Ninth Circuit Court Leans Toward MLB In Dispute Over Antitrust Exemption

A three-judge panel of the U.S. Court of Appeals for the Ninth Circuit heard arguments today on the existence and scope of Major League Baseball’s exemption from federal antitrust law. The arguments arose in the city of San Jose’s federal antitrust lawsuit against MLB over the league’s failure to allow the Oakland Athletics to build a new ballpark in, and move to, San Jose.

San Jose sued MLB last summer claiming that the league’s rules creating exclusive operating territories for teams — and requiring a three-fourths vote of owners for an existing team to move into another team’s territory — violate federal antitrust law. Upon MLB’s motion, the federal district court in San Jose dismissed the city’s claims on the grounds that MLB enjoys an exemption to federal antitrust law dating to the U.S. Supreme Court’s 1922 decision in the Federal Baseball Club case. That decision was based on a view that baseball was a game, and not a business, and thus not subject to antirust law.

Over the years, the Supreme Court and the lower federal courts have grappled with the scope of the exemption and whether it should still exist, given our modern view of baseball as a business and a game. But the Supreme Court has strongly suggested that MLB has developed in reliance on the exemption and that, if any entity is to narrow or repeal the exemption, it should be Congress, and not the courts.

Today’s hearing focused on two key issues: assuming the exemption exists, should it be limited to matters relating only to the reserve system; and putting aside the exemption, does San Jose even have “standing” to bring an antitrust claim against MLB. On the first issue, the court appeared to lean heavily in MLB’s favor, in light of existing Supreme Court case law and decisions of the Ninth Circuit interpreting Supreme Court cases. That is, that the exemption is alive and well and covers MLB conduct relating to the business of baseball, including franchise relocation, and not just the reserve system. The judges didn’t seem particularly interested in following the path of Judge Shira Scheindlin, a federal district judge in New York, who ruled on Friday that the antitrust exemption doesn’t apply to claims challenging MLB’s exclusive broadcast territories. I wrote about that decision yesterday.

In a bit of a surprise, the court also seemed interested in the standing issue  — which in lay terms asks whether the plaintiff has suffered an injury that is compensable under the particular statute invoked. San Jose contends that it has suffered economic injuries because it has a signed option agreement with the A’s that gives the A’s the right to buy several parcels of land owned by the city on which to build a new ballpark.If MLB is successful in persuading the court to rule that San Jose has no standing to sue, it would make the case less much less compelling for a later effort to seek Supreme Court review on the exemption issue.

By its own terms, the option agreement will expire in November. And while the court didn’t focus on that point, I asked San Jose’s attorney Joe Cotchett after the argument if he expects the A’s to review the option agreement. He replied: “I don’t know if the A’s will renew the option agreement. I hope so.” I pressed Cotchett on whether San Jose would lose standing (if it has it in the first place) if the A’s don’t renew the option agreement. He avoided the question. The A’s just entered into a new ten-year lease to play at the Oakland Coliseum. The lease agreement obligates the A’s to act in good faith in looking for a site in Oakland on which to build a new ballpark. It also has several “out clauses” — provisions that allow the A’s to leave the Coliseum with sufficient notice to the city and the county.

San Jose sits in Santa Clara county, which is part of the San Francisco Giants’ exclusive territory, along with San Francisco, San Mateo, Marin, Santa Cruz and Monterey counties. Oakland is in Alameda County, part of the A’s exclusive territory, along with Contra Costa county. San Jose is 50 miles south of San Francisco and 40 miles southwest of Oakland. The A’s agreed in the early 1990’s that the Giants would have exclusive territorial rights in Santa Clara county. At the time, the A’s were pulling in huge crowds at the Oakland Coliseum while the Giants were desperately trying to leave cold, windy and often empty Candlestick Park.

The Giants made several attempts to gain voter approval for a new ballpark in Santa Clara. When those failed, and after the Giants were sold to new investors, the team privately-financed AT&T Park in San Francisco but kept Santa Clara in its territory. The Giants have done everything in their power to keep the A’s from moving to San Jose. The team claims that Santa Clara residents make up a significant percentage of its fan base and, more importantly, that Silicon Valley companies are critical to their corporate sponsorship base.

The Ninth Circuit is likely to issue an opinion in the case in the next 30-45 days.