Antitrust Law Daily Wrap Up, ANTITRUST—S.D.N.Y.: Baseball, hockey fan class certified in out-of-market broadcast package case, (May 15, 2015)

By Edward L. Puzzo, J.D.

The federal district court in New York City has certified a class consisting of Major League Baseball (MLB) or National Hockey League (NHL) game broadcast consumers seeking to view out-of-market games who were required to purchase a package bundling all out-of-market games rather than being offered an “a la carte” option for the games of only specified out-of-market teams (Laumann v. National Hockey League, May 14, 2015, Scheindlin, S.).

Yesterday, the court issued a certification opinion and a damages model opinion in an ongoing putative class action which alleged antitrust conspiracies in connection with “out-of-market” live telecasts of National Hockey League (NHL) and Major League Baseball (MLB) games. It was alleged that, as a result of black-out or non-compete agreements, sports consumers were required to purchase an “out-of-market package” (OMP) of hockey or baseball games, even if they were only interested in viewing a particular game or games of one particular team located outside of their local markets. With the limited exception of nationally televised games, standard cable and satellite TV packages only offered games in the home television territory (HTT), also known as “in-market” games, (i.e., games played by the team in whose designated home territory the subscriber resided). A consumer interested in obtaining out-of-market games had two options: (1) television packages—such as NHL Center Ice and MLB Extra Innings—and (2) Internet packages—such as NHL Game Center Live and MLB.tv—which were controlled by the leagues.

The subscribers alleged a conspiracy involving the NHL, MLB, various clubs within the leagues, multichannel video programming distributors (MVPDs)—such cable distributor Comcast and satellite distributor DirecTV—and regional sports networks (RSNs). The 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 and to sell to the MVPDs. Some of the RSNs are owned by Comcast and DirecTV; however, two are independent of the MVPDs, but share ownership with an individual club. For example, Yankees Entertainment and Sports Networks, LLC is an RSN for New York Yankees that is co-owned with the New York Yankees.

Certification. Plaintiffs moved to certify two classes of consumers: an internet class, consisting of consumers who purchased an out-of-market package for online access, and a TV class, consisting of consumers who purchased an out-of-market package through a cable or satellite TV subscription. The plaintiffs allege that every consumer in both classes face a market for baseball and hockey broadcasting in which options are limited, and the prices of existing options are inflated, as a consequence of defendants’ coordinated maintenance of territorial exclusivity. With regard to both classes, the plaintiffs sought certification under Rule 23(b)(3) and Rule 23(b)(2). The court denied certification under Rule 23(b)(3), but granted it under Rule 23(b)(2).

Exclusivity. The court distinguished three different types of “exclusivity”: territorial, content and game. Territorial exclusivity, a product of multilateral agreements among the leagues, the RSNs, and the MVPDs, prohibits teams and RSNs from selling their content outside their home territories. The defendants do not deny the existence of territorial exclusivity nor do they deny that it is a product of deliberate cooperation between them, but argue that the procompetitive benefits outstrip its anticompetitive effects.

Content exclusivity refers to the ability of RSNs, holding broadcast rights to certain games, to sell or license those rights. Under normal principles of intellectual property, the court opined, there is nothing anticompetitive in content exclusivity. Game exclusivity, the ability of RSNs to control content within its home territory, is similar to content exclusivity but more restrictive, in that it limits the ability of other RSNs from controlling their content by, for instance, prohibiting them from broadcasting teams playing against the teams within the RSN’s home territory.

Plaintiffs are challenging territorial exclusivity only, seeking a “but-for world” (BFW) where all RSNs could sell their content a la carte to out-of-market consumers and distribute their content without blackouts.

Rule 23(b)(3). Rule 23(b)(3) permits class certification where questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and class litigation is superior to other available methods for the fair and efficient adjudication of the controversy. As a result of the court’s finding in the damages model opinion that the damages model submitted by Dr. Noll, plaintiffs’ damages expert, was inadmissible (see below), plaintiffs cannot prove their damages on a class-wide basis. Therefore, the court stated, no Rule 23(b)(3) class, which contemplates retrospective redress, can be certified.

Rule 23(b)(2). Rule 23(b)(2), which contemplates prospective relief, permits class certification if there is a showing that the defendants acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.

The defendants argued, in effect, that some class members, even if they were currently suffering an antitrust injury, would prefer to be injured than for the injury to be redressed — because the injury carries collateral benefits. The court disagreed, stating that there was no question that a common injury exists in the form of diminished consumer choice, and the fact that illegal constraints may operate to the economic advantage of certain class members cannot be used to defeat the deterrence function of class-wide antitrust suits.

Every class member here has suffered an injury, because every class member, as a consumer in the market for baseball or hockey broadcasting, has been deprived of an option — a la carte channels — that would have been available absent the territorial restraints, the court stated. The defendants may argue that this injury is outweighed by the availability and comparatively low price of out-of-market packages, which might make the territorial restraints lawful under the Rule of Reason. The defendants may also argue that certain fans would prefer the existing system due to collateral benefits they receive. One or both of these arguments may be correct, the court stated, but neither is an argument against class certification. Even while defendants argue that most plaintiffs actually benefit from the current practices, this is irrelevant regarding the issue of the adequacy of the named plaintiffs to represent the class.

Also, divergent interests among class members are a reason to certify the class under Rule 23(b)(2), not avoid certification, the court continued. It is only by allowing an injunctive action to proceed class-wide that consumers whose interests differ in some respects from those of the named plaintiffs will have an opportunity to steer the course of the litigation. Absent certification, “losing” class members would likely be worse off — they would be at the mercy of individual plaintiffs seeking declaratory and injunctive relief that is likely to have sweeping effects on the market as a whole.

The defendants also argued that plaintiffs cannot satisfy the “cohesion” requirement of Rule 23(b)(2), because certain class members are previous subscribers, but not current subscribers, to out-of-market packages. But the court stated that one of the choices that consumers make is declining to buy product. So a consumer in the market for baseball and hockey broadcasting market who discontinues a subscription to an OMP does not remove that consumer from that market.

For the purpose of determining which class members have standing to seek prospective relief, the relevant question is not how consumers respond to a market infected by anticompetitive restraints; it is how consumers would behave if those restraints were lifted. All class members, including previous subscribers to the OMPs, are consumers in the market for baseball and hockey broadcasting, and all suffer an ongoing injury in connection with the complained-of restraints — a dearth of choice in the market for baseball and hockey broadcasting. Thus the court certified the class under Rule 23(b)(2).

Damages model. The plaintiffs offered a damages model by its expert, sports economist Dr. Roger Noll, to measure the extent of the overcharge defendants were able to command for out-of-market subscription fees due to the actions they had taken to shield themselves from competition. The defendants moved to exclude Dr. Noll’s opinions under Federal Rules of Evidence 702.

Dr. Noll constructed an economic structural model explaining why prices for MLB and NHL broadcasts would decrease without the territorial exclusivity and other agreements maintained by defendants. The model depended on the interplay between the demand side, i.e. the consumers’ preferences for content, and the supply side, i.e. the supply chains distributing the content.

Dr. Noll used data from those viewing OMPs as well as certain assumptions to build a model for the demand side. However, Dr. Noll admitted that he did not use demographic data of the OMP subscribers, did not conduct surveys of them, nor did he gather data about the 96 percent of fans who did not subscribe to the OMPs. Instead, he used mathematical equations meant to replicate actual data reflecting the behavior of market participants. Under his model, the average monthly price for an OMPs would significantly decrease.

Dividing consumers into three groups-—single-team fans, two-team fans and multi-team fans-—his model found that single-team fans were more likely to buy all-team bundles than a la carte packages, The defendants found these results absurd and counterintuitive, signaling defects in the model Dr. Noll used. The defendants' own expert, Dr. Daniel McFadden, criticized Dr. Noll’s model as too reliant on mathematical assumptions and too little on actual data about consumers and their preferences.

The court agreed that Dr. Noll’s demand side opinion was insufficiently grounded in actual data and must be excluded. It followed that, without the demand side component, his entire model could not be used to calculate damages on plaintiff’s theory of overcharge. FRE 702 requires expert testimony to be based on sufficient facts or data.

The court also found fault with Dr. Noll’s supply side analysis but found it could be analytically severed from his damages model and thus survived scrutiny under FRE 702. Thus the court granted defendant’s motion to exclude Dr. Noll’s demand side opinions, but denied defendants’ motion to exclude his supply-side opinion.

The case is Nos. 12-cv-1817 (SAS) and 12-cv-3704 (SAS).

Attorneys: Edward A. Diver, Howard I. Langer and Peter E. Leckman (Langer Grogan & Diver, PC), Kevin M. Costello and Gary E. Klein (Klein Kavanagh Costello, LLP), Michael Morris Buchman and John A. Ioannou (Motley Rice, LLC), Marc I. Gross and Adam G. Kurtz (Pomerantz, LLP), Robert LaRocca (Kohn, Swift & Graf, PC), J. Douglas Richards and Jeffrey Dubner (Cohen, Milstein, Sellers & Toll, PLLC), and Michael J. Boni and Joshua D. Snyder (Boni & Zack, LLC) for Thomas Laumann, Robert Silver, Garrett Traub, David Dillon, Marc Lerner, Derek Rasmussen and Garrett Traub. Beth A. Wilkinson and Samantha P. Bateman (Paul, Weiss, Rifkind Wharton & Garrison LLP), Bradley I. Ruskin, Helene Debra Jaffe, Jennifer R. Scullion and Colin Kass (Proskauer Rose LLP) and Thomas J. Ostertag 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. Shepard Goldfein, James A. Keyte, Paul M. Eckles and Matthew M. Martino (Skadden, Arps, Slate, Meagher & Flom LLP) for National Hockey League, NHL Enterprises, L.P., NHL Interactive Cyberenterprises, LLC, Chicago Blackhawk Hockey Team, Inc., Comcast-Spectator, 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. Arthur J. Burke and James W. Haldin (Davis Polk & Wardwell) for Comcast Corporation, Comcast SportsNet Philadelphia, L.P., Comcast SportsNet Mid-Atlantic L.P., Comcast SportsNet California, LLC, and Comcast SportsNet Chicago, LLC. Louis A. Karasik, Andrew E. Paris and Stephanie A. Jones (Alston & Bird LLP) for DIRECTV, LLC, DIRECTV Sports Networks, LLC, DIRECTV Sports Net Pittsburgh, LLC, DIRECTV Sports Net Rocky Mountain, LLC and DIRECTV Sports Net Northwest, LLC. Jonathan Schiller, Alan Vickery and Christopher Duffy (Boies, Schiller & Flexner LLP) for New York Yankees Partnership. Stephen R. Neuwirth, Deborah Brown, Richard I. Werder, Jr. (Quinn Emanuel Urquhart & Sullivan, LLP) for The Madison Square Garden Company and New York Rangers Hockey Club. John E. Schmidtlein, Kenneth Charles Smurzynski, James Harris Weingarten and William Jefferson Vigen (Williams & Connolly LLP) for Yankees Entertainment Sports Network, LLC.

Companies: 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.; National Hockey League; NHL Enterprises, L.P.; NHL Interactive Cyberenterprises, LLC; Chicago Blackhawk Hockey Team, Inc.; Comcast-Spectator, 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. Comcast Corporation; Comcast SportsNet Philadelphia, L.P.; Comcast SportsNet Mid-Atlantic L.P.; Comcast SportsNet California, LLC; and Comcast SportsNet Chicago, LLC; DIRECTV, LLC; DIRECTV Sports Networks, LLC; DIRECTV Sports Net Pittsburgh, LLC; DIRECTV Sports Net Rocky Mountain, LLC; DIRECTV Sports Net Northwest, LLC; New York Yankees Partnership; The Madison Square Garden Company and New York Rangers Hockey Club; Yankees Entertainment Sports Network, LLC.

Cases: Antitrust NewYorkNews