Antitrust LawAntitrust Law

Chapter 10Chapter 10

Purposes of Antitrust Purposes of Antitrust LawLaw Promote competition and efficiency Promote competition and efficiency

in the marketplace in the marketplace Protect consumers from the growing Protect consumers from the growing

monopoly power of big businessmonopoly power of big business Maintain a high level of competition Maintain a high level of competition

among producers so that among producers so that consumers are able to get products consumers are able to get products at affordable and reasonable pricesat affordable and reasonable prices

Federal Antitrust LawsFederal Antitrust Laws

Sherman ActSherman Act Clayton ActClayton Act Sports Broadcasting ActSports Broadcasting Act Curt Flood ActCurt Flood Act

Sherman Antitrust ActSherman Antitrust Act

Section 1: “Every contract, combination in the Section 1: “Every contract, combination in the form of trust or otherwise, or conspiracy in form of trust or otherwise, or conspiracy in restraint of trade or commerce among the several restraint of trade or commerce among the several states or foreign nations is declared to be illegal” states or foreign nations is declared to be illegal” (15 U.S.C. § 1, 2008). (15 U.S.C. § 1, 2008).

To prove a violationTo prove a violation1. Must show that there is an agreement between two 1. Must show that there is an agreement between two

separate partiesseparate parties

2. Must show that the parties’ conduct taken under the 2. Must show that the parties’ conduct taken under the agreement unreasonably restrains trade because they agreement unreasonably restrains trade because they are anticompetitiveare anticompetitive

3. Activity must affect interstate commerce (i.e., commerce 3. Activity must affect interstate commerce (i.e., commerce that takes place between two or more states)that takes place between two or more states)

Violations of Section 1Violations of Section 1

11. Per Se Rule: Conduct that is inherently . Per Se Rule: Conduct that is inherently anticompetitive, such as priceanticompetitive, such as price fixing and fixing and group boycotts, and so automatically group boycotts, and so automatically violates the Sherman Antitrust Actviolates the Sherman Antitrust Act

2. Rule of Reason:2. Rule of Reason: Rule used by courts in antitrust cases that Rule used by courts in antitrust cases that

applies when the conduct is not inherently applies when the conduct is not inherently anticompetitive; under this rule, a court focuses anticompetitive; under this rule, a court focuses on whether the challenged conduct on whether the challenged conduct unreasonably restrains tradeunreasonably restrains trade

A balancing test of pro-competitive and anti-A balancing test of pro-competitive and anti-competitive effects of the actioncompetitive effects of the action

Sherman Antitrust ActSherman Antitrust Act

Section 2: Section 2: “Every person who shall “Every person who shall monopolize, or attempt to monopolize or monopolize, or attempt to monopolize or combine or conspire with any other person or combine or conspire with any other person or persons, to monopolize any part of the trade persons, to monopolize any part of the trade or commerce among the several states, or or commerce among the several states, or with foreign nations, shall be deemed guilty with foreign nations, shall be deemed guilty of a felony” (15 U.S.C. § 2, 2008). of a felony” (15 U.S.C. § 2, 2008).

Monopoly: Monopoly: An organization that possesses An organization that possesses exclusive control over the means of selling exclusive control over the means of selling and producing a product.and producing a product.

Clayton Antitrust ActClayton Antitrust Act

Provides that when a plaintiff proves Provides that when a plaintiff proves that there has been a breach of the that there has been a breach of the Sherman Act, the damages that the Sherman Act, the damages that the plaintiff can recover are tripled. plaintiff can recover are tripled.

In 1984, when Los Angeles Raiders In 1984, when Los Angeles Raiders owner Al Davis won his antitrust owner Al Davis won his antitrust lawsuit against the NFL, the tripled lawsuit against the NFL, the tripled damages amounted to more than $35 damages amounted to more than $35 million.million.

League StructureLeague Structure

A crucial question for antitrust analysis is A crucial question for antitrust analysis is whether a sports league is one entity or whether a sports league is one entity or an entity composed of different, separate an entity composed of different, separate owners.owners.– If it is a single entity, then its decisions do not If it is a single entity, then its decisions do not

constitute section 1 violations (since it applies constitute section 1 violations (since it applies to two or more entities)to two or more entities)

– If a group of owners or employers, then If a group of owners or employers, then section 1 appliessection 1 applies

– Courts had to deal with this question with Courts had to deal with this question with frequency in the 1980s and 1990sfrequency in the 1980s and 1990s

Player RestraintsPlayer Restraints

Assuming leagues are not single Assuming leagues are not single entities, then the following labor entities, then the following labor issues have antitrust implications:issues have antitrust implications:1. Player drafts1. Player drafts

2. Restrictions on free agency2. Restrictions on free agency

3. Salary caps3. Salary caps

Player DraftsPlayer Drafts Each of the major sports leagues uses an Each of the major sports leagues uses an

annual draft to select and allocate players to annual draft to select and allocate players to its member teams. its member teams.

Each league also sets out specific Each league also sets out specific requirements related to the age of those who requirements related to the age of those who can be drafted, their completion or progress can be drafted, their completion or progress in high school or university, and their in high school or university, and their eligibility to be drafted by a member team.eligibility to be drafted by a member team.

Past courts have called aspects of the draft Past courts have called aspects of the draft into question.into question.

Free AgencyFree Agency

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

Restrictions on Free Restrictions on Free AgencyAgency Baseball’s reserve clauseBaseball’s reserve clause

– A clause used to be in every professional baseball A clause used to be in every professional baseball player’s contract stating that if the player did not player’s contract stating that if the player did not automatically sign a new contract with the team for the automatically sign a new contract with the team for the next season, all of the provisions of his present contract next season, all of the provisions of his present contract would be automatically renewed.would be automatically renewed.

– Case law showed reserve clause only good for one year.Case law showed reserve clause only good for one year. NFL’s Rozelle ruleNFL’s Rozelle rule

– NFL rule required a team signing a veteran free agent NFL rule required a team signing a veteran free agent to provide compensation to the team that was losing to provide compensation to the team that was losing the player.the player.

– Struck down as an antitrust violation in Struck down as an antitrust violation in Mackey v. NFL.Mackey v. NFL. Collective bargaining agreements between the Collective bargaining agreements between the

leagues and their players’ associations now leagues and their players’ associations now address these concernsaddress these concerns

Salary CapsSalary Caps

Set a limit on the amount of money Set a limit on the amount of money a team can spend on player salariesa team can spend on player salaries

Set either as per-player limits or as a Set either as per-player limits or as a total limit that a team can pay for its total limit that a team can pay for its playersplayers

Do not violate anti-trust laws Do not violate anti-trust laws because they are negotiated as part because they are negotiated as part of collective bargaining agreementsof collective bargaining agreements

Antitrust ExemptionsAntitrust Exemptions Findings by a court or provisions of statutes that exempt a party Findings by a court or provisions of statutes that exempt a party

from review under a particular regulation or statute. Exemptions from review under a particular regulation or statute. Exemptions allow the party to avoid a lawsuit as a result of its actions that allow the party to avoid a lawsuit as a result of its actions that otherwise could be found to have violated the regulation or otherwise could be found to have violated the regulation or statute.statute.

Baseball’s antitrust exemptionBaseball’s antitrust exemption– Judicial exemption granted to Major League Baseball in 1922 that Judicial exemption granted to Major League Baseball in 1922 that

immunizes the league from being sued for violations of the antitrust immunizes the league from being sued for violations of the antitrust laws.laws.

– Baseball was an “exhibition” and did not act in interstate commerce.Baseball was an “exhibition” and did not act in interstate commerce.– Exemption upheld in 1953 and again in 1972 (Exemption upheld in 1953 and again in 1972 (Flood v. KuhnFlood v. Kuhn))..– Piazza v. Major League BaseballPiazza v. Major League Baseball, 1993, alleged that MLB , 1993, alleged that MLB

monopolized the market for baseball teams and placed restraints on monopolized the market for baseball teams and placed restraints on the purchase, sale, and other forms of competition for these teams. the purchase, sale, and other forms of competition for these teams. The court found that baseball’s antitrust exemption did not extend to The court found that baseball’s antitrust exemption did not extend to the purchase of an existing team.the purchase of an existing team.

Antitrust Exemptions Antitrust Exemptions (cont’d.)(cont’d.)

Nonstatutory labor exemptionNonstatutory labor exemption– Judicial exemption that provides that when employers and Judicial exemption that provides that when employers and

employees have bargained in good faith, one party cannot be employees have bargained in good faith, one party cannot be sued by the other party claiming violations of the antitrust lawssued by the other party claiming violations of the antitrust laws

– Remains in effect even after collective bargaining agreement Remains in effect even after collective bargaining agreement endsends

– To use the labor exemption, a league must show that To use the labor exemption, a league must show that (1) the restraint of trade affects only the parties to the collective (1) the restraint of trade affects only the parties to the collective

bargaining agreement; bargaining agreement; (2) the restraint is a mandatory subject of collective bargaining (2) the restraint is a mandatory subject of collective bargaining

(these include wages, hours, and other terms and conditions of (these include wages, hours, and other terms and conditions of employment); and employment); and

(3) the collective bargaining agreement is the product of arms-(3) the collective bargaining agreement is the product of arms-length bargaining, meaning that each party has an equally strong length bargaining, meaning that each party has an equally strong position to bargain from. position to bargain from.

Broadcasting Broadcasting ExemptionExemption

Sports Broadcasting ActSports Broadcasting Act– Enables clubs to put their separate rights Enables clubs to put their separate rights

together into one package so that the league can together into one package so that the league can sell the package to one purchaser, such as a TV sell the package to one purchaser, such as a TV network, in an effort to protect their home game network, in an effort to protect their home game ticket sales and to allow clubs to share television ticket sales and to allow clubs to share television revenues.revenues.

– Allows professional hockey, football, baseball, Allows professional hockey, football, baseball, and basketball to pool and sell their rights in and basketball to pool and sell their rights in sponsored telecasts of games without the fear of sponsored telecasts of games without the fear of being sued for creating an agreement in restraint being sued for creating an agreement in restraint of trade. NCAA is not a party.of trade. NCAA is not a party.

Curt Flood ActCurt Flood Act

Modifies baseball’s antitrust exemption.Modifies baseball’s antitrust exemption. Allows baseball players to sue MLB if Allows baseball players to sue MLB if

they believe that some condition of they believe that some condition of their employment may violate the their employment may violate the antitrust laws.antitrust laws.– Other aspects of the business of baseball Other aspects of the business of baseball

itself (ownership, management, relocation) itself (ownership, management, relocation) are still protected by the antitrust are still protected by the antitrust exemption.exemption.

Franchise RelocationFranchise Relocation Professional sports leagues restrict franchise relocations to Professional sports leagues restrict franchise relocations to

other cities. In NFL, unanimous approval is required. In other other cities. In NFL, unanimous approval is required. In other leagues, approval by 75% of owners is required.leagues, approval by 75% of owners is required.

Teams have sued the leagues claiming that these rules violate Teams have sued the leagues claiming that these rules violate the antitrust laws.the antitrust laws.

Los Angeles Memorial Coliseum Commission v. NFLLos Angeles Memorial Coliseum Commission v. NFL, 1984, 1984– NFL owners voted against move of the Oakland Raiders to Los NFL owners voted against move of the Oakland Raiders to Los

Angeles.Angeles.– Raiders’ owner Al Davis and the Los Angeles Coliseum sued.Raiders’ owner Al Davis and the Los Angeles Coliseum sued.– Federal appeals court found the NFL franchise relocation Federal appeals court found the NFL franchise relocation

restrictions violated the antitrust laws.restrictions violated the antitrust laws.– Team was awarded $11.5 million and Coliseum was awarded $4.6 Team was awarded $11.5 million and Coliseum was awarded $4.6

million, both amounts then tripled under the Clayton Act.million, both amounts then tripled under the Clayton Act. This case ruled that the NFL is not a single entity.This case ruled that the NFL is not a single entity.

Single-Entity Single-Entity Structure: DefenseStructure: Defense A defense to an antitrust claim; a party A defense to an antitrust claim; a party

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

Fraser v. MLSFraser v. MLS, 2000, 2000

Major League Soccer attempted to be set up as a Major League Soccer attempted to be set up as a single entity. League office owned all player single entity. League office owned all player contracts, controlled all player salaries under a contracts, controlled all player salaries under a salary cap, and mandated transfer fees for player salary cap, and mandated transfer fees for player transactions among teams.transactions among teams.

Players sued, claiming that the restrictive player Players sued, claiming that the restrictive player restraints embodied in the salary cap and transfer restraints embodied in the salary cap and transfer system violated the antitrust laws.system violated the antitrust laws.

MLS admitted that it had created this structure in MLS admitted that it had created this structure in an attempt to keep salaries and other costs down an attempt to keep salaries and other costs down so that the league could develop a strong base of so that the league could develop a strong base of financial viability in its early years of operation.financial viability in its early years of operation.

Fraser v. MLSFraser v. MLS, 2000 , 2000 (continued)(continued) The federal appeals court agreed with The federal appeals court agreed with

MLS, finding that it was a single MLS, finding that it was a single corporate entity, and therefore it could corporate entity, and therefore it could not violate section 1 of the Sherman not violate section 1 of the Sherman Act.Act.

In 2003, though, the players unionized In 2003, though, the players unionized and in 2004, a collective bargaining and in 2004, a collective bargaining agreement was signed between the agreement was signed between the players union and MLS – now MLS may players union and MLS – now MLS may be protected by labor exemption lawsbe protected by labor exemption laws

Individual Performer Individual Performer SportsSports Professional boxing, tennis, golf, bowling, and Professional boxing, tennis, golf, bowling, and

automobile racing have all been found to be automobile racing have all been found to be businesses engaged in interstate commerce.businesses engaged in interstate commerce.

There is a focus of antitrust scrutiny of these There is a focus of antitrust scrutiny of these sports.sports.

Eligibility restraints have not been found to Eligibility restraints have not been found to violate the antitrust laws if the restrictions violate the antitrust laws if the restrictions promote the quality of the competition, promote the quality of the competition, ensure uniformity of the rules, and assist in ensure uniformity of the rules, and assist in the orderly scheduling of tournaments and the orderly scheduling of tournaments and other events.other events.

College Sports: Goals College Sports: Goals of the NCAAof the NCAA NCAA is a membership organization made up of NCAA is a membership organization made up of

universities that agree to abide by their rules.universities that agree to abide by their rules. Preserve the amateur nature of intercollegiate Preserve the amateur nature of intercollegiate

athletics as a part of the educational process in athletics as a part of the educational process in university and to ensure that its member schools university and to ensure that its member schools compete on a level playing field.compete on a level playing field.

NCAA has created extensive rules restricting the NCAA has created extensive rules restricting the nature of participation in intercollegiate athletics nature of participation in intercollegiate athletics (e.g., limits on recruiting, academic eligibility (e.g., limits on recruiting, academic eligibility requirements, financial aid standards, agent requirements, financial aid standards, agent regulations, amateurism rules, and a myriad of regulations, amateurism rules, and a myriad of other topics).other topics).

Antitrust Review of the Antitrust Review of the NCAANCAA

Rules that affect commercial activity have been found Rules that affect commercial activity have been found to violate the antitrust laws.to violate the antitrust laws.– NCAA football television plan that set limits on number of NCAA football television plan that set limits on number of

games that could be televised was found to violate antitrust games that could be televised was found to violate antitrust laws (laws (NCAA v. Board of RegentsNCAA v. Board of Regents, 1984)., 1984).

– Rule restricting coaches salaries was found to violate antitrust Rule restricting coaches salaries was found to violate antitrust laws (laws (Law v. NCAA, Law v. NCAA, 1998).1998).

Rules that are not commercial in nature have been Rules that are not commercial in nature have been found to not violate the antitrust laws.found to not violate the antitrust laws.– NCAA argues that eligibility rules and academic standards are NCAA argues that eligibility rules and academic standards are

needed to preserve amateurism of NCAA athletics.needed to preserve amateurism of NCAA athletics.– NCAA no-draft, no-agent rules barring athletes who are drafted NCAA no-draft, no-agent rules barring athletes who are drafted

by a professional sports league or sign with an agent do not by a professional sports league or sign with an agent do not violate antitrust laws (violate antitrust laws (Banks v. NCAABanks v. NCAA, 1992)., 1992).