The United States Court of Appeals for the Second Circuit recently held that Major League Baseball’s licensing of team logos was subject to rule of reason review under Section 1 of the Sherman Act. The court affirmed summary judgment in favor of MLB because the appellant did not challenge the licensing program under that rule. Major League Baseball Properties, Inc. v. Salvino, Inc., No. 06-1867 (2d Cir. Sept. 12, 2008) (attached MLB Properties v. Salvino). The baseball clubs give (with a few exceptions) exclusive licensing rights to a single entity. According to the MLB’s expert Frank Fisher (a world renowned economist), this system offers many efficiencies including allowing MLB licensing to compete better with other sports licensing; offering one-stop shopping to licensees; centralized management on matters such as quality control, intellectual property rights enforcement and negotiations and sales to licensees. According to Fisher, these efficiencies should result in lower licensing fees. The appellant had offered an expert report from economist Mr. Louis A. Guth, a Special Consultant for NERA, who disputed these efficiencies and asserted that the MLB licensing entity functioned as a cartel unresponsive to demand. The Second Circuit affirmed the exclusion of Guth’s report under Daubert v. Merrell Dow because (unlike Fischer’s report) it was unsupported by evidentiary citations or empirical analysis. The Second Circuit held that the rule of reason and not the per se rule or “quick look” analysis applied because the “arrangement might plausibly be thought to have a net precompetitive effect, or possibly no effect at all on competition.” Through different reasoning, the Second Circuit in this case reached the same result as the Seventh Circuit did in a challenge to a nearly identical licensing program by the NFL. See American Needle Inc. v. Nat’l Football League, No. 07-4006, 2008 WL 3822782 (7th Cir. Aug. 18, 2008) discussed in the Post of September 4, 2008. In that case, the Seventh Circuit held that the NFL teams were incapable of conspiring with themselves under the Copperweld doctrine in these particular circumstances. In this case, the Second Circuit did not address the Copperweld doctrine, but it did observe that the relevant market should include licenses for other professional sports. Therefore, it would be unlikely for the MLB’s licensing activities to have an effect on competition. This case should prove useful for practitioners for its discussion of when the per se rule, rule of reason or quick look analysis applies, the tests used under these analyses and the pitfalls of an inadequate expert report.
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Posted by : | On : October 6, 2008
Apr
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Posted by : | On : April 10, 2008
In Madison Square Garden, L.P. v. Nat’l Hockey League, No. 07-4927-CV, 2008 WL 746524 (2d Cir. Mar. 19, 2008), the Second Circuit denied Madison Square Garden — owner of the Rangers — a preliminary injunction against threatened fines for non-compliance with the NHL’s internet policy. That policy requires that all team websites had to be migrated to a common technology platform managed by the NHL and linked to the NHL’s website. When threatened, MSG brought suit seeking preliminary and permanent injunctive relief based on alleged violations of Section 1 of the Sherman Act and the Donnelly Act. The Southern District of New York denied MSG’s motion for a preliminary injunction and the Second Circuit affirmed holding that “MSG failed to establish a likelihood of success on the merits or sufficiently serious questions” on the merits. Id. at *2. The Second Circuit refused to apply a “quick look” because “the likelihood of anticompetitive effects is not] so obvious that ‘an observed with even a rudimentary understanding of economics could conclude that the arrangements in question would have an anticompetitive effect on customers and markets.'” Id. (citations omitted). In applying the rule of reason, the Second Circuit held that “MSG did not show that the NHL’s website ban has had an actual adverse effect on competition in the relevant market. Nor did MSG demonstrate that the many procompetitive benefits of the NHL’s restriction could be achieved through an alternative means that is less restrictive of competition. While there will certainly be substantive issues for the district court to address on the merits-for example, how the antitrust laws apply to the NHL as a sports league, and what the relevant market is in this case-the district court’s conclusion that preliminary injunctive relief was unwarranted falls well within the range of permissible decisions, and did not constitute an abuse of discretion.” Id. This case illustrates the difficulty of a sports team’s ability to challenge league action which benefits the league collectively. It should be noted, however, that NHL is unlikely to receive immunity under the Copperweld doctrine. See, e.g., Nat’l Hockey League Players Ass’n v. Plymouth Whalers Hockey Club, 419 F.3d 462 (6th Cir. 2005) (“courts considering the actions of professional sports leagues have found the leagues to be joint ventures whose members act in concert (i.e., agree ) to promulgate league rules, rather than one solitary acting unit”).