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Laumann v. National Hockey League

December 5, 2012

THOMAS LAUMANN, FERNANDA GARBER, ROBERT SILVER, GARRETT TRAUB, DAVID DILLON AND PETER HERMAN, REPRESENTING THEMSELVES AND ALL OTHER SIMILARLY SITUATED, PLAINTIFFS,
v.
NATIONAL HOCKEY LEAGUE, ET AL., DEFENDANTS.
FERNANDA GARBER, MARC LERNER, DEREK RASMUSSEN, ROBERT SILVER, GARRETT TRAUB, AND PETER HERMAN REPRESENTING THEMSELVES AND ALL OTHER SIMILARLY SITUATED, PLAINTIFFS,
v.
OFFICE OF THE COMMISSIONER OF BASEBALL, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Shira A. Scheindlin, U.S.D.J.

OPINION AND ORDER

I. INTRODUCTION

Plaintiffs bring this consolidated putative class action against the National Hockey League ("NHL") and Major League Baseball ("MLB"), various clubs within the Leagues, regional sports networks ("RSNs") that televise the games, and Comcast and DirecTV, multichannel video programming distributors ("MVPDs").*fn1 Plaintiffs challenge "defendants' . . . agreements to eliminate competition in the distribution of [baseball and hockey] games over the Internet and television [by] divid[ing] the live-game video presentation market into exclusive territories, which are protected by anticompetitive blackouts" and by "collud[ing] to sell the 'out-of-market' packages only through the League [which] exploit[s] [its] illegal monopoly by charging supra-competitive prices."*fn2 Plaintiffs claim that these agreements "result in reduced output, diminished product quality, diminished choice and suppressed price competition" in violation of the Sherman Antitrust Act,*fn3 and request statutory damages and injunctive relief on behalf of themselves and the class.*fn4 Defendants jointly move to dismiss all claims pursuant to Federal Rule of Civil Procedure 12(b)(6).*fn5

II. BACKGROUND*fn6

A. The Agreements to Telecast Baseball and Hockey

Plaintiffs are subscribers to television*fn7 and/or Internet*fn8 services that include live hockey and baseball telecasts. Defendant National Hockey League is an unincorporated association of thirty major league professional ice hockey clubs, nine of which are named as defendants in Laumann.*fn9

Defendant Office of the Commissioner of Baseball, doing business as Major League Baseball, is an unincorporated association of thirty professional baseball clubs, nine of which are named as defendants in Garber.*fn10 The Complaints also name subsidiaries of the Leagues that pursue their commercial opportunities, including Internet operations (together with the NHL, MLB and the named individual clubs, the "League defendants").*fn11 Plaintiffs allege that "[p]ursuant to a series of agreements between and among Defendants, the League[s] ha[ve] obtained centralized control over distribution of live video programming of [hockey and baseball] games" and "the clubs have agreed not to compete in business matters related to the video presentation of live major-league men's professional [hockey and baseball] games."*fn12

Both the NHL and MLB are "ultimately controlled by, and operate for the benefit of the clubs."*fn13 "Though necessarily cooperating to produce inter-club games, each club operates as an independently owned and managed business, competing against each other in various markets."*fn14 In both the NHL and MLB, each team owns the initial right to control telecasts of its home games, and keeps the revenues it generates from the sale of these rights.*fn15 The teams in each League have mutually agreed to permit the visiting team to produce a separate telecast of the games.*fn16

1. "In-Market" Agreements

The vast majority of telecasts are produced by arrangement between individual teams and RSNs, a number of which are named as defendants.*fn17 RSNs are local television networks that negotiate contracts with individual NHL or MLB clubs to broadcast the majority of the local club's games within that club's telecast territory.*fn18 Several defendant RSNs are owned and controlled by defendant Comcast,*fn19 several are owned and controlled by defendant DirecTV,*fn20 and two are independent of the MVPDs, but share ownership with an individual club.*fn21

RSNs produce the games and sell their programming to MVPDs including Comcast, a cable distributor, and DirecTV, a satellite distributor (the upstream market).*fn22 MVPDs, in turn, sell programming to consumers (the downstream market).*fn23 Pursuant to agreements with the RSNs, MPVDs make RSN programming available as part of standard packages sold to consumers within the RSN's designated territory, and black out games in unauthorized territories, in accordance with the agreements between the RSNs and the Leagues.*fn24 The Complaints allege that the "regional blackout agreements," made "for the purpose of protecting the local television telecasters," are "[a]t the core of Defendants' restraint of competition."*fn25 "But for these agreements," plaintiffs allege, "MVPDs would facilitiate 'foreign' RSN entry and other forms of competition."*fn26 Plaintiffs argue that the "MVPDs also directly benefit from the blackout of Internet streams of local games, which requires that fans obtain this programming exclusively from the MVPDs."*fn27

A small percentage of games are produced under national contracts between the Leagues (pursuant to rights granted by the individual teams) and national networks.*fn28 These limited nationally televised games provide the only opportunity for fans to watch a game not involving a local team without purchasing an out-of-market package.

2. "Out-of-Market" Agreements

With the limited exception of nationally televised games, standard MVPD packages only televise "in-market" games (i.e., games played by the team in whose designated home territory the subscriber resides). For a consumer to obtain out-of-market games, there are only two options -- television packages and Internet packages -- both of which are controlled by the Leagues.*fn29 Television packages-- NHL Center Ice and MLB Extra Innings -- are available for purchase from MVPDs, in accordance with agreements between the MVPDs and the Leagues. These packages require the purchase of all out-of-market games even if a consumer is only interested in viewing a particular game or games of one particular non-local team. They also require a subscription to the standard digital television package.*fn30 Internet packages -- NHL Gamecenter Live and MLB.tv -- are available directly through the Leagues and also require the purchase of all out-of-market games. Neither local games nor nationally televised games are available through these packages.*fn31

Thus, "there is no authorized method for viewing [local] games on the Internet."*fn32 For example, an NHL Gamecenter Live subscriber in New York cannot watch New York Rangers games through any Internet source, but instead must subscribe to MSG through an MVPD. The alleged purpose of the limitation on Internet programming is to protect the RSNs' regional monopolies and insulate MVPDs that carry them from Internet competition.*fn33

Plaintiffs allege that the market divisions and centralization of rights to distribute out-of-market games in the Leagues have "adversely affected and substantially lessened competition in the relevant markets" by reducing output of live MLB and NHL game presentations, raising prices, and rendering output "unresponsive to consumer preference to view live [MLB and NHL] games, including local games, through both Internet and television media."*fn34

B. The Alleged Markets and Products

The Complaints allege relevant product/service markets for "the provision of major league professional ice hockey [and baseball] contests in North America."*fn35 In addition, and "[m]ost importantly for this action, there is a relevant market for live video presentations of [professional baseball and hockey] games over media such as cable and satellite television and the Internet."*fn36 These markets are "characterized by high barriers to entry" in which the NHL and MLB, as the only providers of these games, acting through and with the independent clubs that own and control the Leagues, have market power.*fn37 The NHL's and MLB's dominance in the production of professional hockey and baseball games respectively "give [them] the ability, together with [their] television partners, to exercise market power in the market for live video presentations of [professional baseball and hockey] games."*fn38

C. The Claims

Based on the foregoing facts, plaintiffs allege four antitrust violations:

(1) for Television plaintiffs, violation of Section 1 of the Sherman Antitrust Act based on agreements to "forbid[] the carrying or online streaming of any [NHL/MLB] game in any geographic market except those licensed by the [NHL/MLB] team in that geographic market" (Claim I);*fn39 (2) for Television plaintiffs, violation of Section 1 based on agreements "that [NHL/MLB] will be the exclusive provider of live 'out-of-market' games distributed through television providers" (Claim II);*fn40 (3) for Internet plaintiffs, violation of Section 1 based on agreements "that [NHL/MLB] will be the exclusive provider of live 'out-of-market' games over the Internet" (Claim III);*fn41 and (4) for all plaintiffs, violation of Section 2 for conspiracy to monopolize the "market for video presentations of major league [hockey/baseball] games and Internet streaming of the same" (Claim IV).*fn42

Defendants make six arguments why plaintiffs' claims must be dismissed. First,plaintiffs have not alleged harm to competition.*fn43 Second, plaintiffs lack standing on the following grounds: (1) plaintiffs are "indirect purchasers;" (2) plaintiffs' injuries are "too attenuated and remote from the alleged horizontal conspiracy;" (3) the Garber plaintiffs lack standing to assert claims concerning the MLB Extra Innings television package, because none of them purchased that product; (4) five of six plaintiffs are "former subcribers who assert no intention to subscribe to any of the challenged television or Internet services in the future," and therefore lack standing to request injunctive relief.*fn44

Third, plaintiffs allege "no cognizable conduct by Comcast, DirecTV or any of the RSN Defendants" because "[t]he only plausible allegations as to these Defendants relate to their vertical distribution, which is presumptively legal."*fn45 Fourth, the alleged horizontal activities of the NHL and MLB defendants are "lawful on their face" as the "very core of what professional sports league ventures do -- sell their jointly created product."*fn46 Fifth, plaintiffs' "proposed relevant market is insufficient as a matter of law" because plaintiffs fail to "allege facts regarding reasonable interchangeability or cross-elasticity of demand."*fn47 Sixth, plaintiffs' Section 2 claims must be dismissed for: (1) failure to allege any anticompetitive effect; (2) failure to allege any plausible "conspiracy" among the Leagues, the clubs and the RSNs and distributors; and (3) failure to allege any of the necessary elements of a monopolization claim.*fn48

III. LEGAL STANDARD

Federal Rule of Civil Procedure 12(b)(6) provides that a complaint must be dismissed if it "fail[s] to state a claim upon which relief can be granted." In deciding a motion to dismiss the court "accept[s] all factual allegations in the complaint as true, and ...


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