On January 6, 2020, District Judge Andre Birotte Jr. of the United States District Court for the Central District of California denied defendants, Writers Guild of America West, Inc. and Writers Guild of America East, Inc.’s (“WGA”) motion to dismiss an action brought by three of the largest Hollywood talent agencies alleging that WGA violated Section 1 of the Sherman Act by orchestrating an illegal boycott. William Morris Endeavor Entertainment, LLC., et al. v. Writers Guild of America, West, Inc. et al., No. 2:19-cv-05465-AB-FFMx (Jan. 7, 2020).
Plaintiffs are three talent agencies in Los Angeles, Williams Morris Endeavor Entertainment, LLC, Creative Artists Agency, LLC and United Talent Agency, LLC (“Plaintiffs”). The WGA, two labor unions of writers in the entertainment industry, historically regulated its members’ interactions with talent agencies, including Plaintiffs, through the Artists’ Manager Basic Agreement (“AMBA”). For decades, the AMBA explicitly endorsed a “long standing practice” known as “packaging” where Plaintiffs and other talent agencies presented a studio with “one or more of the key elements of a production such as writers, actors, directors, producers, and/or the intellectual property on which the project is based—in exchange for packaging fees.” Plaintiffs argue that packaging helps studios justify the risk of financing and producing media, creating opportunities for writers and increasing the amount of content available to media consumers. In 2018, WGA gave notice of the AMBA’s termination, announcing the revocation of its endorsement of this practice.
Following termination of the AMBA, the WGA passed a new Code of Conduct to regulate talent agency behavior. Among other things, the Code of Conduct, “prohibits [WGA’s] members from being represented by any agent or agencies that (1) receive(s) packaging fees or (2) has (have) an ownership or other financial interest in the production companies.” If WGA members fail to comply, they risk expulsion from the union, significant monetary fines, and removal of healthcare benefits. As a result, over 7,000 WGA members, including showrunners, fired their agents.
WGA contends that this provision protects its members against conflicts of interest that arise when agencies care more about package fees than their individual clients’ compensation. WGA requires talent agencies to sign the Code of Conduct to represent WGA writers in the sale of their writing, in the rendering of their writing services, and in all areas of work outlined in a collective bargaining agreement (“MBA”), i.e., in a capacity as a writer. However, the MBA, by its own terms, is inapplicable to the employment of writers if they are acting in a bona fide non-writing capacity, e.g., as producers or showrunners that have duties outside of writing.
Despite this term in the MBA, Plaintiffs assert that the WGA requires its members to fire their agents who refuse to sign the Code of Conduct irrespective of whether their representation was in the member’s writing or non-writing capacity. To this end, Plaintiffs claim that WGA orchestrated an illegal boycott of talent agencies by coercing, or attempting to coerce, non-labor parties to fire their agency for their refusal to agree to the Code of Conduct’s terms. Plaintiffs also assert that the WGA “[sought] to induce unlicensed Hollywood managers and lawyers to join the boycott by taking over representation of” [Defendant’s] writer-members in their negotiations.”
In response, Plaintiffs filed suit against WGA under Section 1 of the Sherman Act, alleging WGA coerced or attempted to coerce parties to boycott talent agencies like Plaintiffs which did not comply with the WGA’s Code of Conduct in an attempt to harm Plaintiffs. WGA filed a motion to dismiss, arguing Plaintiffs’ suit was barred by the statutory labor exemption and by the non-statutory labor exemption to the Shearman Act and that Plaintiffs failed to adequately allege an unreasonable restraint of trade, a dominant market position, and an antitrust injury.
The Court held Plaintiffs were not barred by the statutory labor exemption because Plaintiffs plausibly alleged WGA combined with non-labor groups (e.g., other talent agencies, showrunners exempt from the MBA, and unlicensed lawyers and managers) in the enforcement of their Code of Conduct. See USS-POSCO Indus. v. Contra Costa Cty. Bldg. & Constr. Trades Council, AFL-CIO, 31 F.3d 800, 805-06 (9th Cir. 1994). Further, the Court concluded that Plaintiffs were not barred by the non-statutory labor exemption because Plaintiffs sufficiently alleged the Code of Conduct affects those who are not parties to it, e.g., the prohibition of packaging impacts non-members to the WGA, such as actors and directors who will not WGA members but will no longer benefit from packaging, as well as media consumers who will enjoy less content created overall. See Phoenix Elec. Co. v. Nat’l Elec. Contractors Ass’n, 81 F.3d 858, 861 (9th Cir. 1996).
As to WGA’s argument that Plaintiffs failed to state a valid antitrust claim, the Court held Plaintiffs adequately plead the Code of Conduct’s prohibition of packaging and practices was not “justified by plausible arguments that the practices enhanced overall efficiency and made markets more competitive.” Paladin Assocs., Inc. v. Montana Power Co., 328 F.3d 1145, 1155 (9th Cir. 2003). Specifically, the Court held that Plaintiffs sufficiently alleged that the Code of Conduct does not make markets more competitive or enhance overall efficiency, and WGA “ha[s] not provided a plausible argument that prohibiting packaging enhances overall efficiency and makes markets more competitive.” In further holding that the Code of Conduct was not an associational standard that could not be considered an unreasonable restraint of trade, the Court held Plaintiffs provided sufficient factual allegations to show that WGA orchestrated a “joint effort to disadvantage Plaintiffs by persuading writers to deny Plaintiffs (sic) relationships the Plaintiffs need in a competitive struggle.”
The Court also rejected the WGA’s argument that Plaintiffs failed to demonstrate that WGA had dominant market power because claims of a “naked restraint on price or output” do not require a demonstration of market power. The Court noted that “proof of a dominant market position is indicative of a per se illegal boycott,” but it is not a required Section 1 element. Finally, the Court rejected the WGA’s argument that Plaintiffs insufficiently alleged an impact on competition, holding that Plaintiffs sufficiently alleged, “that the Code of Conduct stifles competition in the market for writer-representation services by excluding all talent agencies that decline to agree to the Code of Conduct, not just Plaintiffs.”
The Court’s decision serves as an example of the potential risks in organized and coordinated refusal to conduct business without otherwise enhancing competition and efficiency overall. To avoid costly antitrust damage claims, any concerted refusals to deal should be undertaken only with consideration of the parties’ intent and potential harm to third parties.