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Topps Chewing Gum Inc. v. Fleer Corp.

decided: August 25, 1986.

TOPPS CHEWING GUM, INC., PLAINTIFF-APPELLEE,
v.
FLEER CORPORATION, DEFENDANT, MAJOR LEAGUE BASEBALL PLAYERS ASSOCIATION, DEFENDANT-INTERVENOR-APPELLANT



Appeal from a judgment of the District Court for the Eastern District of New York (Jack B. Weinstein, Chief Judge) rejecting defendant-intervenor's antitrust counterclaim on its merits. Reversed and remanded with directions to dismiss counterclaim without prejudice.

Author: Newman

OAKES and NEWMAN, Circuit Judges, and POLLACK, District Judge.

JON O. NEWMAN, Circuit Judge :

Thirty-three years ago Topps Chewing Gum, Inc. was before this Court as a defendant in a suit by a rival gum manufacturer alleging that Topps was selling baseball cards and chewing gum in violation of exclusive rights that baseball players had given to Topps' rival. See Haelan Laboratories, Inc. v. Topps Chewing Gum, Inc., 202 F.2d 866 (2d Cir.), cert. denied, 346 U.S. 816, 98 L. Ed. 343, 74 S. Ct. 26 (1953). In an important ruling recognizing a "right of publicity," id. at 868, this Circuit held that a ball player had a property interest in his photograph and likeness that could be exclusively licensed. Three years after that decision opened up the marketing of exclusive rights of publicity, Topps entered the field and purchased from another gum manufacturer exclusive licenses to use photographs of a large number of baseball players in connection with the sale of gum.

Since then Topps has become the undisputed leader of the baseball card business, having obtained exclusive licenses from virtually every person now playing baseball in the major leagues. This success has not gone unnoticed. Today Topps is before us again, this time as a defendant to a counterclaim brought by the Major League Baseball Players Association ("MLBPA" or "the Association") alleging that Topps' aggregation of exclusive licenses constitutes an unreasonable restraint of trade in violation of section 1 of the Sherman Act, 15 U.S.C. § 1 (1982). In a decision of the District Court for the Eastern District of New York (Jack B. Weinstein, Chief Judge), summary judgment was granted in favor of Topps, rejecting the Association's antitrust claim on its merits. For reasons that follow, we conclude that under the unusual circumstances of this litigation, the Association's counterclaim presents no justiciable issue. We therefore reverse and remand with directions to dismiss the counterclaim without prejudice.

The reasons for this anticlimactic disposition emerge upon consideration of the tangled history of contracts and litigation concerning baseball cards. The cards, as most school children know, measure 2-1/2 by 3-1/2 inches and display the name, picture, and signature of a player on the front and his career statistics on the back. They originated in the 1880's. Between 600 and 700 cards are now issued each year. The cards are marketed in one of three ways: (1) cards sold alone, in packages of 14 or more, (2) cards sold with a premium, i.e., an item that is not the primary motivation for purchasing the combination, and (3) cards sold as a premium, i.e., combined with an item that is the primary motivation for purchasing the combination. An example of the second category is a package marketed by Topps containing 15 baseball cards and one piece of bubble gum. Examples of the third category are a box of cereal that includes one or more baseball cards or giving away one or more cards with the purchase of a hamburger.

Topps obtains rights of publicity from baseball players by means of individual contracts for exclusive licenses. These player contracts, all in standard form, are solicited by Topps from baseball players while they are competing in the minor leagues. The contract assigns to Topps the exclusive right to publish the player's name, picture, signature, and biographical sketch "to be sold either alone or in combination with chewing gum, candy and confection, or any of them." The player receives $5 for signing, $250 for each year of the contract in which the player is a member of a major league team, and $75 for each two-year extension of the term of the contract. The contract ends, unless extended, after the fifth year in which the player has received the $250 payment for being with a major league team. Topps is also obligated to pay to the MLBPA the amount by which specified percentages of royalties on sales of Topps products that use players' rights exceed the $250 and $75 payments made to all players in any one year.

A 1968 agreement between Topps and the MLBPA modified the terms of Topps' player contracts from what they had been prior to 1968 to the terms set out above.

The MLBPA also contracts with baseball players to merchandise their publicity rights. Virtually all players, once they become members of a major league team, sign a commercial authorization agreement with the MLBPA. This agreement grants the Association the exclusive right to convey group licenses to others to use the player's name, signature, and picture. The agreement excludes group licensing contracts with merchandisers for rights covered by players' contracts respecting competitive products. By virtue of this exclusion, the MLBPA lacks the authority to license any merchandiser to sell baseball cards within the scope of Topps' player contracts, i.e., to sell baseball cards "alone or in combination with chewing gum, candy and confection."

In 1981, pursuant to the commercial authorization agreement, the MLBPA granted a non-exclusive license to the Fleer Corporation to sell baseball cards and similar products "in conjunction with a major league team Logo sticker." The sticker, displaying the name and insignia of a major league baseball team,*fn1 is affixed to a card the size of a baseball card in such a manner that it may be peeled off and affixed elsewhere. Fleer sells packages of 15 baseball cards and one team logo sticker.

Before obtaining its right to sell baseball cards in combination with a team logo sticker, Fleer sued Topps and the MLBPA in the Eastern District of Pennsylvania, alleging that Topps' aggregation of player contracts, the 1968 agreement between Topps and the MLBPA, and the MLBPA's commercial authorization agreement with the players precluded effective competition in the sale of baseball cards in violation of sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2. The trial court upheld Fleer's contention and enjoined the exclusivity feature of Topps' player contracts. Fleer Corp. v. Topps Chewing Gum, Inc., 501 F. Supp. 485 (E.D. Pa. 1980). The Third Circuit reversed, concluding that no antitrust violations had been established. Fleer Corp. v. Topps Chewing Gum, Inc., 658 F.2d 139 (3d Cir. 1981), cert. denied, 455 U.S. 1019, 72 L. Ed. 2d 137, 102 S. Ct. 1715 (1982). Upholding the lawfulness of the player contracts, the Third Circuit ruled, "Taken individually, or even as an interlocking network, the agreements at issue do not rise to the level of a section 1 violation." Id. at 153.

In 1983 Topps initiated the lawsuit that gives rise to this appeal. Topps sued Fleer in the Eastern District of New York, alleging that Fleer's marketing of packages of 15 baseball cards and one team logo sticker violated Topps' exclusive right to market baseball cards "alone." The theory of Topps' suit was that the team logo sticker was a "sham" product, included in the Fleer package "as a pretext for selling Baseball Cards . . . in violation of [Topps'] exclusive rights" under its contracts with the players. Complaint P 12. Fleer and the MLBPA had evidently been aware of Topps' contention that its exclusive right to sell baseball cards "alone" could not be circumvented by selling cards in conjunction with an item of nominal value. The contract by which the MLBPA granted group licensing rights to Fleer for the cards and logo sticker combination specified that the production cost of the logo sticker shall not be less than 15% of the production cost of the baseball cards in a package.

After Topp's suit was filed, the MLBPA sought and was granted intervention as of right as a defendant in the action. The MLBPA asserted various defenses to Topps' complaint and also asserted the counterclaim that is our particular concern on this appeal. The counterclaim, paragraphs 41-50 of the MLBPA's pleading, seeks declaratory and other (unspecified) relief for Topps' alleged violation of section 1 of the Sherman Act. The theory of the counterclaim emerges upon examination of the key paragraphs. Paragraph 43 refers to Fleer's antitrust suit in the Eastern District of Pennsylvania, and paragraph 44 represents that "at the conclusion of that antitrust litigation, it was held that [Topps'] Player Contracts, policies and practices did not unlawfully restrain trade in the relevant market within the meaning of Section 1 of the Sherman Act." Paragraph 45 recites the basic terms of the 1981 agreement between the MLBPA and Fleer for the right to market the combination of baseball cards and a team logo sticker, noting the 15% production cost floor applicable to the sticker. Paragraph 46 alleges that there is "an actual controversy between Topps and the MLBPA concerning whether the products marketed by Fleer pursuant to the MLBPA-Fleer agreement infringe upon the contract rights granted to Topps by individual major league baseball players, and whether (if such contract rights are infringed) the MLBPA is injured in its business and property by reason of something forbidden by the antitrust laws" (emphasis added). Paragraph 47 denies that Fleer's combination product infringes any rights of Topps'. Paragraph 48 alleges, "By the instant litigation [Topp's suit against Fleer], Topps now seeks to interpret and implement its Player Contracts in such a way as to restrain trade and commerce . . . in violation of Section 1 . . . ." Paragraph 49 alleges that "Topps now attempts to interpret is exclusive right to sell Baseball Pictures 'alone,' granted to it in its Player Contracts, as constituting the exclusive right to sell, and therefore prohibit others from selling, Baseball Pictures with low-cost, nonconfectionery premiums. Topps seeks to implement that interpretation through this litigation." Paragraph 50 asserts that the MLBPA is entitled to a declaratory judgment "that Topps's Player Contracts may not be so interpreted, and if so interpreted may not be enforced" (emphasis added).

The counterclaim thus makes both a contract rights claim and an antitrust claim and specifically relates the latter to the former. Topps is accused of unduly broadening the interpretation of the word "alone" in its player contracts to bar Fleer from selling baseball cards in combination with a team logo sticker. Topps is also accused of violating section 1 if it is correct in interpreting its player contracts to mean ...


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