Antitrust Law Daily Wrap Up, ANTITRUST—S.D.N.Y.: Sports leagues, broadcasters must defend territorial restrictions, (Aug 11, 2014)

By Jeffrey May, J.D.

Fact questions precluded summary judgment in a putative consumer class action against the National Hockey League (NHL), Major League Baseball (MLB), Comcast, and DIRECTV over territorial restrictions on telecasts of hockey and baseball games, the federal district court in New York City has decided. A fact finder will need to decide whether the territorial broadcast restrictions were the result of concerted action involving the sports leagues, multichannel video programming distributors (MVPDs) Comcast and DIRECTV, and the local television networks that broadcast the majority of the local club’s games (Laumann v. National Hockey League, August 8, 2014, Scheindlin, S.).

Baseball exemption. At the outset, the court ruled that the common law antitrust exemption for baseball did not extend to the challenged territorial broadcasting restrictions. Under the territorial broadcasting system, the leagues required each club to license its games for telecast only within its designated home television territory (HTT). Local networks, known as regional sports networks (RSNs), were granted exclusive rights to produce a club’s games and telecast them in the HTT. The RSNs, several of which were owned and controlled by Comcast or DIRECTV, were not permitted to license telecasts for broadcast outside the HTTs. Instead, the leagues had the rights to use the RSN telecasts to offer national broadcasts or “out-of-market” packages.

Exceptions to the antitrust laws were to be construed narrowly, the court noted. Contracts for television broadcasting rights were not central to the business of baseball, and Congress did not intend to exempt them, according to the court. That Congress, in enacting the Sports Broadcasting Act (SBA) after the common law baseball exemption had developed, excluded from its safe harbor most agreements involving geographic broadcasting territories suggested its intent that such agreements would be subject to the antitrust laws.

The court also rejected the defendants’ contention that the Curt Flood Act, which essentially removed employment-related agreements from the common law baseball exemption, revealed a congressional consensus that sports broadcasting agreements were covered by the baseball exemption. The defendants pointed 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.” However, the CBO cost estimate was not persuasive evidence of congressional intent, in the court's view.

Conspiracy allegations. The leagues were not entitled to summary judgment, the court also ruled, because the complaining consumers carried their initial burden of showing an actual impact on competition from the express agreement among the clubs in each league to limit competition between the clubs—and their broadcaster affiliates—based on geographic territories. There was evidence of a negative impact on the output, price, and perhaps even quality of sports programming, in the court's view.

The leagues raised six procompetitive effects of the territorial broadcast restrictions: (1) preventing free riding, (2) precluding competition with joint venture products, (3) incentivizing investment in higher quality telecasts, (4) maintaining competitive balance, (5) preserving a balance between local loyalty and interest in the sport as a whole, and (6) increasing the overall number of games that are telecast. However, the court concluded that, while “some conceivable procompetitive effects from the territorial rules” had been identified, “the plaintiffs have produced equally plausible (if not more plausible) arguments in opposition.”

The court also rejected the television defendants’ argument that summary judgment was proper on the ground 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.” While neither Comcast nor DIRECTV played a role in the initial creation of the leagues’ HTTs, the television defendants were more than passive participants in a unilaterally imposed restriction, the court noted. A fact finder could permissibly conclude that the RSNs’ and MVPDs’ decisions to enter the contracts were interdependent rather than unilateral, based on the clear existence of parallel conduct and several plausible “plus factors,” the court held. One such plus factor was a common motive to conspire, and the potential for significantly increased profits from the challenged restraint could establish such a motive.

Standing. In closing, the court noted that consumers who purchased the relevant sports programming from the MVPDs would have standing to sue. Because these consumers produced sufficient evidence that a reasonable fact finder could find the MVPDs complicit in the alleged conspiracy, their claims would not be barred under the Illinois Brick doctrine.

The cases are Nos. 12 Civ. 1817 (SAS) and 12 Civ. 3704 (SAS).

Attorneys: Edward A. Diver (Langer Grogan & Diver, P.C.) for Thomas Laumann. Bradley I. Ruskin (Proskauer Rose LLP) for Office of the Commissioner of Baseball and Major League Baseball Enterprises Inc. Shepard Goldfein (Skadden, Arps, Slate, Meagher & Flom LLP) for National Hockey League. Andrew E. Paris (Alston & Bird LLP) for DIRECTV, LLC. Arthur J. Burke (Davis Polk & Wardwell) for Comcast Corp.

Companies: National Hockey League; Major League Baseball; DIRECTV, LLC; Comcast Corp.

Cases: Antitrust NewYorkNews