Antitrust Law Daily Wrap Up, ANTITRUST—9th Cir.: San Jose ‘strikes out’ in dispute with MLB over relocation of Oakland A’s, (Jan 15, 2015)

By Jeffrey May, J.D.

Baseball’s “singular and historic exemption from the antitrust laws” compelled the dismissal of antitrust claims raised by the City of San Jose, California, challenging Major League Baseball’s franchise relocation policies, the U.S. Court of Appeals in San Francisco ruled today. San Jose unsuccessfully argued that the baseball industry’s 92-year old antitrust exemption did not extend to Major League Baseball’s alleged efforts to block the Oakland Athletics baseball club’s move to San Jose. Thus, dismissal of the city's federal and state antitrust claims based on the exemption was affirmed (City of San Jose v. Office of the Commissioner of Baseball dba Major League Baseball, January 15, 2015, Kozinski, A.).

San Jose filed a federal and state antitrust complaint against Major League Baseball (MLB) in 2013 in an effort to eliminate the territorial restrictions that MLB used to keep the Oakland A’s from moving to San Jose. According to the city, the owners of the Oakland A’s had expressed a desire to construct a ballpark in downtown San Jose; however, the relocation had been stalled for years. San Jose is not within the operating territory of the A’s. Rather, it falls within the exclusive operating territory of the San Francisco Giants. Under MLB rules, relocation to another franchise’s territory is prohibited unless approved by at least three-quarters of MLB’s clubs. San Jose alleged that the move had been blocked by the Giants’ claim of “territorial rights” to Santa Clara County.

The appellate court rejected San Jose's first argument that the exemption, as outlined in the U.S. Supreme Court's 1972 decision in Flood v. Kuhn, 407 U.S. 258, 1972 Trade Cases ¶74,041, was limited to baseball’s “reserve clause” or contracting issues between teams and players—the particular provision at issue in that case. The appellate court explained that such a “drastic limitation on Flood’s scope” was foreclosed by Ninth Circuit precedent. Citing Flood, the Ninth Circuit in 1974 upheld dismissal of a claim in Portland Baseball Club, Inc. v. Kuhn, 491 F.2d 1101, 1974-1 Trade Cases ¶75,092, that MLB’s monopolization of the baseball industry rendered minor league teams unable to negotiate on fair terms. The case had nothing to do with the reserve clause.

San Jose then argued that, if the baseball exemption extended beyond the reserve clause, remand to the district court was necessary to determine whether franchise relocation was sufficiently related to “baseball’s unique characteristics and needs” to warrant exemption. In the court's view, it was undisputed that restrictions on franchise relocation related to the “business of providing public baseball games for profit between clubs of professional baseball players.”

San Jose contended that the Flood Court intended a fact-sensitive inquiry whenever the antitrust exemption was challenged. However, “nothing in Flood suggested that the reserve clause was exempted based on some fact-sensitive analysis of the role the clause played within the baseball industry,” the court explained. Flood was not limiting the exemption. It was merely following two earlier Supreme Court cases exempting baseball from the antitrust laws that Congress had decided not to disturb.

Under Flood, the scope of the baseball exemption is coextensive with the degree of congressional acquiescence, the court explained. Congressional acquiescence with respect to franchise relocation was demonstrated by the Curt Flood Act of 1998. The Act withdrew baseball’s antitrust exemption with respect to the reserve clause and other labor issues, but explicitly maintained it for franchise relocation, according to the court.

The court cautioned that not all antitrust suits that touch on the baseball industry are barred. “There might be activities that MLB and its franchises engage in that are wholly collateral to the public display of baseball games, and for which antitrust liability may therefore attach,” the court noted. “But San Jose does not—and cannot—allege that franchise relocation is such an activity.”

This case is No. 14-15139.

Attorneys: Joseph W. Cotchett (Cotchett, Pitre & McCarthy, LLP) and Richard Doyle of the Office of the City Attorney, San Jose, California, for City of San Jose. John Keker (Keker & Van Nest LLP) and Bradley I. Ruskin (Proskauer Rose LLP) for Major League Baseball.

Companies: City of San Jose; Major League Baseball

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