Antitrust Law

1
Antitrust Law

• Chapter 10

2
Purposes of Antitrust Law

• Promote competition and efficiency in the
  marketplace
• Protect consumers from the growing monopoly power
  of big business
• Maintain a high level of competition among
  producers so that consumers are able to get
  products at affordable and reasonable prices

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Federal Antitrust Laws

• Sherman Act
• Clayton Act
• Sports Broadcasting Act
• Curt Flood Act

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Sherman Antitrust Act

• Section 1 Every contract, combination in the
  form of trust or otherwise, or conspiracy in
  restraint of trade or commerce among the several
  states or foreign nations is declared to be
  illegal (15 U.S.C. 1, 2008).
• To prove a violation
• 1. Must show that there is an agreement between
  two separate parties
• 2. Must show that the parties conduct taken
  under the agreement unreasonably restrains trade
  because they are anticompetitive
• 3. Activity must affect interstate commerce
  (i.e., commerce that takes place between two or
  more states)

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Violations of Section 1

• 1. Per Se Rule Conduct that is inherently
  anticompetitive, such as price fixing and group
  boycotts, and so automatically violates the
  Sherman Antitrust Act
• 2. Rule of Reason
• Rule used by courts in antitrust cases that
  applies when the conduct is not inherently
  anticompetitive under this rule, a court focuses
  on whether the challenged conduct unreasonably
  restrains trade
• A balancing test of pro-competitive and
  anti-competitive effects of the action

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Sherman Antitrust Act

• Section 2 Every 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 (15 U.S.C. 2, 2008).
• Monopoly An organization that possesses
  exclusive control over the means of selling and
  producing a product.

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Clayton Antitrust Act

• Provides that when a plaintiff proves that there
  has been a breach of the Sherman Act, the damages
  that the plaintiff can recover are tripled.
• In 1984, when Los Angeles Raiders owner Al Davis
  won his antitrust lawsuit against the NFL, the
  tripled damages amounted to more than 35 million.

8
League Structure

• A crucial question for antitrust analysis is
  whether a sports league is one entity or an
  entity composed of different, separate owners.
• If it is a single entity, then its decisions do
  not constitute section 1 violations (since it
  applies to two or more entities)
• If a group of owners or employers, then section 1
  applies
• Courts had to deal with this question with
  frequency in the 1980s and 1990s

9
Player Restraints

• Assuming leagues are not single entities, then
  the following labor issues have antitrust
  implications
• 1. Player drafts
• 2. Restrictions on free agency
• 3. Salary caps

10
Player Drafts

• Each of the major sports leagues uses an annual
  draft to select and allocate players to its
  member teams.
• Each league also sets out specific requirements
  related to the age of those who can be drafted,
  their completion or progress in high school or
  university, and their eligibility to be drafted
  by a member team.
• Past courts have called aspects of the draft into
  question.

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Free Agency

• The period of time when a professional athlete is
  not under contract to any particular team and so
  is able to freely negotiate with any team

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Restrictions on Free Agency

• Baseballs reserve clause
• A clause used to be in every professional
  baseball players contract stating that if the
  player did not automatically sign a new contract
  with the team for the next season, all of the
  provisions of his present contract would be
  automatically renewed.
• Case law showed reserve clause only good for one
  year.
• NFLs Rozelle rule
• NFL rule required a team signing a veteran free
  agent to provide compensation to the team that
  was losing the player.
• Struck down as an antitrust violation in Mackey
  v. NFL.
• Collective bargaining agreements between the
  leagues and their players associations now
  address these concerns

13
Salary Caps

• Set a limit on the amount of money a team can
  spend on player salaries
• Set either as per-player limits or as a total
  limit that a team can pay for its players
• Do not violate anti-trust laws because they are
  negotiated as part of collective bargaining
  agreements

14
Antitrust Exemptions

• Findings by a court or provisions of statutes
  that exempt a party from review under a
  particular regulation or statute. Exemptions
  allow the party to avoid a lawsuit as a result of
  its actions that otherwise could be found to have
  violated the regulation or statute.
• Baseballs antitrust exemption
• Judicial exemption granted to Major League
  Baseball in 1922 that immunizes the league from
  being sued for violations of the antitrust laws.
• Baseball was an exhibition and did not act in
  interstate commerce.
• Exemption upheld in 1953 and again in 1972 (Flood
  v. Kuhn).
• Piazza v. Major League Baseball, 1993, alleged
  that MLB monopolized the market for baseball
  teams and placed restraints on the purchase,
  sale, and other forms of competition for these
  teams. The court found that baseballs antitrust
  exemption did not extend to the purchase of an
  existing team.

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Antitrust Exemptions (contd.)

• Nonstatutory labor exemption
• Judicial exemption that provides that when
  employers and employees have bargained in good
  faith, one party cannot be sued by the other
  party claiming violations of the antitrust laws
• Remains in effect even after collective
  bargaining agreement ends
• To use the labor exemption, a league must show
  that
• (1) the restraint of trade affects only the
  parties to the collective bargaining agreement
• (2) the restraint is a mandatory subject of
  collective bargaining (these include wages,
  hours, and other terms and conditions of
  employment) and
• (3) the collective bargaining agreement is the
  product of arms-length bargaining, meaning that
  each party has an equally strong position to
  bargain from.

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Broadcasting Exemption

• Sports Broadcasting Act
• Enables clubs to put their separate rights
  together into one package so that the league can
  sell the package to one purchaser, such as a TV
  network, in an effort to protect their home game
  ticket sales and to allow clubs to share
  television revenues.
• Allows professional hockey, football, baseball,
  and basketball to pool and sell their rights in
  sponsored telecasts of games without the fear of
  being sued for creating an agreement in restraint
  of trade. NCAA is not a party.

17
Curt Flood Act

• Modifies baseballs antitrust exemption.
• Allows baseball players to sue MLB if they
  believe that some condition of their employment
  may violate the antitrust laws.
• Other aspects of the business of baseball itself
  (ownership, management, relocation) are still
  protected by the antitrust exemption.

18
Franchise Relocation

• Professional sports leagues restrict franchise
  relocations to other cities. In NFL, unanimous
  approval is required. In other leagues, approval
  by 75 of owners is required.
• Teams have sued the leagues claiming that these
  rules violate the antitrust laws.
• Los Angeles Memorial Coliseum Commission v. NFL,
  1984
• NFL owners voted against move of the Oakland
  Raiders to Los Angeles.
• Raiders owner Al Davis and the Los Angeles
  Coliseum sued.
• Federal appeals court found the NFL franchise
  relocation restrictions violated the antitrust
  laws.
• Team was awarded 11.5 million and Coliseum was
  awarded 4.6 million, both amounts then tripled
  under the Clayton Act.
• This case ruled that the NFL is not a single
  entity.

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Single-Entity Structure Defense

• A defense to an antitrust claim a party using
  this defense must demonstrate that instead of
  being an organization made up of separate
  business entities, it is one business entity
  itself and so it cannot be a combination or
  conspiracy in restraint of trade as required to
  violate the antitrust laws.

20
Fraser v. MLS, 2000

• Major League Soccer attempted to be set up as a
  single entity. League office owned all player
  contracts, controlled all player salaries under a
  salary cap, and mandated transfer fees for player
  transactions among teams.
• Players sued, claiming that the restrictive
  player restraints embodied in the salary cap and
  transfer system violated the antitrust laws.
• MLS admitted that it had created this structure
  in an attempt to keep salaries and other costs
  down so that the league could develop a strong
  base of financial viability in its early years of
  operation.

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Fraser v. MLS, 2000 (continued)

• The federal appeals court agreed with MLS,
  finding that it was a single corporate entity,
  and therefore it could not violate section 1 of
  the Sherman Act.
• In 2003, though, the players unionized and in
  2004, a collective bargaining agreement was
  signed between the players union and MLS now
  MLS may be protected by labor exemption laws

22
Individual Performer Sports

• Professional boxing, tennis, golf, bowling, and
  automobile racing have all been found to be
  businesses engaged in interstate commerce.
• There is a focus of antitrust scrutiny of these
  sports.
• Eligibility restraints have not been found to
  violate the antitrust laws if the restrictions
  promote the quality of the competition, ensure
  uniformity of the rules, and assist in the
  orderly scheduling of tournaments and other
  events.

23
College Sports Goals of the NCAA

• NCAA is a membership organization made up of
  universities that agree to abide by their rules.
• Preserve the amateur nature of intercollegiate
  athletics as a part of the educational process in
  university and to ensure that its member schools
  compete on a level playing field.
• NCAA has created extensive rules restricting the
  nature of participation in intercollegiate
  athletics (e.g., limits on recruiting, academic
  eligibility requirements, financial aid
  standards, agent regulations, amateurism rules,
  and a myriad of other topics).

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Antitrust Review of the NCAA

• Rules that affect commercial activity have been
  found to violate the antitrust laws.
• NCAA football television plan that set limits on
  number of games that could be televised was found
  to violate antitrust laws (NCAA v. Board of
  Regents, 1984).
• Rule restricting coaches salaries was found to
  violate antitrust laws (Law v. NCAA, 1998).
• Rules that are not commercial in nature have been
  found to not violate the antitrust laws.
• NCAA argues that eligibility rules and academic
  standards are needed to preserve amateurism of
  NCAA athletics.
• NCAA no-draft, no-agent rules barring athletes
  who are drafted by a professional sports league
  or sign with an agent do not violate antitrust
  laws (Banks v. NCAA, 1992).