, member institutions, product manufacturers, retailers and entertainment outlets whose revenue streams rely on player likenesses. Specifically, when it concludes, the case is likely to impact decades of former student-athletes who will open new revenue streams in the forms of licensing deals. Such deals could also be available to current student-athletes. In addition, conclusion of the cases could result in amendment of NCAA regulations that might include provisions for compensation in exchange for the use of likeness without threat of jeopardizing eligibility. The effect of such change might also alter the financial structures of NCAA member institutions who might find themselves in need of new lines of resources necessary to empower them to bid for student-athletes or, conversely, fill the void left by those who refuse to contract with them for fear that they will be sued for an alleged infringing use of likeness.
 

Topics:  Athletes, Electronic Arts, First Amendment, Just Compensation, NCAA, NCLC, Right of Publicity, Students

Published In: Art, Entertainment & Sports Updates, General Business Updates, Communications & Media Updates, Constitutional Law Updates, Personal Injury Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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