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.
Oct
06
Posted by : | On : October 6, 2008
Jul
18
Posted by : | On : July 18, 2008
The Tenth Circuit affirmed summary judgment dismissing a Complaint brought by an owner of a windshield repair shop alleging State Farm’s policy that advises its insureds to replace (rather than repair) windshields with cracks longer than six inches violates Sections 1 and 2 of the Sherman Act and the Colorado Consumer Protection Act. Campfield v. State Farm Mutual Automobile Insurance Co., Nos. 06-1442, 06-1467, 06-1469, 2008 WL 2736656 (10th Cir. July 15, 2008). The Court rejected plaintiff’s Section 1 and 2 claims because he could not establish a relevant product market — a necessary element of both claims. The Court noted that plaintiff alleged State Farm’s misuse of its monopsony power over its insured and therefore the relevant market “is not the market of competing sellers but of competing buyers. This market is comprised of buyers who are seen by sellers as being reasonably good substitutes.” Id. at *4 (citation omitted). Plaintiff alleged a “State Farm insured repairable windshield market, in the geographic area of the United States of America.” Id. The Tenth Circuit rejected this market definition as underinclusive because plaintiff offered no basis why sellers would not view other buyers of repairable windshields as reasonable substitutes. The Tenth Circuit made clear that the rule of reason applied to the Section 1 claim notwithstanding plaintiff’s characterization of State Farm’s conduct as a group boycott. The restraint was vertical in nature and not the classic horizontal group boycott that triggers per se condemnation. The Tenth Circuit rejected the Consumer Protection Act claim because the recommendations to insureds to replace rather than repair windshields were not knowing and intentional concealment or misrepresentations as required under the Act. This opinion is useful for its discussion of limitations on pleading relevant markets as well as the relevant market inquiry in monopsony cases.
Jun
21
Posted by : | On : June 21, 2008
On June 9, 2008, the Sixth Circuit rejected a coach’s challenge to the NCAA’s disciplinary rules because he did not allege that the disciplinary rules implicated commercial activity or that he suffered antitrust injury. Bassett v. Nat’l Collegiate Athletic Ass’n, No. 06-5795, 2008 WL 2329755 (6th Cir. June 9, 2008). The Sixth Circuit held that to state a claim under Section 1 of the Sherman Act, “there must be a commercial activity implicated.” Id. at *5. The court further held that “the appropriate inquiry is whether the rule itself is commercial, not whether the entity promulgating the rule is commercial.” Id. (citations omitted). The court then rejected the challenge because the enforcement of disciplinary rules is not a commercial activity. The court also held that plaintiff did not allege antitrust injury. To satisfy this element, the plaintiff had to allege an “anticompetitive effect on the coaching market.” Id. at *7. The coach’s exclusion based on enforcement of the disciplinary rules was insufficient to establish an antitrust injury. It should be noted that the decision contains good dicta explaining when the rule of reason as opposed the per se analysis applies and the nature of the rule of reason analysis.
Apr
10
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”).