Antitrust Law Daily Wrap Up, ANTITRUST—Md. Cir.: University of Maryland fails to state Maryland Antitrust Act claim against Atlantic Coast Conference over withdrawal payment, (Jul 2, 2013)

By Tobias J. Gillett, J.D., LL.M.

The University of Maryland (Maryland) failed to state a claim under the Maryland Antitrust Act against the Atlantic Coast Conference (ACC) over a provision in the ACC’s Constitution requiring the school to make a withdrawal payment when it left the ACC for the Big Ten Conference, the Circuit Court for Prince George’s County, Maryland has ruled (Board of Regents of the University System of Maryland v. Atlantic Coast Conference, June 28, 2013, Davey, J.). However, the court stayed the action until the resolution of a related action between the parties in a North Carolina court.

In response to Maryland’s November 2012 announcement that it would be withdrawing from the ACC to join the Big Ten Conference, the ACC filed a declaratory judgment action in a North Carolina court, requesting the court to settle whether a withdrawal payment in the ACC’s Constitution was valid and enforceable.

Maryland in January 2013 filed suit against the ACC in Maryland Circuit Court, requesting the court to declare that the withdrawal payment is invalid and unenforceable, and asserting claims for violations of Maryland’s Antitrust Act, among other claims. The ACC filed a motion to dismiss.

Application of the Maryland Antitrust Act. The court rejected the ACC’s contention that applying the Maryland Antitrust Act to the withdrawal penalty in the ACC’s Constitution would violate the Commerce Clause. The court explained that in Nat’l Collegiate Athletic Ass’n v. Bd. of Regents of Univ. of Oklahoma, 468 U.S. 85 (1984), the Supreme Court recognized that sports leagues would have to employ some horizontal restraints “if the product is to be available at all,” but that not all restraints adopted by sports leagues served procompetitive purposes. Later circuit court decisions distinguished between college athletic restraints aimed at preserving “amateurism, the student-athlete, or the general product of college football” and restraints that “were commercial in nature.”

Here, the court found the withdrawal payment to be “inherently commercial and not presumptively procompetitive.” The ACC itself had conceded that the payment was intended to “compensate for the economic effect of a member leaving” and to “ensure the conference remains financially strong.” Moreover, the ACC had argued that the Council of Presidents voted to increase the payment “from 1 ¼ to 3 times the annual budget of the League because a 1 ¼ Withdrawal Payment was deemed insufficient to ensure the continued economic success of the League.” Although the court acknowledged that league stability could help to “play a role in preserving the nature and character of a sports league,” the court concluded that the payment did not “fit the same mold” as restrictions intended to preserve the amateur nature of college athletics.

Standard of analysis. The court determined that it should apply a full rule of reason analysis to Maryland’s antitrust claims. Maryland had abandoned its initial argument that the ACC’s conduct was per se unlawful in favor of an argument supporting a quick look analysis.

Here, quick look analysis did not apply because the payment was not the kind of “naked price and output control” required to trigger quick look analysis, according to the court. Moreover, the court found that Maryland had not sufficiently defined its product and geographic markets to permit a quick look analysis.

Finally, Maryland had claimed that the payment violated the Maryland Antitrust Act because it “bears no justifiable relationship to the amount of damages, if any, the ACC would incur upon Maryland’s withdrawal from the Conference and has no economic basis or justification.” The court observed that the issue of a “justifiable relationship” was “a factual dispute that the trier of fact can only resolve after an examination of the history, basis, and purpose of the provision, as well as the damages or potential damages to the ACC upon the departure of a member school.” The kinds of factual analysis required precluded the use of a of quick look analysis, in the court’s view.

Geographic market. The court concluded that Maryland did not adequately define a relevant geographic market. Maryland had alleged that conferences usually drew their members from areas where its members could travel without too much difficulty, and that they often included universities with historic or regional rivalries. However, the court observed that, although Maryland “claim[ed] a preference for a geographic area,” it did not “adequately explain or define an effective area of competition.” The court noted that Maryland itself had chosen to leave the ACC, made up of Eastern seaboard schools, to join the Big Ten, which comprised Midwestern schools. Maryland did not explain why the Big Ten fell within the relevant geographic market but other conferences did not.

Product market. Maryland also did not properly define a product market for its claims, the court concluded. Maryland alleged that the ACC’s conduct would adversely affect competition in a variety of markets, that conference members compete with each other for certain benefits, and that Maryland’s move to the Big Ten would have various benefits to it while the payment would deter other schools from seeking similar benefits.

However, the court noted that Maryland did not allege any “reasonably interchangeable product substitutes, or an explanation as to why the product cannot be substituted.” The court noted that previous collegiate conference cases had found similar “laundry list[s] of purported ‘product market’ contours insufficient as a matter of law.” Maryland’s allegations were “hopelessly muddled,” the court observed, and did not make clear “whether the competition is between conferences, for conference membership, between schools within conference, for athletes, for other institutional opportunities, or for some other product.” The court found it was “unable to identify the relevant competitors, to decipher the level at which competition is allegedly infringed, or to identify exactly what is being bought, sold, or competed for.”

Market harm. Finally, the court concluded that Maryland had not adequately alleged harm to a relevant market. The court explained that an antitrust plaintiff had to demonstrate harm to competition as a whole in the relevant market, not merely to the plaintiff as a competitor.

Here, the court observed that Maryland’s claim that the payment had stifled competition “was directly contradicted by the expansion of the ACC,” which Maryland also alleged. The court noted that Syracuse University, University of Pittsburgh, and Notre Dame had not altered their plans to join the ACC after the increased payment was adopted, and Louisville University chose to join after it was adopted. Moreover, the court found that Maryland’s complaint fell “short of alleging even individual harm,” because Maryland alleged that its move to the Big Ten would leave it in a better position than it held as a member of the ACC. Although the payment might “prevent it from realizing the full benefit of the revenue increase when it first joins the Big Ten Conference,” that was “a business decision and does not necessarily constitute injury.”

The court declined to dismiss Maryland’s claim for tortious interference with prospective economic advantage. The court declined to follow the ACC’s arguments that the case should be dismissed because North Carolina was a more convenient forum for adjudicating the case, and that the case should be dismissed as a matter of comity.

However, the court found that permitting the cases to proceed simultaneously could cause significantly increased costs for both sides, and could create the potential for “competing or inconsistent judgments.” Moreover, a decision by the North Carolina court “could have a preclusive or res judicata effect” on the claims at issue, but the outcome of the North Carolina case would have to be reduced to a final judgment before the court could make that determination. Therefore, the court chose to stay the proceedings until a final judgment was entered in the North Carolina case.

The case is No. CAL13-02189.

Companies: Board of Regents of the University System of Maryland; Atlantic Coast Conference

Cases: Antitrust MarylandNews