This is the second installment in an occasional series examining baseball’s antitrust exemption. The first piece in the series looked at the historical evolution of the exemption, and in particular the U.S. Supreme Court’s evolving justification for baseball’s antitrust immunity. A future, final post will consider the practical impact that the exemption has had on Major League Baseball’s operations.
While many fans are aware that baseball is generally exempt from antitrust law, fewer realize that courts have adopted widely divergent views regarding the extent to which MLB’s operations are actually shielded from the law. For instance, just because MLB is generally immune from antitrust law does not mean that a court would necessarily give the league free reign to engage in anti-competitive practices in areas completely unrelated to professional baseball (such as if, for example, MLB Advanced Media — the league’s digital content distribution company — were to enter into a price-fixing scheme with other non-sports-related, Internet-streaming-video service providers).
Courts have traditionally disagreed regarding where to draw the line between MLB’s exempt and non-exempt conduct, and thus are deeply divided over the extent to which they will allow antitrust lawsuits to proceed against MLB. As a practical matter, then, anyone wishing to sue MLB under antitrust law may be able to do so – despite the league’s antitrust exemption – so long as they file their case in the right court.
The most common approach that courts have taken when determining how broadly to apply baseball’s antitrust immunity is to rule that the entire “business of baseball” is exempt from the antitrust laws. This was the interpretation that was recently adopted by the Ninth Circuit Court of Appeals in the city of San Jose’s lawsuit challenging MLB’s refusal to approve the relocation of the Oakland A’s to the city, for instance.
As I’ve written elsewhere, this view of the exemption is consistent with the concluding passages of each of the U.S. Supreme Court’s last two baseball decisions — 1953’s Toolson v. New York Yankees and 1972’s Flood v. Kuhn — which both expressly stated that “business of baseball” was not “within the scope of the federal antitrust laws.” Courts adopting such an approach to the exemption have held that MLB was immune from lawsuits challenging its franchise relocation decisions and assignment of exclusive geographic territories to its teams, the proposed contraction of two MLB franchises in the early-2000s, the effect of the 1994 strike on fans and businesses located in close proximity to MLB stadiums, and the power of the commissioner to disapprove player transactions, for example.
At the same time, however, at least one of these courts placed some limit on this immunity, concluding that any “dealings between professional baseball clubs and third parties” would not be exempt from antitrust law. A court adopting such a restriction might hold, for instance, that MLB’s contracts with its television broadcast partners or trademark licensees could be challenged under the Sherman Act.
Meanwhile, other courts considering the scope of baseball’s exemption have adopted narrower views of the sport’s antitrust immunity. For example, few courts have drawn upon a passage in the Supreme Court’s decision in Flood to hold that the exemption only covers baseball’s “unique characteristics and needs.” Which aspects of the sport are sufficiently “unique” to warrant antitrust protection is anything but clear.
For instance, a Texas court has found that radio broadcasting was not a unique enough aspect of the game to be covered by the exemption. Instead, in this court’s view, only aspects of the sport like “players, umpires, [and] the league structure” would be immune from antitrust law, but not “related activities,” like broadcasting, “which merely enhance its commercial success.” Similarly, a New York court recently held that the exemption did not apply to MLB’s broadcasting practices in the Garber case, which challenges MLB’s television blackout and league-wide pay-per-view subscription packages under antitrust law.
Meanwhile, a second New York court employed a slightly different interpretation of the “unique characteristics and needs” standard in a case filed by a former minor-league umpire. There, the court allowed the umpire’s suit to proceed, limiting the exemption to “antitrust challenges to [MLB’s] league structure and its reserve system” (the latter of which had been at issue in the lawsuits resulting in the Supreme Court’s decisions in Toolson and Flood).
Finally, a third view of the exemption adopted by certain courts in Florida and Pennsylvania limited the protection to only shield MLB’s reserve system from antitrust law. Because MLB players were able to successfully dispense with the reserve clause — which effectively tied players to their teams for the entire length of their careers — through arbitration back in 1976, the implication of these decisions is that baseball’s antitrust exemption is now, basically, obsolete. Courts adopting this approach have based their rulings on the (in some cases erroneous) belief that each of the Supreme Court’s three prior baseball antitrust cases dealt only with the reserve clause, thus concluding that it would be appropriate to limit the exemption to only that particular aspect of the sport. (In reality, both the Federal Baseball case decided by the Supreme Court in 1922, as well as the Toolson case in 1953, involved allegations stretching beyond just the reserve clause.)
Therefore, contrary to what many fans believe, the scope of baseball’s antitrust exemption is far from clear. Depending on which of MLB’s business practices is under attack, and which court the suit is filed in, plaintiffs will often be able to pursue claims against the league under antitrust law, despite the sport’s notorious immunity.
That having been said, there may be some cases where this sort of forum shopping is not possible. In the San Jose lawsuit against MLB, for instance, the city had to file its case in a local court, even though California judges have traditionally adopted a broad view of baseball’s exemption.
In contrast, the plaintiffs’ lawyer in the recently filed suit challenging MLB’s scout hiring and pay practices wisely elected to file the case in New York, a jurisdiction that has historically viewed the exemption much more narrowly (as reflected in the decisions discussed above involving MLB’s television broadcasting and umpire relations). As a result, it would not be surprising if the New York court allows the antitrust portion of the case to move forward, despite baseball’s exemption.
Considering that MLB thus remains quite vulnerable to antitrust challenge in at least some areas of its operations, the practical benefit that the league derives from its antitrust exemption is probably more modest than is commonly believed. The extent to which the league actually benefits from the exemption will be explored in the third and final installment of this series.
Nathaniel Grow is an Associate Professor of Business Law and Ethics at Indiana University's Kelley School of Business. He is the author of Baseball on Trial: The Origin of Baseball's Antitrust Exemption, as well as a number of sports-related law review articles. You can follow him on Twitter @NathanielGrow. The views expressed are solely those of the author and do not express the views or opinions of Indiana University.