On 5 December 2012, Judge Shira Scheindlin of the Southern District of New York declined to dismiss claims by consumers of Major League Baseball (MLB) and National Hockey League (NHL) telecasts, alleging that the teams that make up those leagues violated Section 1 of the Sherman Act. See Laumann v. National Hockey League, 12 Civ. 1817 (S.D.N.Y. Dec. 5, 2012). The challenged conduct involved the alleged practices of “divid{ing} the live-game video presentation market into exclusive territories, which are protected by anticompetitive blackouts” and colluding to sell viewing packages for the games exclusively through the leagues. Id. at slip op. 2.

Although the court dismissed certain plaintiffs whose claimed injuries were not sufficiently connected to the alleged illegal activity, Judge Scheindlin allowed a majority of the suits to go forward, holding that agreements to collectively license current MLB and NHL television broadcast rights could be challenged under Section 1 of the Sherman Act. Id. at slip op. 48-49.1

Legal background

Section 1 of the Sherman Act prohibits concerted action that unreasonably restrains trade, but does not apply to independent or unilateral conduct. Generally, joint conduct by “separate economic actors pursuing separate economic interests” is characterized as concerted, whereas internal agreements to implement a “single, unitary firm’s policy” are characterized as unilateral. Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 769 (1984). While the structure surrounding an agreement may play some role in this analysis (i.e., whether the decision comes from a single legal entity or an agreement among many entities), the Supreme Court has long held that “substance, not form, should determine whether a separately incorporated entity is capable of conspiring under § 1.” Id. at 773 n. 21.

American Needle and its progeny

In American Needle, Inc. v. National Football League, 130 S. Ct. 2201 (2010), the Supreme Court held that agreements between professional football teams to license their individual team-owned intellectual property, including logos and team colors, through National Football League (NFL) Properties constituted concerted as opposed to unilateral action. Further, the court held that the fact that “the teams have organized and own a legally separate entity that centralizes the management of their intellectual property” did not save the arrangement – an “ongoing § 1 violation cannot evade § 1 scrutiny simply by giving the ongoing violation a name and label.” Id. at 2213. The Court instead performed a functional analysis suggested by Copperweld, concluding that the “NFL teams d{id} not possess either the unitary decisionmaking quality or the single aggregation of economic power characteristic of independent action.” Id. at 2212. The court found relevant and important to this analysis the fact that the individual teams “compete in the market for intellectual property” and therefore, each team “is a potential independent cente{r} of decisionmaking.” Id.

Earlier this year, in Washington v. National Football League, Civil No. 11-3354, 2012 WL 3017961 at *2 (D. Minn. June 13, 2012), the district court for the District of Minnesota declined to extend the ruling in American Needle to the collective licensing of “historical football game footage.” Recognizing that NFL teams must “cooperate to produce and sell these images” and that “no one entity can do it alone,” the court held that former NFL players could not sustain an antitrust challenge against the NFL and its teams for collective agreements to use this footage in promotional videos. Id. While the “NFL and its teams can conspire to market each teams’ individually owned property,” such a conspiracy cannot occur with respect to property the “teams and the NFL can only collectively own.”  Id.

Laumann

The decision to let the plaintiffs’ Section 1 claims proceed in Laumann, at first glance, appears to be in tension with the dismissal of similar claims in Washington. Both situations involve video footage of professional sports league games, and both situations deal with the joint selling of that footage through a centralized league structure, but the cases resulted in opposite conclusions regarding the applicability of Section 1.

The common thread of both holdings, however, appears to be reliance on current and historical property ownership rights as the determining factor as to whether joint licensing is considered concerted or independent conduct. Judge Scheindlin expressly distinguished “historical football game footage,” which individual teams “do not separately own, and have never separately owned,” from current NHL and MLB broadcast rights arguably owned by the individual teams.  Laumann, 12 Civ. 1817, slip op. at 34 n. 115. Indeed, the Laumann court specifically noted that like the “intellectual property at issue in American Needle, the rights at issue here belong initially to the individual clubs” and that the American Needle court “conclusively established that these kinds of arrangements are subject to Section 1 scrutiny.” 12 Civ. 1817, slip op. at 33-34.2 By contrast, the Washington court observed that “unlike . . . American Needle, the intellectual property involved is . . . something that the individual teams do not separately own, and never have separately owned.” 2012 WL 3017961 at *2.

While intellectual property ownership was one aspect of the holding in American Needle, neither the Washington nor Laumann courts appear to have undertaken the Supreme Court’s full “functional” analysis to consider the practical effects of the challenged arrangement and determine if it deprives the “marketplace of independent centers of decisionmaking that competition assumes and demands.”  American Needle, 130 S.Ct. at 2209.3 American Needle implied that this analysis should consider multiple factors, including the existence of “separate corporate consciousnesses,” the commonality of objectives, and the extent of aggregation of economic power. Id. at 2212-13.

Implications

Read in conjunction, Washington and Laumann suggest that the cooperative selling of jointly-owned property through a lawful joint venture may enjoy certain antitrust protections, whereas the cooperative selling of singularly-owned property through the same joint venture may be open to challenge under Section 1 of the Sherman Act. The contours of that rule have yet to be well defined, however, particularly with regard to its role in the functional analysis of allegedly concerted action required by the Supreme Court in American Needle. Companies participating in joint ventures that license collectively-owned, or singularly-owned and collectively produced, intellectual property should monitor this line of cases closely to assess potential antitrust risks that may arise.