Introduction
Legal background
American Needle and its progeny
Laumann
Comment
Introduction
On December 5 2012 Judge Shira Scheindlin of the Southern District of New York declined to dismiss claims by consumers of major league baseball and national hockey league telecasts, alleging that the teams that make up those leagues had violated Section 1 of the Sherman Act.(1) The challenged conduct involved the alleged practices of "divid{ing} the live-game video presentation market into exclusive territories, which are protected by anticompetitive blackouts" and colluding to sell viewing packages for the games exclusively through the leagues.(2)
Although the court dismissed certain plaintiffs whose claimed injuries were not sufficiently connected to the alleged illegal activity, Scheindlin allowed a majority of the suits to proceed, holding that agreements to license collectively current major league baseball and national hockey league television broadcast rights could be challenged under Section 1 of the Sherman Act.(3)
Legal background
Section 1 of the Sherman Act prohibits concerted action that unreasonably restrains trade, but does not apply to independent or unilateral conduct. Generally, joint conduct by "separate economic actors pursuing separate economic interests" is characterised as concerted, whereas internal agreements to implement a "single, unitary firm's policy" are characterised as unilateral.(4) While the structure surrounding an agreement may play some role in this analysis (ie, whether the decision comes from a single legal entity or an agreement among many entities), the Supreme Court has long held that "substance, not form, should determine whether a separately incorporated entity is capable of conspiring under § 1".(5)
American Needle and its progeny
In American Needle, Inc v National Football League(6) the Supreme Court held that agreements between professional football teams to license their individual team-owned intellectual property, including logos and team colours, through National Football League (NFL) Properties constituted concerted, as opposed to unilateral, action. Further, the court held that the fact that "the teams have organized and own a legally separate entity that centralizes the management of their intellectual property" did not save the arrangement – an "ongoing § 1 violation cannot evade § 1 scrutiny simply by giving the ongoing violation a name and label".(7) The court instead performed a functional analysis suggested by Copperweld Corp v Independence Tube Corp, concluding that the "NFL teams d[id] not possess either the unitary decisionmaking quality or the single aggregation of economic power characteristic of independent action".(8) The court found relevant and important to this analysis the fact that the individual teams "compete in the market for intellectual property" and, therefore, each team "is a potential independent cente{r} of decisionmaking".(9)
Earlier in 2012, in Washington v National Football League,(10) the Minnesota District Court declined to extend the ruling in American Needle to the collective licensing of "historical football game footage". Recognising that NFL teams must "cooperate to produce and sell these images" and that "no one entity can do it alone", the court held that former NFL players could not sustain an antitrust challenge against the NFL and its teams for collective agreements to use this footage in promotional videos.(11) While the "NFL and its teams can conspire to market each teams' individually owned property", such a conspiracy cannot occur with respect to property that the "teams and the NFL can only collectively own".(12)
Laumann
At first glance, the decision to allow the plaintiffs' Section 1 claims to proceed in Laumann appears to be in tension with the dismissal of similar claims in Washington. Both situations involved video footage of professional sports league games, and both situations dealt with the joint selling of that footage through a centralised league structure, but the cases resulted in opposite conclusions regarding the applicability of Section 1.
However, the common thread of both holdings appears to be reliance on current and historical property ownership rights as the determining factor as to whether joint licensing is considered concerted or independent conduct. Scheindlin expressly distinguished "historical football game footage", which individual teams "do not separately own, and have never separately owned", from current major league baseball and national hockey league broadcast rights arguably owned by the individual teams.(13) Indeed, the Laumann court specifically noted that similar to the "intellectual property at issue in American Needle, the rights at issue here belong initially to the individual clubs", and that the American Needle court "conclusively established that these kinds of arrangements are subject to Section 1 scrutiny".(14) By contrast, the Washington court observed that "unlike... American Needle, the intellectual property involved is... something that the individual teams do not separately own, and never have separately owned".(15)
While IP ownership was one aspect of the holding in American Needle, neither the Washington nor Laumann courts appear to have undertaken the Supreme Court's full 'functional' analysis to consider the practical effects of the challenged arrangement and determine whether it deprived the "marketplace of independent centers of decisionmaking that competition assumes and demands".(16) American Needle implied that this analysis should consider multiple factors, including the existence of "separate corporate consciousnesses", the commonality of objectives and the extent of aggregation of economic power.(17)
Comment
Read in conjunction, Washington and Laumann suggest that the cooperative selling of jointly owned property through a lawful joint venture may enjoy certain antitrust protections, whereas the cooperative selling of singularly owned property through the same joint venture may be open to challenge under Section 1 of the Sherman Act. However, the contours of that rule have yet to be well defined, particularly with regard to its role in the functional analysis of allegedly concerted action required by the Supreme Court in American Needle. Companies participating in joint ventures that license collectively owned, or singularly owned and collectively produced, intellectual property should monitor this line of cases closely to assess potential antitrust risks that may arise.
For further information on this topic please contact Benjamin F Holt or Wesley Carson at Hogan Lovells US LLP's Washington DC office by telephone (+1 202 637 5600), fax (+1 202 637 5910) or email ([email protected] or [email protected]).
Endnotes
(1) See Laumann v National Hockey League, 12 Civ 1817 (SDNY December 5 2012).
(3) Id at slip op 48-49. The plaintiffs also brought suits against Comcast and DirecTV, cable programming distributors, for their alleged participation in the conspiracy. Id at slip op 2.
(4) Copperweld Corp v Independence Tube Corp, 467 US 752, 769 (1984).
(10) Civil No 11-3354, 2012 WL 3017961 at *2 (D Minn June 13 2012).
(13) Laumann, 12 Civ 1817, slip op at 34 n 115.
(14) 12 Civ 1817, slip op at 33-34. Scheindlin further cited a 1938 district court case for the proposition that a baseball team could grant "the exclusive right to broadcast, play-by-play, descriptions or accounts of the games in which their team participated". Id (citing Pittsburgh Athletic Co v KQV Broad Co, 24 F. Supp 490, 492 (WD Pa 1938)).
(16) American Needle, 130 SCt at 2209. The Laumann court noted the plaintiffs' allegation that "absent these agreements the clubs would compete against each other in the markets for hockey and baseball programming". 12 Civ 1817, slip op.at 33. While this allegation seems to get closer to the American Needle functional analysis, particularly at the motion to dismiss stage, the lack of elaboration as to the effect this allegation has on the outcome provides little definitive guidance.
