Challenge To Alleged Restraints On Baseball And Hockey Programming Survive Motion To Dismiss And Advance To The Next Round Of Litigation

by Sheppard Mullin Richter & Hampton LLP
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Have you ever been away from home when your favorite baseball or hockey team is playing an important game? Ever wished you could watch that game, and just that game, live while you are on the road? If plaintiffs in Laumann v. Nat’l Hockey League, Case No. 1:12-cv-01817 (S.D.N.Y.) have their way, you might get your wish. On December 5, 2012, District Judge Shira A. Scheindlin largely denied a motion to dismiss plaintiffs’ Sherman Act Section 1 and 2 claims challenging agreements that allegedly restrain the markets for baseball and hockey programming. Plaintiffs, consumers of television and internet packages that include baseball and hockey programming, allege that competition has been eliminated in the distribution of baseball and hockey games through a web of collusive agreements between and among numerous defendants, including the National Hockey League (“NHL”), Major League Baseball (“MLB”) (collectively, the “Leagues”), the teams within those leagues, regional sports networks that televise the games (“RSNs”) and multichannel video programing distributors (“MVPDs”) Comcast and DirecTV, which sell cable programming packages. Defendants’ agreements purportedly divide the market into exclusive “in-market” territories protected by blackouts, prohibit any option for viewing in-market games on the internet, and provide consumers with only one option for viewing “out-of-market” games, an all-or-nothing package containing all out-of-market games. The result, according to plaintiffs, is a double play—higher prices and reduced output of sports programming.

According to plaintiffs, the teams within the MLB and NHL own the rights to telecast their own home games. Each team permits visiting teams to generate their own telecasts as well. RSNs negotiate with teams for the rights to broadcast their games locally (“in market” games). RSNs then sell programming to MVPDs, and MVPDs sell a standard package of programs to consumers that includes in-market games. The teams give the Leagues exclusive rights to broadcast their games outside of the in-market region (“out-of-market” games). In order to watch out-of-market games, consumers have to purchase an all-or-nothing television package from an MVPD or an all-or-nothing internet package directly from the League, with one exception—a small percentage of games are nationally televised pursuant to agreements between the Leagues and national networks. If a consumer wants to purchase a package that includes all in-market, out-of-market and nationally televised games, the only option is through a television package offered by MVPDs; no internet option exists.

Defendants raised numerous arguments in their motion to dismiss but largely struck out with Judge Scheindlin. Even though plaintiffs purchased programming from MVPDs and not directly from the Leagues or the teams, she held that plaintiffs did not lack standing under Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977). Consumers had standing, according to Judge Scheindlin, because plaintiffs alleged that the RSNs and MVPDs were co-conspirators, making consumers the first non-conspirator purchasers in the chain, and therefore not “indirect” purchasers within the meaning of Illinois Brick. The Court also ruled that, under Associated Gen. Contractors v. Cal. State Council of Carpenters, 459 U.S. 519 (1983), consumers of out-of-market packages were “the most efficient enforcers” of the antitrust laws in this instance, because they were consumers in the allegedly restrained markets for professional baseball and hockey video presentations, and also because all of the more direct purchasers were alleged co-conspirators. However, the Court agreed with defendants’ argument that consumers of Comcast and DirecTV who did not subscribe to out-of-market packages lacked standing because their “coincidental” purchase of in-market sports programming as part of an overall cable package made them too remote to be “proper plaintiffs” and their damages too speculative.

The Court also held that plaintiffs’ Sherman Act Section 1 claims were sufficiently stated, rejecting defendants’ arguments that their conduct was immune or presumptively legal. Judge Scheindlin explained that under American Needle, Inc. v. Nat’l Football League, 130 S. Ct. 2201 (2010), the fact that teams are organized into Leagues does not make their conduct immune under Sherman Act Section 1, because the teams “do not possess either the unitary decisionmaking quality or the single aggregation of economic power,” of a single entity and lacked common objectives. Thus, agreements regarding out-of-market games are properly the subject of Section 1 scrutiny. The Court also held that RSNs’ vertical agreements with teams for the right to produce video presentations of games in exchange for local monopolies could be challenged under Section 1 as either (1) vertical agreements facilitating horizontal collusion among the teams; or (2) horizontal collusion between RSNs, based on plaintiffs’ allegations that each RSN only entered into these agreements contingent upon all other RSNs entering into similar agreements. Similarly, the Court held that MVPDs’ vertical agreements with RSNs also facilitated, and were essential to, horizontal market divisions, since MVPDs are the parties that actually implement them. In addition, MVPDs own and control several RSNs, and directly benefit from restrictions on internet streaming of in-market games.

To survive defendants’ motion to dismiss, plaintiffs’ allegations had to raise a “reasonable expectation” that discovery would lead to evidence of injury to competition. The Court held that plaintiffs sufficiently alleged harm to competition because plaintiffs alleged that in a competitive market, each team would try to increase, not decrease, opportunities for consumers to view their games. The Court rejected defendants’ argument that the all-or-nothing out-of-market packages offered by the Leagues eliminated this harm, noting plaintiffs’ allegations that even with these packages, consumer choices were reduced and prices increased.

With respect to plaintiffs’ Sherman Act Section 2 claim, the Court held that plaintiffs had sufficiently alleged a monopolization claim against the teams and the Leagues. Plaintiffs sufficiently alleged that these defendants had monopoly power within a relevant market characterized by high barriers to entry, and had used that power to restrain competition. Specifically, plaintiffs alleged that the teams and the League had monopoly power in the alleged relevant market for the provision of professional baseball and hockey games via the internet and television, because only they had the power to produce games. Defendants allegedly used that monopoly power to restrict competition through the agreements described above. However, the Court dismissed plaintiffs’ Section 2 claims against the RSN and MVPD defendants, because plaintiffs did not allege that they had monopoly power or that they participated in a conspiracy to monopolize.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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