Are Major League Baseball and the National Hockey League violating American antitrust laws through their blackout restrictions?

Author:Bishop, Jared
 
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  1. Introduction

    Just about everyday, one can find an American sitting on his or her couch watching a Major League Baseball ("MLB") game or a National Hockey League ("NHL") game. (1) The MLB season runs from approximately April first to November first, including the post-season (2). The NHL season runs from approximately October first to June fifteenth, including the postseason. (3) Millions of consumers watch MLB and NHL games on a daily basis year round, yet consumers cannot always enjoy these games at home, on their personal * television or computer systems. (4) This is in part due to the MLB, the NHL, and local broadcast companies' limitations on the broadcasting market of MLB and NHL games. (5)

    In the pivotal antitrust case, Standard Oil Company of New Jersey v. United States ("Standard Oil"), (6) Justice White, writing on behalf of the Supreme Court of the United States, implemented the "Rule of Reason" standard; which begs the question of whether or not the MLB and the NHL are straddling the antitrust line too closely. (7) Recently, restrictions have been placed on MLB and NHL telecasts, which have limited consumers' options with regards to watching their local team, as well as watching an out of market team (8). Often, under antitrust law, if a restraint on trade is so plainly anticompetitive, a court will apply a Per Se analysis when questioned with an antitrust issue. (9) However, a Per Se analysis based on the legality of these anticompetitive restrictions is not always applied by courts even if a horizontal price fix and output limitation is present. (10)

    Are the MLB and NHL's blackout policy rules violating antitrust law by granting themselves and television networks exclusive rights to broadcast games, effectively limiting consumers' rights and diminishing competition? Part II of this Note discusses the history of antitrust law, including the general history of the Sherman Antitrust Act and the countervailing views on its application. (11) Part II will also examine how antitrust laws have been applied to the MLB and NHL, as well as give a brief history of sports broadcasting and government regulation of sports broadcasting. (12) Part III will address the current blackout policies invoked by the MLB and the NHL, as well as their purposes and effects. (13) Part IV will analyze the current blackout policies of both the MLB and the NHL and how they fit into modern antitrust law. (14) Finally, Part V will conclude that the current MLB and NHL blackout policies violate antitrust law, as consumers and competition are being harmed. (15)

  2. History

    1. Goals and Application of Antitrust Law

      Antitrust law is one of the most complex areas of law in the United States. (16) The main goal of antitrust law is to increase competition amongst competitors through regulating the market, as opposed to a strict laissez-faire approach. (17) The Sherman Act was enacted in 1890 and fundamentally formed statutory antitrust law in the United States. (18) The Sherman Act was established for the purpose of protecting the public from the failures of an unfair, uncompetitive market. (19) While Sections 1 and 2 of the Sherman Act appear relatively straightforward in context, there has been a continuous legal debate since the Supreme Court's decision in United States v. Trans-Missouri Freight Association ("Trans-Missouri") (20), on how to approach legality under the Sherman Act. (21) In Trans-Missouri, Justice Peckham inadvertently established one of the major theories of antitrust interpretation, the Per Se Rule. (22) The Per Se Rule interprets a contract, combination, or conspiracy in restraint of trade as illegal under Section 1 of the Sherman Act, without analyzing whether the contract, combination, or conspiracy is potentially reasonable. (23) The other form of analysis under antitrust law is known as the Rule of Reason, which was established in Standard Oil. (24) Unlike the Per Se Rule, the Rule of Reason gives courts discretion to analyze the reasonableness of the alleged restraint, as well as the restraint's impact on competition. (25) Generally, a court will apply the Rule of Reason, unless the restraint is blatantly anticompetitive in nature, such as a price fix or tying agreement. (26)

      Another form of restraint, tying agreements can be problematic in its analysis, especially in determining whether two distinct products exist, or whether the products are integrated into one product. (27) Courts typically apply one of two approaches in this analysis: the Jefferson Parish approach or the Integration approach, as Michael Woodrow De Vries denotes them. (28) While these tests are in fact distinctive, both tests attempt to balance the interests of maintaining competition and encouraging innovation. (29) Courts may base their decision with regards to a tying agreement on the overall efficiency that it serves, using a Rule of Reason analysis. (30)

      While the Per Se Rule and the Rule of Reason are conflicting theories of applying various antitrust laws, courts have applied the theories respectively to serve the objectives and purposes of antitrust regulation. (31) The purposes of antitrust statutes, both federal and state, are widely contemplated, but conclusively they include: preserving, protecting, promoting, and encouraging competition. (32) Courts must always focus on Congress's intention in passing the Sherman Act, which was to protect the consumers and competition, as opposed to competitors themselves. (33) Focusing on the purposes of antitrust law is essential when analyzing whether an agreement or restraint is a violation of an antitrust law because the goal of every business is to outperform its competitors. (34) Therefore most, if not all, business agreements are ultimately intended to "restrain competition" for the respective business's benefit, but not all business agreements can violate antitrust law or there would be no private industries in existence. (35) Due to the magnitude of restraining agreements, there continues to be an endless battle of antitrust law in the courts over the last century. (36)

      A conspiracy to restrain trade is actionable under Section 1 of the Sherman Act. (37) While mere conscious parallelism may be a factor for a court to find a conspiracy violation under Section 1 of the Sherman Act, alone, it may not satisfy a violation. (38) Courts require plus factors to accompany conscious parallelism for a plaintiff to prove a conspiracy violation under Section 1 of the Sherman Act. (39) Plus factors may include: contradiction to own self-interest, proof of uniform price where price uniformity is unlikely without an agreement, prior antitrust violations, direct communications with competitors, and product standardization. (40) However, even if plus factors accompany conscious parallelism, if a defendant is able to offer a procompetitive justification for their apparent noncompetitive actions, then the court will not apply an inference of a conspiracy. (41)

      Section 2 of the Sherman Act strictly regulates the process of monopolizing, attempts to monopolize, and conspiring to monopolize. (42) The Supreme Court has adopted a specific method to handle these cases that was established in United States v. Grinnell Corporation ("Grinned"). (43) Under the Grinnell Test, the plaintiff must show: 1) possession of a monopoly in a relevant product and geographic market, and a 2) willful acquisition of maintenance of that monopoly for the court to find a Section 2 violation per monopolization. (44) However, a firm may create a monopoly if it does so "as a consequence of a superior product, business acumen, or historic accident." (45) While the Grinnell Test appears moderately black and white, even the Supreme Court has misunderstood the precise analysis of the test. (46)

      Antitrust law has continued to develop and has been complicated through new industries and restrictive measures that courts deemed necessary to preserve these respective industries. (47) Courts must look closely and be able to distinguish and balance the necessities of the governing body or industry, with the necessity of the restraint being applied by that governing body or industry. (48) Nevertheless, the continued acknowledgment of consumer rights must constantly be the central component when analyzing potential anti trust violations. (49)

    2. Antitrust Application in Sports

      Perhaps the biggest hurdle consumers would face in an action of this nature against the MLB would be outstanding the MLB's antitrust exemption. (50) The MLB was first granted an exemption from federal antitrust laws in Federal Baseball Club Inc. v. National League of Professional Baseball Clubs ("Federal Baseball Club"). (51) While MLB's exemption was formed in Federal Baseball Club, the Supreme Court did not intend to create a complete exemption from antitrust laws for baseball, it merely stated baseball was not a form of interstate commerce and therefore could not be subjected to the Sherman Act, a federal statute. (52) Despite expressions of disapproval from courts that felt forced to uphold the exemption, the exemption has never been overturned,. (53) Recently, the exemption has been challenged, but not overturned; yet a rule has been established that may give consumers a loophole to the exemption, the "integral part of the sport" exception. (54) While no court has overturned Federal Baseball Club and hold that the MLB has violated a federal antitrust law, courts have appeared to try and rewrite the rule to not explicitly outlaw the MLB from federal antitrust laws in the future, but limit the exemption to be enforced if the conduct alleged is "integral to the sport." (55)

      While the MLB antitrust exemption has never been fully overturned by the Supreme Court, no other professional sport may use this exemption. (56) Despite the exemption's limited applicability to the MLB, succeeding in antitrust suits against professional sports leagues has been proven...

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