In 1922, in Federal Baseball Club of Baltimore v. National League of Professional Baseball Clubs, 259 U.S. 200 (1922), the United States Supreme Court held that Major League Baseball (MLB) was exempt from antitrust laws because exhibitions of baseball were “purely state affairs.” Justice Holmes wrote “the fact that in order to give the exhibitions the Leagues must induce free persons to cross state lines and must arrange and pay for their doing so is not enough to change the character of the business.” At the time of the decision, Baseball was vastly different than the national pastime we know today, namely because television broadcasting did not exist and the main source of revenue for teams was gate receipts.
As MLB grew to the international game of today, the “baseball exemption” survived a number of court battles more tense than a Yankee/Red Sox playoff game. In 1953, in Toolson v. New York Yankees, Inc., 346 U.S. 356 (1953), the Supreme Court upheld the 31-year old exemption despite a dissenting opinion that recognized Baseball’s “widely distributed capital investments” on materials “in interstate commerce” including “radio and television activities which expand its audiences beyond state lines” and “its organized ‘farm system’ of minor league baseball clubs.” In the famous Flood v. Kuhn, 407 U.S. 258 (1972) decision, the Supreme Court recognized that “Baseball is a business and it is engaged in interstate commerce.” The exemption was nonetheless upheld because the MLB had continued to develop with “full and continuing Congressional awareness,” meaning Baseball had survived numerous attempts to subjugate it to antitrust laws. In August 2014, Judge Shira Scheindlin of the Southern District of New York went far outside Supreme Court precedent, holding that Baseball’s century-old antitrust exemption was not applicable to MLB’s current broadcasting restrictions.
Section 1 of the Sherman Antitrust Act 15 U.S.C. §1 states that “every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states…is declared to be illegal.” Not all restraints of trade are illegal, only those determined to be unreasonable. For example, antitrust challenges are often subject to preemption from federal labor policy when the alleged restraint is a result of collective bargaining. Courts have held in the context of sports antitrust challenges that a certain degree of cooperative restraint among competitors, though facially unreasonable, is necessary if the product are to be available at all. Under the traditional Rule of Reason antitrust analysis, a court will analyze whether (1) a plaintiff has demonstrated an actual restraint of trade; (2) whether the defendants can justify that restraint with a “legitimate business purpose” and; (3) whether the plaintiff has successfully shown the challenged rules are unnecessarily restrictive.”
In 2012, a number of MLB fans sued MLB, MLB Advanced Media, Comcast, DirecTV and several regional sports networks (RSN’s) claiming that the League’s blackout policy was in violation of federal antitrust law because teams had agreed to “divide the live-game video presentation market into exclusive territories which are protected by anticompetitive blackouts.” Fans in Las Vegas, for example, are in the exclusive territory of the Los Angles Angels, Arizona Diamondbacks, Los Angles Dodgers, San Francisco Giants, San Diego Padres and Colorado Rockies. A fan of the Giants in Las Vegas, for example, would be required to watch the Giants game on Comcast Sportsnet Bay Area, the exclusive RSN of the team, rather than on the specially bundled MLB package they purchased (either MLB Extra Innings or MLBTv) because that fan is considered to be in the Giants home territory. But because that fan is outside of the Bay Area their cable provider will not carry the RSN of the Giants but instead the local Las Vegas channel, thus blacking them out from watching Giants games. MLB and the other defendants quickly filed for summary judgment, claiming that Baseball was exempt from antitrust laws.
Judge Scheindlin, in Laumann v. National Hockey League, No. 12-CV-1817 (S.D. N.Y. 2014) 2014 WL 3900566 (joined with Garber v. Office of the Commissioner of Baseball), stated that Baseball’s century long exemption from antitrust scrutiny does not apply “to a subject that is not central to the business of baseball and that Congress did not intend to exempt — namely, baseball’s contracts for television broadcasting rights.” The fans had proven that Baseball’s plan to bundle out of market games rather than allow consumers to forego the ability to purchase from other distributors (i.e. individual clubs) resulted in decreased consumer choice and increased price. MLB countered with a number of “business purposes,” all of which were rejected by the Court, and therefore the third step in the Rule of Reason analysis was unnecessary.
Since Laumann was decided in August of 2014 MLB moved to certify an interlocutory appeal which would send the case directly to the 2nd Circuit. MLB claimed “a substantial ground for difference of opinion,” regarding whether the professional baseball exemption applied, but Judge Scheindlin once again rejected MLB’s contention. The case will now proceed to trial and may force the various professional leagues to make significant changes to the way sports are broadcast on television, online and on mobile devices.
February 2, 2015