Analyzing the scope of Major League Baseball's antitrust exemption in light of San Jose v. Office of the Commissioner of Baseball.

• Author: Bryant, Justin B.

INTRODUCTION

"If this ruling is unrealistic, inconsistent, or illogical, it is sufficient to answer ... that were we considering the question of baseball for the first time upon a clean slate we would have no doubts. But Federal Baseball held the business of baseball outside the scope of the Act.... We, therefore, conclude that the orderly way to eliminate error or discrimination, if any there be, is by legislation and not by court decision." (1)

To be a successful Major League Baseball franchise requires hard work and dedication by a team of great players and knowledgeable coaches, coupled with sound on-field decisionmaking, and a little luck. It also helps to have a lot of money. In the 2013 season, nearly half of major league teams spent more than $100 million on player salaries. (2) In professional sports the "[t]eams with impressive records tend to show bigger revenues than teams in the cellar" largely because "[t]he richest teams enjoy competitive advantages" such as "the ability to bid for free agents or to pay to keep their own players who opt for free agency," and "the ability to hire top notch staffs." (3) For the Oakland Athletics, however, such a high payroll figure is not a realistic option while playing in O.co Coliseum, an outdated stadium in desperate need of repair that the Commissioner of Major League Baseball bluntly calls "a pit." (4)

Just thirty-five miles south of Oakland, however, the City of San Jose has attempted to give the Athletics an opportunity to do better. The city agreed in 2011 to help the Athletics build a new stadium in San Jose, and the San Jose City Council executed an agreement that gave the team a two-year option to purchase land owned by the city to build a new stadium. (5) However, the team has been prevented from taking further action by Major League Baseball while the league considers whether to approve the team's move. (6) Tired of waiting on baseball, the City of San Jose decided to file a lawsuit against Major League Baseball for tortious interference and violation of state and federal antitrust laws. (7) However, the city's legal efforts ran into an even larger roadblock: Major League Baseball has historically enjoyed an exemption from federal antitrust laws that bars any claims that baseball's conduct violates antitrust laws.

The Supreme Court first held that professional baseball was exempt from federal antitrust laws in Federal Baseball Club of Baltimore, Inc. v. National League of Professional Baseball Clubs. (8) In what would later be referred to as "not one of [his] happiest days," (9) Justice Holmes reasoned that the business of baseball was not a subject of interstate commerce and thus was not within the scope of Sherman Antitrust Act, (10) which meant that anticompetitive behavior engaged in by organized baseball was not challengeable under the Act. (11)

The Court confronted the applicability of the antitrust laws to professional baseball again in Toolson v. New York Yankees, Inc, (12) Rather than revisit the questionable reasoning that baseball was not interstate commerce or trade, the Court issued a one paragraph, per curiam opinion affirming the validity of Federal Baseball for the much broader proposition that "the business of providing public baseball games for profit between clubs of professional baseball players was not within the scope of the federal antitrust laws." (13) The Court's only support for that proposition was that Congress had not passed legislation to overturn Federal Baseball, which indicated Congress's consent to the exemption. (14)

The Court directly addressed its judicially created baseball antitrust exemption for the third and final time in Flood v. Kuhn. (15) While the Court noted that the exemption was "an exception and an anomaly," the Court concluded that baseball's reliance on the exemption was a greater concern that trumps any argument for overturning the exemption. (16) Instead, the Court reasoned that a change or repeal of the exemption should be made by Congress. (17) Without much analysis of congressional action, the Court concluded that Congress had no intent to make any change to the exemption, and thus Congress's intent was for baseball to remain exempt from federal antitrust laws. (18)

These three cases, now referred to as the "baseball trilogy," have confounded courts and scholars for generations. San Jose's antitrust suit against Major League Baseball renews the challenge of defining the scope and applicability of the baseball antitrust exemption and the struggle to sort through the lower court precedent to arrive at a workable standard for the exemption. This Note will discuss the history of the exemption, the potential standards for applying the exemption, and analyze Judge Whyte's order dismissing San Jose's antitrust claims in City of San Jose v. Office of the Commissioner of Baseball (19) to determine the persuasiveness the court's opinion may have going forward as well as potential issues with the court's reasoning. (20)

First, in Part I, this Note will chronicle the history behind the creation and expansion of professional baseball's antitrust exemption. Part I will then turn to a discussion of the Court's rejection of efforts to apply the exemption to other sports, followed by an introduction to the Curt Flood Act and its change to the exemption. Finally, Part I will introduce the most recent challenge to baseball's antitrust exemption by the City of San Jose.

Next, Part II of this Note will detail the three main approaches to interpreting baseball's antitrust exemption and will look at how the courts have considered the effect, if any, of the Curt Flood Act in considering the exemption. Part II will examine the three different approaches applied to baseball's antitrust exemption: first, the narrow approach, which only prevents challenges to baseball's reserve clause; second, the "unique characteristics and needs" approach; and third, the broad approach, which grants an all-encompassing exemption. Part II will conclude by looking at how courts interpret the Curt Flood Act's effect on the exemption.

Finally, Part III of this Note will analyze the City of San Jose's and Major League Baseball's arguments regarding whether the exemption is limited to only the reserve clause, as well as the San Jose court's critique and ultimate dismissal of that approach. Then, Part III will discuss the San Jose court's consideration of the more narrow "unique characteristics and needs" standard, followed by a critique of the court's support of a broad, all-encompassing antitrust exemption. Lastly, Part III will examine the arguments regarding the effect of the Curt Flood Act, address the San Jose court's conclusion that the Act demonstrates that Congress explicitly preserved a broad exemption, and conclude with an analysis of the potential flaws with the court's conclusion.

1. PROFESSIONAL BASEBALL'S ANTITRUST EXEMPTION AND CITY OF SAN JOSE

5. OFFICE OF THE COMMISSIONER OF BASEBALL

   1. The Supreme Court's Baseball Trilogy

      Professional baseball's historic antitrust exemption was born in 1922, out of the Supreme Court opinion in Federal Baseball Club of Baltimore, Inc. v. National League of Professional Baseball Clubs. (21) The president of the Federal League's Baltimore Terrapins brought an antitrust suit against the American League, the National League, the National Commission, (22) and certain Federal League owners after the two leagues had bought out the owners of a majority of the Federal League teams, leaving the Terrapins without any base-ball league to call home. (23) The Terrapins had refused the buyout offer the other teams had accepted, because the team's president was intent on having a major league team in Baltimore, which was not provided for as part of the buyout. (24) Writing for the unanimous Court, Justice Holmes reasoned that the business of baseball--providing exhibitions of baseball between teams--was a purely state affair and thus not a subject of interstate commerce. (25) Because the leagues were not subject to interstate commerce, they were not within the scope of the Sherman Antitrust Act, (26) and any conspiracy or anticompetitive behavior engaged in by the leagues did not create a cause of action under the Act. (27) The Court also noted that the essential business of baseball, the playing of the games themselves, was not trade within the meaning of the Sherman Act because it is actually labor--the personal effort of the players--and not manufacturing. (28) On that reasoning, the Court affirmed the D.C. Circuit's judgment for the American League and the National League. (29)

      Three decades later, the Supreme Court revisited its Federal Baseball holding for the first time in Toolson v. New York Yankees, Inc. (30) In a one paragraph, per curiam opinion, the Court held that Federal Baseball stood for the proposition that "the business of providing public baseball games for profit between clubs of professional baseball players was not within the scope of the federal antitrust laws." (31) The Court affirmed the validity of that proposition on the grounds that Congress had not passed legislation to overturn Federal Baseball, which indicated Congress's consent to the exemption. (32) If baseball, after having thirty years to develop with the understanding that the business was not subject to antitrust laws, was to be subject to the antitrust laws then, the Court declared, "it should be by legislation." (33)

      The Supreme Court over the next twenty years declined to extend Federal Baseball and Toolson to other sports and entertainment industries. (34) Then, in 1972, the Court directly addressed its judicially created baseball antitrust exemption for the third and final time in Flood v. Kuhn. (35) After being traded from the St. Louis Cardinals to the Philadelphia Phillies, outfielder Curt Flood requested that he be made a free agent so that he could sign a contract to play with a different team. (36)...