The college sponsored the production and distribution of flyers libeling Gibson’s as racist and canceled a longstanding contract w/Gibson’s to supply baked goods to the school cafeteria in alignment with whatever activities the students undertook. They are not just a fully participating party in the libel, they apparently took (over) the lead in it. The students may have reacted the way they did, per their rights as you say, but they are not a party to the suit nor the judgement. Nobodys’ rights are being trampled other than Gibson’s, to operate a business free from exactly the type of interference that Oberlin decided to undertake. They could have remained neutral but instead chose their actions and should pay the penalty.
Well, that makes a little more sense.