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Laumann v. NHL

United States District Court, S.D. New York

August 8, 2014

THOMAS LAUMANN, ROBERT SILVER, GARRETT TRAUB, and DAVID DILLON, representing themselves and all other similarly situated, Plaintiffs,
v.
NATIONAL HOCKEY LEAGUE, et al., Defendants. MARC LERNER, DEREK RASMUSSEN, and GARRETT TRAUB, representing themselves and all other similarly situated, Plaintiffs,
v.
OFFICE OF THE COMMISSIONER OF BASEBALL, et al., Defendants

Decided August 4, 2014

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For Plaintiffs: Edward A. Diver, Esq., Howard I. Langer, Esq., Peter E. Leckman, Esq., Langer Grogan & Diver, P.C., Philadelphia, Pennsylvania; Kevin M. Costello, Esq., Gary E. Klein, Esq., Klein Kavanagh Costello, LLP, Boston, Massachusetts; Michael Morris Buchman, Esq., John A. Ioannou, Esq., Pomerantz Haudek Block Grossman & Gross LLP, New York, New York; Alex Schmidt, Esq., Mary Jane Fait, Esq., Wolf Haldenstein Adler Freeman & Herz LLP, New York, New York; Robert LaRocca, Esq., Kohn, Swift & Graf, P.C., Philadelphia, Pennsylvania; J. Douglas Richards, Esq., Jeffrey Dubner, Esq., Cohen, Milstein, Sellers & Toll, PLLC, New York, New York.

For Office of the Commissioner of Baseball, Major League Baseball Enterprises Inc., MLB Advanced Media L.P., MLB Advanced Media, Inc., Athletics Investment Group, LLC, The Baseball Club of Seattle, L.L.P., Chicago White Sox, Ltd., Colorado Rockies Baseball Club, Ltd., The Phillies, Pittsburgh Baseball, Inc., and San Francisco Baseball Associates, L.P., Defendants: Bradley I. Ruskin, Esq., Carl Clyde Forbes, Esq., Helene Debra Jaffe, Esq., Jennifer R. Scullion, Esq., Robert Davis Forbes, Esq., Proskauer Rose LLP, New York, New York; Thomas J. Ostertag, Esq., Senior Vice President and General Counsel, Office of the Commissioner of Baseball, New York, New York.

For National Hockey League, NHL Enterprises, L.P., NHL Interactive Cyberenterprises, LLC, Chicago Blackhawk Hockey Team, Inc., Comcast-Spectacor, L.P., Hockey Western New York LLC, Lemieux Group, L.P., Lincoln Hockey LLC, New Jersey Devils LLC, New York Islanders Hockey Club, L.P. and San Jose Sharks, LLC, Defendants: Shepard Goldfein, Esq., James A. Keyte, Esq., Paul M. Eckles, Esq., Matthew M. Martino, Esq., Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York.

For DIRECTV, LLC, DIRECTV Sports Networks, LLC, DIRECTV Sports Net Pittsburgh, LLC a/k/a Root Sports Pittsburgh, DIRECTV Sports Net Rocky Mountain, LLC a/k/a Root Sports Rocky Mountain, and DIRECTV Sports Net Northwest, LLC a/k/a Root Sports Northwest, Defendants: Andrew E. Paris, Esq., Joann M. Wakana, Esq., Louis A. Karasik, Esq., Alston & Bird LLP, Los Angeles, California.

For Comcast Corporation, Comcast SportsNet Philadelphia, L.P., Comcast SportsNet Mid-Atlantic L.P., Comcast SportsNet California, LLC, and Comcast SportsNet Chicago, LLC, Defendants: Arthur J. Burke, Esq., James W. Haldin, Esq., Davis Polk & Wardwell, New York, New York.

For Yankees Entertainment and Sports Networks, LLC and New York Yankees Partnership: Jonathan D. Schiller, Esq., Alan Vickery, Esq., Christopher Duffy, Esq., Boies, Schiller & Flexner LLP, New York, New York.

For The Madison Square Garden Company and New York Rangers Hockey Club, Defendants: Stephen R. Neuwirth, Esq., Richard I. Werder, Jr., Esq., Ben M. Harrington, Esq., Quinn Emanuel Urquhart Oliver and Sullivan LLP, New York, New York.

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OPINION AND ORDER

Shira A. Scheindlin, United States District Judge.

I. INTRODUCTION

Plaintiffs bring these putative class actions against the National Hockey League (" NHL" ) and various individual clubs in the league (the " NHL Defendants" ); Major League Baseball (" MLB" ) and various individual clubs in the league (the " MLB Defendants" ) (together the " League Defendants" ); multiple regional sports networks (" RSNs" ) that produce and distribute professional baseball and hockey programming; [1] two multichannel video programming distributors (" MVPDs" or " distributors" ), Comcast and DIRECTV (together with the RSNs, the " Television Defendants" or " broadcasters" ); Madison Square Garden Company and the New York Rangers Hockey Club (the " MSG Defendants" ); and New York Yankees Partnership and Yankees Entertainment & Sports Network, LLC (" YES" ) (together the " Yankee Defendants" ). Plaintiffs allege violations under Sections 1 and 2 of the Sherman Antitrust Act (the " Sherman Act" ).

On July 27, 2012, the defendants jointly moved to dismiss the Complaints in both actions, Garber v. Office of the Commissioner of Baseball (" Garber" ) and Laumann v. National Hockey League (" Laumann" ). In an Opinion and Order dated December 5, 2012, I granted the motion in part and denied it in part.[2] Plaintiffs Fernanda Garber and Peter Herman were

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dismissed from both cases, and plaintiff Robert Silver was dismissed from the Garber case, for lack of antitrust standing. Additionally, I dismissed plaintiffs' claims under Section 2 of the Sherman Act against the Television Defendants.[3]

On August 19, 2013, Comcast and its affiliated RSNs (the " Comcast Defendants" ) filed a motion to compel arbitration against Garrett Traub, Silver, Vincent Birbiglia, Thomas Laumann, and Derek Rasmussen, and to stay the claims of David Dillon and Marc Lerner pending resolution of the arbitration. Comcast's motion was granted as to Traub, Laumann, and Rasmussen, but denied as to Silver, Birbiglia, Dillon, and Lerner. The same day, DIRECTV and its affiliated RSNs (the " DIRECTV Defendants" ) filed a motion to compel arbitration against Lerner. DIRECTV's motion was denied in full.[4]

The Comcast Defendants, the DIRECTV Defendants, the NHL Defendants, and the MLB Defendants now move for summary judgment on the remaining claims.[5] For the reasons that follow, all four motions are DENIED in full.

II. BACKGROUND

NHL is an unincorporated association of thirty major league professional ice hockey clubs, nine of which are named as defendants in Laumann.[6] MLB is an unincorporated association of thirty professional baseball clubs, nine of which are named as defendants in Garber.[7] The clubs within each League are competitors -- both on the field and in the contest to broaden their fan bases. However, the clubs must also coordinate in various ways in order to produce live sporting events, including agreeing upon the game rules and setting a schedule of games for the season.[8] Both leagues divide their member teams into geographic territories and assign each team a home television territory (" HTT" ) for broadcasting purposes.[9] Neither the Comcast Defendants nor the DIRECTV Defendants played a role in the initial creation of the Leagues' HTTs.[10]

The structure of the territorial broadcasting system is largely uncontested. By League agreement, each club agrees to license its games for telecast only within its designated HTT.[11] The clubs then contract with RSNs through Rights Agreements.[12]

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The Rights Agreements generally provide each RSN the exclusive right to produce a club's games and telecast them in the HTT.[13] The Agreements do not permit the RSNs to license telecasts for broadcast outside the HTTs.[14] The Rights Agreements also require the RSNs to provide their telecasts to the Leagues without charge for use in the out-of-market packages (" OOM packages" ).[15] The clubs keep the revenue from their respective Rights Agreements. There are significant differences in the economic value of the various HTTs.[16]

In order to produce the telecasts of live games, the RSNs invest in equipment, production facilities, and a large staff.[17] They also produce " shoulder" programming such as pre-game and post-game shows.[18] The RSNs then sell their programming to MVPDs like Comcast and DIRECTV through Affiliation Agreements, and the MVPDs televise the programming through standard packages sold to consumers within the HTT.[19] Even when an MVPD agrees to carry a RSN, it does not always distribute that RSN throughout its entire territory.[20] The MVPDs acquire the rights to broadcast the games subject to the territorial restrictions in the RSNs' agreements with the Leagues.[21] The MVPDs black out games in unauthorized territories in accordance with those restrictions.

Fans can watch out-of-market games in one of two ways. First, some games are televised nationally through contracts between the Leagues and national broadcasters like ESPN and Fox.[22] The clubs have agreed to allow the Leagues to negotiate national contracts on their behalf. The Leagues' agreements with national broadcasters contain provisions requiring the Leagues to preserve the HTTs.[23] The revenues from national broadcasts are shared equally among the clubs.[24]

Second, the Leagues produce OOM packages in both television and Internet format. The television packages -- NHL Center Ice and MLB Extra Innings -- are available for purchase through MVPDs, including Comcast and DIRECTV.[25] The Internet packages -- NHL GameCenter Live and MLB.tv -- are available for purchase

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directly from the Leagues.[26] The OOM packages are comprised of local RSN programming from each of the clubs.[27] As with the national broadcasts, revenues from the OOM packages are shared equally among the clubs.[28]

Each of the OOM packages requires the purchase of the full slate of out-of-market games, even if a consumer is only interested in viewing the games of one team. The OOMs exclude in-market games to " avoid diverting viewers from local RSNs that produce the live game feeds that form the OOM packages." [29]

In sum, each RSN is the sole producer of its club's games[30] and the sole distributor of those games within the HTT aside from limited nationally broadcasted games. The OOM packages do not show in-market games to avoid competition with the local RSN. Additionally, the territorial broadcast restrictions allow each RSN to largely avoid competing with out-of-market games produced by other RSNs.

Internet streaming rights are owned by the Leagues and/or the clubs.[31] The RSNs have no right to license their programming for Internet streaming directly. The Internet OOM packages are the primary way for fans to view games on the Internet. Additionally, some MVPDs have negotiated with the Leagues to provide Internet streaming of out-of-market games to subscribers of the OOM television packages.[32] Internet streaming of in-market games remains largely unavailable to consumers.[33]

III. STANDARD OF REVIEW

Summary judgment is appropriate " only where, construing all the evidence in the light most favorable to the non-movant and drawing all reasonable inferences in that party's favor, there is 'no genuine issue as to any material fact and . . . the movant is entitled to judgment as a matter of law.'" [34] " A fact is material if it might affect the outcome of the suit under the governing law, and an issue of fact is genuine if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." [35]

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" [T]he moving party has the burden of showing that no genuine issue of material fact exists and that the undisputed facts entitle him to judgment as a matter of law." [36] To defeat a motion for summary judgment, the non-moving party must " do more than simply show that there is some metaphysical doubt as to the material facts," [37] and " may not rely on conclusory allegations or unsubstantiated speculation." [38]

In deciding a motion for summary judgment, " [t]he role of the court is not to resolve disputed issues of fact but to assess whether there are any factual issues to be tried." [39] " 'Credibility determinations, the weighing of the evidence, and the drawing of legitimate inferences'" are jury functions, not those of a judge.[40]

IV. APPLICABLE LAW

A. Section 1 of the Sherman Act

Section 1 of the Sherman Act prohibits " [e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States." [41] " The crucial question in a Section 1 case is [] whether the challenged conduct stems from independent decision or from an agreement, tacit or express." [42] " In order to prove a conspiracy, the antitrust plaintiff should present direct or circumstantial evidence that reasonably tends to prove that the [defendant] and others had a conscious commitment to a common scheme designed to achieve an unlawful objective." [43] A business decision may be lawful when made unilaterally but unlawful when made pursuant to an agreement.[44]

" Parallel conduct can be probative evidence bearing on the issue of whether there is an antitrust conspiracy. However, parallel conduct alone will not suffice as evidence of such a conspiracy, even if the defendants 'knew the other defendant companies were doing likewise. . . .'" [45]

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Parallel conduct must be accompanied by " plus factors," such as " a common motive to conspire, evidence that shows that the parallel acts were against the apparent individual economic self-interest of the alleged conspirators, and evidence of a high level of interfirm communications." [46] If the " parties to vertical agreements [] have knowledge that other market participants are bound by identical agreements, and their participation is contingent upon that knowledge, they may be considered participants in a horizontal agreement in restraint of trade." [47]

The Supreme Court has clarified that Section 1 " outlaw[s] only unreasonable restraints." [48] To establish a Section 1 violation, a plaintiff must demonstrate " concerted action between at least two legally distinct economic entities" that " constitute[s] an unreasonable restraint of trade either per se or under the rule of reason." [49]

Certain agreements that have " manifestly anti-competitive effects and lack . . . any redeeming virtue" are deemed per se violations of the Sherman Act.[50] Outside this category of " necessarily illegal" restraints, " [t]he rule of reason is the accepted standard for testing whether a practice restrains trade in violation of § 1." [51] " The rule [of reason] distinguishes between restraints with anticompetitive effect that are harmful to the consumer and restraints stimulating competition that are in the consumer's best interest." [52] In applying the rule of reason, courts " weigh all of the circumstances surrounding the challenged acts to determine whether the alleged restraint is unreasonable," taking into account " specific information about the relevant business, the restraint's history, nature, and effect, and [w]hether the businesses involved have market power." [53] Certain challenged practices warrant an " abbreviated or quick-look rule of reason analysis" [54] where " the great likelihood of

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anticompetitive effects can be easily ascertained." [55]

In applying the rule of reason, the Second Circuit employs a burden-shifting framework:

[P]laintiffs bear an initial burden to demonstrate the defendants' challenged behavior had an actual adverse effect on competition as a whole in the relevant market . . . . If the plaintiffs satisfy their initial burden, the burden shifts to the defendants to offer evidence of the pro-competitive effects of their agreement. . . . Assuming defendants can provide such proof, the burden shifts back to the plaintiffs to prove that any legitimate competitive benefits offered by defendants could have been achieved through less restrictive means. . . . Ultimately, the factfinder must engage in a careful weighing of the competitive effects of the agreement -- both pro and con -- to determine if the effects of the challenged restraint tend to promote or destroy competition.[56]

Plaintiffs can meet their initial burden by showing that defendants had market power and that their actions had an adverse effect on price, output, or quality.[57]

B. Section 2 of the Sherman Act

Section 2 of the Sherman Act states that " [e]very person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony . . . ." [58] In order to state a claim for monopolization under Section 2, plaintiffs must establish " '(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.'" [59] Specifically, plaintiffs must establish that the defendant " (1) engaged in predatory or anticompetitive conduct with (2) a specific intent to monopolize and (3) a dangerous probability of achieving monopoly power." [60]

C. The Baseball Exemption

In 1922, in Federal Baseball Club of Baltimore v. National League of Professional Baseball Clubs, the Supreme Court held that " the business [of] giving exhibitions of baseball" was not subject to the Sherman Act.[61] The plaintiff baseball club alleged that the defendants had destroyed the Federal League, a former competitor of the American and National Leagues, by

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poaching its constituent clubs.[62] The Court affirmed dismissal and held that " exhibitions of base ball [] [were] purely state affairs" that did not constitute interstate commerce subject to the antitrust laws.[63]

In 1953, the Court again addressed the so-called " baseball exemption" in Toolson v. New York Yankees, Inc.[64] In Toolson, a professional baseball player sued multiple baseball clubs and leagues for antitrust violations stemming from major league baseball's ineligibility rules, which permitted teams to transfer players without their consent. Any player who refused to comply with an involuntary transfer was branded " ineligible" and banned from playing for any other team.[65] The plaintiff also argued in his written submissions that the defendants' territorial broadcasting restrictions constituted an illegal restraint of trade in violation of the Sherman Act.[66]

The district court addressed solely the plaintiff's allegations involving the ineligibility rules[67] and dismissed the case based on the Supreme Court's determination in Federal Baseball that the business of baseball did not constitute interstate commerce.[68] The court discussed television broadcasting only in the context of evaluating the degree of baseball's interstate nexus.[69] The Ninth Circuit affirmed the decision without comment.[70]

In Toolson III's two companion cases, Kowalski v. Chandler and Corbett v. Chandler, the Sixth Circuit affirmed dismissal of antitrust claims against the League on interstate commerce grounds. As in Toolson, television broadcasting was mentioned only in the context of deciding whether baseball had a sufficient interstate nexus.[71]

The Supreme Court affirmed all three decisions in one paragraph, reiterating Federal Baseball's holding that " the business of providing public baseball games for profit between clubs of professional baseball players [is] not within the scope of the

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federal antitrust laws." [72] The Court noted that the business of baseball had developed for thirty years in reliance on Federal Baseball, and that " if there are evils in this field which now warrant application to it of the antitrust laws it should be by legislation." [73] Thus, the Court affirmed the judgments below " on the authority of Federal Baseball Club of Baltimore v. National League of Professional Baseball Clubs, [] so far as that decision determine[d] that Congress had no intention of including the business of baseball within the scope of the federal antitrust laws." [74]

In 1961, Congress enacted the Sports Broadcasting Act (" SBA" ), which created an antitrust exemption for certain types of professional sports broadcasting agreements, particularly league-wide contracts for over-the-air broadcasts.[75] Aside from that limited exception, the SBA did not change the applicability of the antitrust laws to professional sports.[76] The Act expressly did not apply to any agreement that " prohibits . . . [the] televising [of] any games within any [geographic] area, except within the home territory of a member club of the league on a day when such club is playing at home." [77] The Supreme Court noted that the SBA:

demonstrates Congress' recognition that agreements among league members to sell television rights in a cooperative fashion could run afoul of the Sherman Act, and in particular reflects its awareness of the decision in United States v. National Football League, 116 F.Supp. 319 (E.D. Pa. 1953), which held that an agreement among the teams of the National Football League [not to telecast games in certain geographic areas at certain times] violated § 1 of the Sherman Act.[78]

In 1972, the Supreme Court again addressed the baseball exemption in Flood v. Kuhn.[79] The plaintiff, a professional baseball player, challenged the " reserve system," which allowed teams to transfer players without their consent and precluded players from independently signing with new teams. The Court expressly held that baseball was " a business [] engaged in interstate commerce," undercutting

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the entire legal basis for the antitrust exemption as articulated in Federal Baseball and Toolson.[80] Nonetheless, the Court preserved the exemption as " an aberration that has been with us now for half a century, one heretofore deemed fully entitled to the benefit of stare decisis . . . ." [81] Because the exemption had been allowed to develop without any congressional interference despite " full and continuing congressional awareness," [82] the Court held that " the remedy, if any is indicated, is for congressional, and not judicial, action." [83] The Court specifically addressed the reserve clause in its discussion and holding, concluding that the " reserve system enjoy[s] exemption from the federal antitrust laws," and " Congress as yet has had no intention to subject baseball's reserve system to the reach of the antitrust statutes." [84]

Since Flood, the Court has expressly questioned the logic of the baseball exemption, calling it " at best of dubious validity" and refusing to extend it to other professional sports.[85] The Court noted that, " were [it] considering the question of baseball for the first time upon a clean slate," it would not adopt an antitrust exemption.[86]

In 1998, Congress passed the Curt Flood Act, which provided that " conduct, acts, practices, or agreements of persons in the business of organized professional major league baseball directly relating to or affecting employment of major league baseball players" are " subject to the antitrust laws to the same extent" as other sports.[87] In other words, the Act removed employment-related agreements from the common law baseball exemption. The Act did not alter the applicability of the antitrust laws to " any conduct, acts, practices, or agreements other than . . . employment of major league baseball players." [88]

D. Antitrust Standing Under Illinois Brick

The Supreme Court's decision in Illinois Brick Co. v. Illinois established that " [g]enerally, only direct purchasers have standing to bring civil antitrust claims." [89] The rule serves to avoid the difficulties of " apportion[ing] the recovery among all potential plaintiffs . . . from direct purchasers to middlemen to ultimate consumers," eliminates the possibility of duplicative recovery, and promotes enforcement by purchasers who have been most directly injured by the alleged violation.[90] " [W]here intermediate purchasers in the chain of distribution . . . [are] participants in the conspiracy, the first purchasers who are not part of the conspiracy 'are

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entitled to collect damages from both the manufacturers and their intermediaries if conspiracy and overcharges can be established.'" [91]

V. DISCUSSION

A. The Baseball Exemption Does Not Apply to Territorial Broadcasting Restrictions

The continued viability and scope of the baseball exemption are far from clear. The MLB Defendants argue that the territorial broadcasting restrictions at issue here fall under the exemption and preclude their liability. They base their argument principally on the holding in Toolson and the language of the Curt Flood Act.[92] Specifically, the MLB Defendants argue that the Supreme Court in Toolson affirmed dismissal of all of the plaintiff's claims, including the factual allegations related to territorial broadcasting restrictions. Therefore, the Court must have found those restrictions to be covered by the exemption.

However, none of the published opinions in the Toolson cases -- at the district, circuit, or Supreme Court levels -- even mentioned the territorial broadcasting allegations. Additionally, the Supreme Court expressly limited its holding in Toolson to the contours of its decision in Federal Baseball, which rested entirely on interstate commerce grounds and did not involve broadcasting-related allegations. Indeed, because television broadcasting is an interstate industry by nature, it cannot fall within the exemption defined by Federal Baseball. It would be strange to read Toolson to expand Federal Baseball's holding to territorial broadcasting restrictions sub silentio.

Moreover, the language and structure of the SBA suggest that, as of 1961, Congress understood sports broadcasting agreements to fall outside the baseball exemption. The provision of the SBA granting limited immunity to a narrow category of broadcasting agreements would be meaningless if all baseball broadcasting agreements were already covered by the common law exemption.[93] Moreover, the SBA expressly excluded from its safe harbor most agreements involving geographic broadcasting territories, suggesting that Congress intended such agreements to be subject to the antitrust laws.[94]

Congressional understanding is relevant because Flood replaced Federal Baseball's and Toolson's holdings based on interstate commerce with a limited holding based only on stare decisis and inferred congressional intent. Therefore, Congress's understanding of the scope of the baseball exemption before Flood is highly persuasive.

Moreover, in rejecting the holdings in Federal Baseball and Toolson, the Flood Court made specific reference to the reserve system throughout its analysis, permitting

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a narrower reading of the exemption.[95] One district court concluded that " the antitrust exemption created by Federal Baseball is limited to baseball's reserve system." [96] Other courts have interpreted Flood to preserve a broader exemption for professional baseball.[97] However, defendants cite no case that applied the exemption to broadcasting restrictions except one judge's comments from the bench in granting a motion to dismiss several years before the SBA was enacted.[98] The only published federal court opinion to address the question after the SBA, Henderson Broadcasting Corp. v. Houston Sports Association, found the exemption inapplicable to a baseball club's radio broadcasting agreements.[99] Henderson reasoned as follows:

[The Supreme Court] has implied that broadcasting is not central enough to baseball to be encompassed in the baseball exemption . . . Congressional action does not support an extension of the exemption to radio broadcasting . . . [and] lower federal courts have declined to apply the baseball exemption in suits involving business enterprises which, like broadcasting, are related to but separate and distinct from baseball.[100]

All of these arguments apply with equal force here.

Defendants argue that the Curt Flood Act reveals a congressional consensus that sports broadcasting agreements are covered by the baseball exemption. They point to language from a Congressional Budget Office (" CBO" ) cost estimate suggesting that the Act would retain the antitrust exemption for a variety of topics, including " league expansion, franchise location, the amateur draft, and broadcast rights." [101] However, a CBO cost estimate is not persuasive evidence of congressional intent. The statutory language expressly

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does not change " the application of the antitrust laws" with respect to any topic other than " employment of major league baseball players," including but not limited to " the marketing or sales of the entertainment product of organized professional baseball and the licensing of intellectual property rights owned or held by organized professional baseball teams individually or collectively." [102] It is a tenuous inference that Congress considered broadcasting exempt simply because " sales of the entertainment product of organized professional baseball" and " licensing of intellectual property rights" were included in a long list of topics that would remain unchanged by the Act.[103] The Curt Flood Act adds little to the analysis of whether territorial broadcasting restrictions fall under the common law baseball exemption.

Exceptions to the antitrust laws are to be construed narrowly.[104] Moreover, the Supreme Court has expressly questioned the validity and logic of the baseball exemption and declined to extend it to other sports.[105] I therefore decline to apply the exemption 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.

B. The League Defendants Are Not Entitled to Summary Judgment

While territorial divisions of a market are normally per se violations,[106] the Supreme Court has held that a per se approach is inappropriate in the context of sports broadcasting restrictions due to the necessary interdependence of the teams within a League.[107] On the other hand, the procompetitive benefit of the challenged scheme here is not so obvious that the case can be resolved in favor of defendants in the " 'twinkling of an eye.'" [108] Therefore the rule of reason is the appropriate standard in this case.[109]

Plaintiffs have carried their initial burden of showing an actual impact on

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competition. The clubs in each League have entered an express agreement to limit competition between the clubs -- and their broadcaster affiliates -- based on geographic territories. There is also evidence of a negative impact on the output, price, and perhaps even quality of sports programming. Plaintiffs' expert, Dr. Roger G. Noll, attests that consumers pay higher prices for live game telecasts, and have less choice among the telecasts available to them, than they would in the absence of the territorial restrictions.[110] Similarly, Dr. Noll estimates that the price of OOM packages would decrease by about fifty percent in a world without the restrictions.[111] Finally, defendants have not argued in these motions that the Leagues lack market power.[112]

Defendants respond by identifying various procompetitive effects of the territorial broadcast restrictions. They claim that the rules: 1) prevent free riding, 2) preclude competition with joint venture products, 3) incentivize investment in higher quality telecasts, 4) maintain competitive balance, 5) preserve a balance between local loyalty and interest in the sport as a whole, and 6) increase the overall number of games that are telecast. Plaintiffs deny that the territorial rules serve the above interests and also challenge the validity of the interests in light of the territorial rules' overall economic impact on competition.

First, defendants argue that the territorial rules prevent free riding. Although avoiding free riding can be a legitimate procompetitive goal in certain contexts, it is not clear how free riding would pose a threat in this case. Defendants argue that the clubs would " free ride" on the popularity and publicity of the Leagues if they were permitted to license their games nationally.[113] However, the same argument could be made for any revenue-producing activity that an individual team undertakes, including local ticket sales. Defendants also claim that the clubs would " free ride" off the OOM packages by nationally licensing individual club broadcasts, but it is the clubs and RSNs who create the programming in the first place. If anything, the OOM packages benefit from the labor and investment of the clubs and RSNs, not the other way around. Defendants' theory of free riding is unclear and unpersuasive.

Second, defendants argue that the Leagues have an unassailable right to prevent the clubs from competing with the " joint venture." However, no case cited by defendants stands for the proposition that a joint venture may always prevent its members from competing with the venture product regardless of anticompetitive consequences. Rather, in each case, the court concluded based on the facts presented that the restraint in question caused no actual harm to competition.[114] " If the fact

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that potential competitors shared in profits or losses from a venture meant that the venture was immune from § 1, then any cartel could evade the antitrust law simply by creating a joint venture to serve as the exclusive seller of their competing products." [115]

Third, defendants argue that territorial exclusivity encourages the RSNs to invest in higher-quality telecasts, including high-definition cameras, announcers, audio-visual effects, and related pre-game and post-game programming. However, the incentive for added investment is inflated profit stemming from limited competition. " [T]he Rule of Reason does not support a defense based on the assumption that competition itself is unreasonable." [116] To the extent that the Leagues defend content exclusivity rather than territorial exclusivity, Dr. Noll predicts that increased competition would overall improve output and consumer satisfaction, an argument that applies with equal force to the quality of telecasts.[117]

Fourth, defendants argue that the territorial restrictions foster competitive balance between the teams and prevent excessive disparities in team quality. Maintaining competitive balance is a legitimate and important goal for professional sports leagues.[118] However, it is unclear whether the territorial restrictions at issue here really serve that purpose. On the one hand, the restrictions protect less popular clubs from competition with more popular teams in their own HTTs. On the other hand, the system requires small market teams to refrain from broadcasting in larger, more populous markets, while big market teams forego only smaller, less populous markets.[119] It is not immediately clear whether the restrictions help or harm competitive balance overall.[120]

Defendants also claim that the revenue sharing aspects of the OOM packages and

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national broadcasts foster competitive balance. However, there is support in the economic community for the theory that revenue sharing in fact exacerbates competitive imbalance.[121] Even accepting the premise that revenue sharing is beneficial, defendants have not explained why broadcasting contracts are a better mechanism than more direct, limited forms of revenue sharing.[122]

Fifth, defendants claim that they have a legitimate pro-competitive interest in maintaining " a balance between the promotion of [hockey and baseball] as [] national game[s] and the need to incentivize Clubs to build their local fan bases." [123] Aside from the fact that these two goals appear to conflict, defendants have not explained what the ideal balance would be, or how they might quantify it. There is no objective measure the Leagues could aspire to attain. Therefore defendants cannot establish that this particular balance between local and national interests is better for consumers, or for demand, than the balance that would prevail in a free market. Moreover, the Leagues purport to bolster regional interest and team loyalty by consciously depriving consumers of out-of-market games they would prefer, which is generally not a permissible aim under the antitrust laws.[124]

Finally, defendants argue that the number of telecasts created and broadcast is greater under the territorial restrictions than it would be in the plaintiffs' " but-for" world. According to defendants, while almost every game is currently available to consumers in one format or another (national broadcast, local RSN, or OOM package), a system dependent on consumer demand could not guarantee that every game would be available everywhere because less popular teams would struggle to get their games produced or televised on their own.[125] Destroying the HTTs would also destroy content exclusivity because OOMs and both competing teams would be able to sell the same game in the same areas.[126] As a result, RSNs would be loathe to give their telecasts to the Leagues to create OOM packages, depriving consumers of the ability to access any and all out-of-market games as they do now.[127] Similarly, national broadcasters would refuse to enter into national contracts without the assurance of exclusivity.[128] Because plaintiffs do not challenge the legality of the OOM packages or national broadcasts, defendants argue, the

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territorial system is also immune from challenge as a matter of law.

These arguments are far from compelling. Just because plaintiffs do not directly challenge the legality of the OOM packages and national broadcasts does not mean that preserving them is sufficient justification for the territorial rules.[129] Even the complete disappearance of OOM packages would not necessarily cause consumer harm if the same content could be distributed in another form (such as by RSNs nationwide). The OOMs are simply one form of delivering the content to consumers -- a form made necessary by the territorial rules themselves. Moreover, it is certainly conceivable that the OOMs would continue to exist absent the territorial restrictions, given the low added cost of creating the packages and the convenience of bundling to many consumers.[130]

Defendants' assumption that market demand would be insufficient to ensure access to the same number of games is questionable.[131] Indeed, the Television Defendants insist that the sports rights are so valuable that they would compete for those rights vigorously even in the absence of the territorial rules.[132] Moreover, " [a] restraint that has the effect of reducing the importance of consumer preference in setting price and output is not consistent with th[e] fundamental goal of antitrust law." [133] While defendants have identified some conceivable procompetitive effects from the territorial rules, plaintiffs have produced equally plausible (if not more plausible) arguments in opposition. It certainly cannot be said that defendants have established procompetitive benefits to the economy as a matter of law.

Defendants cite Virgin Atlantic Airways Ltd. v. British Airways PLC for the proposition that plaintiffs must identify a less restrictive alternative for any procompetitive effect defendants can identify, even if the overall effect on the economy is overwhelmingly anticompetitive.[134] Such an interpretation, however, is inconsistent with the Supreme Court's mandate that " the essential inquiry [under the rule of reason] . . . [is] whether or not the challenged restraint enhances competition." [135] Indeed, in United States v. Visa U.S.A., Inc., the Second Circuit balanced the alleged procompetitive and anticompetitive effects of the exclusivity rules before requiring the Government to propose any less restrictive alternatives.[136]

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Most of defendants' claimed pro-competitive effects are disputable, and the overall effect on the economy is even less conclusive, especially in light of Dr. Noll's testimony that abolishing the territorial restrictions would decrease the cost of sports programming without diminishing output.[137] Far from being implausible, plaintiffs' " but-for" world is at least as likely as defendants' prognostications. Plaintiffs have raised a genuine issue of material fact regarding the overall competitive impact of the territorial rules, foreclosing the possibility of summary judgment for the Leagues under the rule of reason.

C. The Television Defendants Are Not Entitled to Summary Judgment

1. Liability for the Vertical Agreements

The Television Defendants argue that downstream distributors who simply implement the restrictions of an upstream conspiracy through vertical agreements, without further involvement, cannot be deemed participants in the conspiracy as a matter of law.[138] They argue that the RSNs and MVPDs played no role in creating the territorial restrictions, which were presented to them on a non-negotiable basis, and have never sought to enforce the restrictions against other horizontal participants. Therefore, they have not engaged in any " concerted action" and cannot be held liable for the territorial limits in the Rights Agreements even if those limits violate the Sherman Act.

The Television Defendants cite Bowen v. New York News, Inc.,[139] Fuchs Sugars & Syrups, Inc. v. Amstar Corp.,[140] Levitch v. Columbia Broadcasting System, Inc.,[141] and Virgin Atlantic [142] for the proposition that a downstream entity must either request the restraint or attempt to enforce the restraint in order to be liable. However, none of these cases support the Television Defendants' assertions. The courts in Fuchs, Virgin Atlantic, and Levitch found insufficient evidence of any agreement between the downstream and upstream entities. In all three cases, the upstream entity implemented a unilateral policy change that did not require assent, participation, or forbearance of any kind by the alleged conspirators.[143] Here, contracts with the downstream entities explicitly incorporate the challenged restrictions. The Leagues require the assent and assistance of the RSNs to implement the restrictions, and the RSNs require the same level of participation from the MVPDs.

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The Television Defendants also cite Bowen, in which a newspaper publisher switched to a system of exclusive franchise dealers instead of the many competing independent dealers it had previously employed. The newspaper limited each franchise dealer to a specified exclusive territory, and attempted to cut off supply to the independent dealers to prevent competition. The court mused in dicta that " unilateral establishment and enforcement [by an upstream entity] of exclusive territories and customer limitations . . . might conceivably be upheld." [144] However, the court refrained from deciding the question given that the newspaper and the franchise dealers had agreed to cut off supply to the independent dealers, which the court found to be a violation of the Sherman Act. Although the court noted that the dealers had asked the newspaper to cut off supply to the independents, it did not necessarily rely on that fact in reaching its conclusion. Instead, it emphasized that the newspaper's conduct was " undertaken pursuant to an agreement with the franchise dealers and for the purpose of restricting" competition.[145]

None of the decisions relied on by the Television Defendants held that a downstream entity must request or enforce a restraint in order to be liable for adopting it through agreement.[146] Nor did they indicate that each party to an allegedly unlawful agreement must have equal or even substantial negotiating power in adopting the agreement's terms.[147] Moreover, a downstream entity need not participate in the initial creation of the restraints in order to be liable for adopting them later. " It is elementary that an unlawful conspiracy may be and often is formed without simultaneous action or agreement on the part of the conspirators." [148]

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Indeed, it would defy common sense to require proof that the Television Defendants enforced the territorial restrictions when they knew that the structure would be secured through a series of parallel contracts effectively policed by the Leagues. Nevertheless, plaintiffs have produced some evidence that the Television Defendants have defended the territorial structure on the rare occasions that it has been threatened. In 2008, MLB attempted to adjust the territorial lines to serve customers who could not watch local games, which would have required clubs and RSNs to cede some territory to the OOM packages. The Comcast RSNs vehemently opposed the proposal and sent the following letter to MLB:

If MLB were to adopt any new MLB rule permitting MLB Extra Innings and/or MLB.TV to be distributed in unserved or underserved portions of a club's exclusive home television territory, the scope of the exclusivity purchased by the RSN would be unilaterally changed and the financial impact on the prospects and performance of the Comcast RSNs (and, by implication, on the clubs whose rights they hold) would likely be immediate and significant. Accordingly, the Comcast RSNs are unlikely to consider favorably the release of any portion of a home television territory as to which an RSN currently has exclusive rights. In providing distribution information herewith, the Comcast RSNs specifically reserve all of their respective rights and remedies with respect to any change in MLB's current rules and practices that negatively impacts the clubs' respective home television territories and the breadth of the exclusive rights heretofore granted to their corresponding Comcast RSNs.[149]

Moreover, the MVPDs' 2007 contracts with MLB for the television OOM package have clauses that read in part: " [t]he Home Television Territory of any Club shall not be materially expanded by [MLB] except in connection with and directly related to any increase or decrease in the number of franchises . . . or in connection with any club relocation." [150] While the clause does not permit the MVPDs to enforce the territorial restrictions against competitors, it

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applies pressure on the Leagues to retain the current territorial restrictions or face monetary repercussions. Similarly, former MLB President Robert DuPuy testified that the RSNs " insist" on " changed circumstances" clauses in the Rights Agreements that permit the RSNs to pay less if their exclusivity is abridged.[151] The above examples indicate that the Television Defendants are more than passive participants in a unilaterally imposed restriction.

2. The Existence of a Horizontal Agreement

The Television Defendants argue that there are no plus factors that might signal interdependent action among the RSNs and MVPDs as opposed to merely parallel conduct. They point out that the Rights Agreements with the various RSNs are staggered and often have terms of several years, making coordinated action difficult.[152] They further argue that plaintiffs have produced no evidence of a high volume of interfirm communications among the Television Defendants.[153] Finally, they argue that it is in the economic interest of an RSN to enter into a Rights Agreement regardless of what the other RSNs do.[154] In the absence of plus factors, parallel conduct is insufficient to survive summary judgment on a theory of horizontal conspiracy.

However, the potential for significantly increased profits from the restraint is a " strong motive for concerted action." [155] " This plus factor speaks to whether [the Television Defendants] also had a 'rational economic motive' to adopt those clauses jointly, as opposed to going it alone." [156] The Television Defendants argue that the plaintiffs' alleged conspiracy makes no economic sense because it would inflate the sports rights fees paid by the Television Defendants to the Leagues, and no entity would " conspire[] to pay more than they would otherwise pay." [157] This argument ignores the fact that the Television Defendants pay higher rights fees because their revenues from consumers are correspondingly greater.[158]

Indeed, plaintiffs have presented ample evidence that the territorial restrictions are valuable to the Television Defendants. Boston Red Sox owner John Henry stated that the " primary benefit" of the territorial restrictions is " not to have to compete with other clubs or with [] baseball itself in your home television territory." [159] According to Henry, such exclusivity is " very valuable to broadcasters" and therefore

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" important to all clubs." [160] Similarly, John Tortora, former NHL Director of Team Television, testified that RSNs would be harmed by " bringing another club's games into another team's sphere of influence" because " the benefit of [the RSNs'] bargaining with [the clubs] [is] exclusivity in the marketplace." [161] In fact, the League Defendants claim that the territorial restrictions are so central to the profitability of broadcasting that the RSNs would stop producing many telecasts without them.[162] The potential for higher revenues stemming from collective action constitutes a strong motive to collude.[163]

Additionally, plaintiffs plausibly argue that the terms of the Rights Agreements and Affiliation Agreements would contravene the individual economic interests of the Television Defendants in the absence of the territorial restrictions. Although the Television Defendants would likely continue to purchase broadcasting rights without the restrictions, plaintiffs have adduced evidence that they would not do so at the same price. In that sense their behavior is contingent on the knowledge that other RSNs and MVPDs are bound by the same contractual limits. Given the clear existence of parallel conduct and several plausible plus factors, a fact-finder could permissibly conclude that the RSNs' and MVPDs' decisions to enter the contracts -- at the prices negotiated -- were interdependent rather than unilateral.

Defendants cite PepsiCo, Inc. v. Coca-Cola Co. to argue that a series of parallel vertical restrictions, even coupled with knowledge that the restrictions will be uniformly enforced, is insufficient to establish the existence of a horizontal agreement. In PepsiCo, Coca-Cola prohibited its distributors from distributing Pepsi products.[164] Although Coca-Cola assured the distributors that it would enforce the same restriction against the other distributors and encouraged them to report violations, the court found insufficient evidence of a horizontal agreement.[165] However, in PepsiCo there was no evidence that the distributors benefitted from the restriction or paid higher prices to Coca-Cola to obtain it. Here, by contrast, the combination of parallel conduct, knowledge of assured enforcement, strong motive to conspire, attempts to protect the restrictions, and evidence that the Television Defendants would not have entered the contracts at the prices prescribed but for the territorial restrictions, is sufficient evidence from which a fact finder could infer a tacit horizontal agreement among the RSNs and MVPDs.

Whether plaintiffs have presented sufficient evidence to demonstrate concerted action between the Television Defendants and the League Defendants, or a tacit

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agreement among the Television Defendants, is difficult to discern at this stage. Consequently, these questions are not suitable for disposition as a matter of law and are properly reserved for the fact finder in light of the totality of the evidence presented at trial. It is an unfortunate trend that judges increasingly

resolve trial-worthy disputed fact issues or characterize cases as implausible, thereby disposing of them on motion rather than allowing them to proceed to trial. . . . [A] motion designed simply for identifying trial-worthy issues has become, on occasion, a vehicle for resolving trial-worthy issues. . . . The effect is to compromise the due process underpinnings of the day-in-court principle and the constitutional jury trial right without any empirical basis for believing that systemic benefits are realized that offset these consequences.[166]

Because plaintiffs have presented sufficient evidence to raise a genuine dispute of material fact, the Television Defendants' motion for summary judgment is denied.

D. Illinois Brick Does Not Bar the Television Plaintiffs' Suit

I previously held that the first non-conspirator in the chain of distribution is entitled to collect damages from all of the co-conspirators.[167] The television plaintiffs purchased the relevant sports programming from the MVPDs. Therefore, their standing to sue the other defendants is contingent on the MVPDs' role in the conspiracy. As discussed previously, the television plaintiffs have produced sufficient evidence that a reasonable fact-finder could find the MVPDs complicit in the alleged conspiracy. Therefore, the television plaintiffs' claims are not barred at this stage.

E. The Section 2 Claim

The League Defendants do not address the merits of plaintiffs' monopolization claim under Section 2 of the Sherman Act. The MLB Defendants do not address the Section 2 claim at all, and the NHL Defendants argue only that the Section 2 claim must be dismissed because the Section 1 claim fails.[168] Because the League Defendants' motion for summary judgment on the Section 1 claim is denied, their sole argument for dismissal of the Section 2 claim has no merit.

VI. CONCLUSION

For the foregoing reasons, all four motions for summary judgment are DENIED in full. The Clerk of the Court is directed to close these motions [Dkt. Nos. 180, 183, 212, 216, 224 in Laumann, 12 Civ. 1817, and Dkt. Nos. 239, 240, 241, 261, 271, 275,

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280 in Garber, 12 Civ. 3704]. A conference is scheduled for August 20, 2014 at 4:30 pm.

SO ORDERED.


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