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Federal judge rules NCAA violates antitrust law by prohibiting athletes from getting paid (update)

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The National Collegiate Athletics Association (NCAA) rules that forbid student-athletes from being compensated for the use of their names, images and likenesses are a violation of antitrust law, a federal judge declared today.

News of the court's decision was first reported by CBS Sports.

The ruling, handed down by Judge Claudia Wilken in the U.S. District Court for the Northern District of California, puts in place a permanent injunction that means the NCAA will no longer be able to enforce the bylaws in question. Under the NCAA's existing guidelines, member schools prohibit athletes from receiving compensation for their appearance in products such as EA Sports' NCAA Football video game franchise and live telecasts of college football games.

Judge Wilken's opinion is the biggest development yet in a lawsuit that has been running since 2009, when former University of California, Los Angeles basketball star Ed O'Bannon filed an antitrust complaint against the NCAA, Electronic Arts and the Collegiate Licensing Company (CLC). By allowing for college athletes to be paid for the use of their names, images and likenesses, Judge Wilken's ruling opens up the possibility of EA bringing back the NCAA Football series, which the publisher put on indefinite hold last fall. However, the decision still does not allow athletes to market themselves; Wilken ruled that that's a legitimate pro-competitive restriction.

Student-athletes will now be able to receive "a limited share of the revenues generated from the use of their names, images and likenesses in addition to a full grant-in-aid," Wilken wrote. NCAA schools will be allowed to impose a cap on payments being made while students are enrolled, but won't be able to set that limit below the cost of attendance. In other words, they will have to at least offer scholarships that cover the cost of attendance.

Colleges and universities will also be able to defer payments to student-athletes by depositing licensing revenue into a trust that would pay out upon graduation or the expiration of athletic eligibility, whichever comes first. The cap on the trust can be set no lower than $5,000 per person for each year of eligibility. And schools must offer the same amount to all athletes in the same class on the same team.

"The [NCAA] rules restrain trade in the market where these schools compete to acquire recruits' athletic services and licensing rights," said Wilken, offering one explanation why the court found the organization to be in violation of federal antitrust law. Wilken struck down each of the NCAA's defenses of its practices. Among other claims, the organization had contended that it put the rules in place to maintain competitive balance, and that college sports are popular because people like watching amateur athletes play rather than professionally paid ones.

Judge Wilken noted that no appeal of the ruling will stay the injunction. However, the injunction will not take effect until the beginning of the next recruiting cycles for football and basketball. And it will not affect any recruits who will enroll in college before July 1, 2016. The ruling makes no mention of specific financial relief for the plaintiffs, but says that they "shall recover their costs from the NCAA."

The defendants in the lawsuit previously settled claims regarding college athletes' appearances in video games. EA and the CLC, the organization that handles licensing for dozens of NCAA member schools, proposed a settlement in May through which they would pay $40 million to players whose likenesses they had used in EA's NCAA Football and March Madness video game franchises. The NCAA followed weeks later with its own settlement of $20 million.

NCAA Football 14, which was released in July 2013, stands as the most recent entry in EA's series. Shortly after its launch, the NCAA announced it had declined to renew its licensing agreement with EA. The publisher vowed to move forward with the series, but once college conferences began following the NCAA's lead and schools threatened to bow out as well, EA canceled the series for the foreseeable future. An EA official testified during the trial that the publisher would be interested in returning to the market if it could acquire the relevant licenses — that is, if it could start paying athletes for the use of their names, images and likenesses.

In a brief statement, Donald Remy, chief legal officer for the NCAA, said, "We disagree with the Court's decision that NCAA rules violate antitrust laws. We note that the Court's decision sets limits on compensation, but are reviewing the full decision and will provide further comment later. As evidenced by yesterday's Board of Directors action, the NCAA is committed to fully supporting student-athletes."

We've reached out to EA and the plaintiffs' attorneys for comment, and will update this article with any information we receive.

"It is likely that the challenged restraints, as well as other perceived inequities in college athletics and higher education generally, could be better addressed as a policy matter by reforms other than those available as a remedy for the antitrust violation found here," wrote Wilken in the ruling's conclusion. "Such reforms and remedies could be undertaken by the NCAA, its member schools and conferences, or Congress."

It's clear that this decision will forever change the face of collegiate athletics. Head over to SB Nation for a full analysis of the ruling and its implications.

Update: An EA representative told Polygon the company has no comment on the court decision.

Update 2: Reached for comment regarding the ruling, a representative for Hausfeld LLP, the law firm representing O'Bannon and the other plaintiffs, provided Polygon with the statement below.

"This is a long-awaited decision to unmask a myth imposed upon young college athletes," said Michael Hausfeld, chairman of Hausfeld LLP and lead attorney for the plaintiffs. "The decision was a well-reasoned rebuke to the NCAA's exploitation. No longer can the NCAA hide behind the fiction of amateurism to deny the benefits well deserved by the young players who are the heart and soul of the enterprise. Hopefully the decision will mark the beginning of a transformation of the relationship of the athletes to the academic community."

Update 3: The NCAA announced Aug. 10 that it will appeal the O'Bannon ruling.

"We remain confident that the NCAA has not violated the antitrust laws and intend to appeal," wrote Donald Remy, the organization's chief legal officer. "Further, the Court rejected the plaintiffs' claims that the NCAA licensed student-athletes' names, images and likenesses to EA Sports or anyone else. It also rejected the plaintiffs' proposed model where athletes could directly market their names, images and likenesses while in college."

Remy added, "We look forward to presenting our arguments on appeal, and in the meantime we will continue to champion student-athlete success on the field and in the classroom."