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D ock e t 98-1629

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. e du/thir dc ir c uit_1999/94Filed April 9, 1999

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Nos. 98-1629 and 98-1887

CHARLES SHAW; BRET D. SCHWARTZ; STEVE PROMISLO, INDIVIDUALLY, AND ON BEHALF OF ALL

PERSONS SIMILARLY SITUATED

v.

DALLAS COWBOYS FOOTBALL CLUB, LTD.; NEW ENGLAND PATRIOTS FOOTBALL CLUB; NEW YORK GIANTS FOOTBALL, INC.; PHILADELPHIA EAGLESLIMITED PARTNERSHIP; SAN FRANCISCO FORTYNINERS, LTD.; NATIONAL FOOTBALL LEAGUE, Appellants

Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Civ. No. 97-cv-05184)

Argued March 11, 1999

Before: MANSMANN, SCIRICA and NYGAARD, Circuit Judges.

(Filed April 9, 1999)

Howard J. Sedran, Esquire (ARGUED) Donald E. Haviland, Jr., Esquire Levin, Fishbein, Sedran & Berman
510 Walnut Street
Suite 500 Philadelphia, PA 19106On the Brief:

Michael D. Hausfeld, Esquire Daniel Small, Esquire Cohen, Milstein, Hausfeld & Toll 1100 New York Avenue, NW Suite 500, West Tower Washington, D.C. 2005

William Bernstein, Esquire Joseph R. Saveri, Esquire Lieff, Cabraser, Heimann & Bernstein, LLP
Embarcadero Center West 275 Battery Street, 30th Floor San Francisco, CA 94111

Samuel D. Heins, Esquire Daniel E. Gustafson, Esquire Heins, Mills & Olson, P.L.C.
700 Northstar East
608 Second Avenue South Minneapolis, MN 55402

David T. Shulick, Esquire
Frank & Rosen 1601 Market Street, Suite 2230 Philadelphia, PA 19103

Roberta D. Liebenberg, Esquire Liebenberg & White The Pavilion, Suite 810
261 Old York Road Jenkintown, PA 1910-46

Allyn Z. Lite, Esquire Goldstein, Lite & DePalma Two Gateway Center, 12th Floor Newark, NJ 07102-5003

2Ira Neil Richards, Esquire

Trujillo, Rodriguez & Richards,

LLC
The Penthouse 226 West Rittenhouse Square Philadelphia, PA 19103

Dennis Stewart, Esquire Milberg Weiss Bershad Hynes
& Lerach 600 West Broadway
1800 One Americas Plaza San Diego, CA 92101-5050

March Edelson, Esquire
Hoffman & Edelson
45 West Court Street Doylestown, PA 18901

Joseph C. Kohn, Esquire Kohn, Swift & Graf, P.C. 1101 Market Street, Suite 2400 Philadelphia, PA 19107

Bruce McNew, Esquire Taylor Gruver & McNew, P.A. 3711 Kennett Pike, Suite 210 Greenville, DE 19807

Gregory Veith, Esquire
P.O. Box 378 Wynnewood, PA 19096

COUNSEL FOR APPELLEES

Peter J. Nickles, Esquire Timothy C. Hester, Esquire (ARGUED) Neil K. Roman, Esquire Covington & Burling 1201 Pennsylvania Avenue, N.W.
P.O. Box 7566 Washington, D.C. 20044-7566

3Richard P. McElroy

Blank Rome Comisky & McCauley One Logan Square Philadelphia, PA 19103

COUNSEL FOR APPELLANTS

OPINION OF THE COURT

MANSMANN, Circuit Judge.

In this appeal involving a certified question, we m ust determine, as a matter of first impression, whether an agreement among members of the National Football Le ague1 to sell broadcast rights jointly to satellite distr ibutors is exempt from scrutiny under the Sherman Act, 15 U.S. C. SS 1 et seq. Citing the Sports Broadcasting Act (th e "SBA"), 15 U.S.C. S 1291, the NFL sought dismissal of a cla ss action antitrust suit brought by Charles Shaw, Bret D. Schwartz, and Steven Promislo ("Shaw"). The NFL ass erted that the rights being sold were "residual" rights i n a "sponsored telecasting" and therefore within the SB A's exemption to the antitrust laws. The District Court rejected this characterization, holding that the statutory e xemption turns on the nature of the broadcast in question an d that the phrase "sponsored telecasting" exempts only a commercially sponsored free broadcast. The District Court further observed that the SBA's legislative history contradicts the NFL's interpretation and that excep tions to the antitrust laws must be narrowly construed.

Accordingly, we must first determine whether the SB A unambiguously exempts from antitrust law scrutiny o nly the right to sell those images for commercially spo nsored free broadcast. If not, we must turn to the Act's l egislative

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1. The members of the National Football League whic h are parties to the agreement and to this action are the: Dallas Cowboy s Football Club, Ltd.; New England Patriots Football Club; New York Giants Football, Inc.; Philadelphia Eagles Limited Partnership; and San Francisco FortyNiners, Ltd. We refer to these members and the Leag ue itself collectively
as the "NFL".

4history. Because we agree with the District Court t hat it

does, we will affirm.

I.

The NFL and its member teams own all rights to make and distribute images of football performances (the "games") between the teams. By agreement, they perm it the broadcasting of approximately a dozen NFL games eac h week on free television networks, such as NBC or Fo x. Because different games are broadcast within differ ent local markets, however, any television viewer has free ac cess to only two or three NFL games.2 This leaves an unserv iced market for those NFL games outside a viewer's local broadcast area (e.g., the Pittsburgh Steelers fan w ho lives in Los Angeles). With the development and expansion of satellite distribution, that market can now be tapp ed. The NFL and member teams entered into a pooled agreemen t to sell jointly their rights in all football games bro adcast nationwide to a satellite broadcast distributor (DI RECTV) which in turn offers those games as an all-or nothi ng package (the "NFL Sunday Ticket") to individual vie wersubscribers at a fixed cost per season.3

Shaw filed this class action suit, alleging that th e NFL's joint agreement with the satellite distributor viol ates Section 1 of the Sherman Act4 and seeking declarato ry and injunctive relief. Specifically, Shaw alleges that the combined agreement causes artificially high and

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2. Shaw v. Dallas Cowboys Football Club, Ltd. , 199 8 WL 419765, *1-2 (E.D. Pa. June 23, 1998).

3. This cost is in addition to the subscriber's mon thly satellite access
fee.
Id. at *2.

4. The antitrust laws were designed for the protect ion of the public. Under Section 1 of the Sherman Act, as interpreted by the Supreme Court, agreements which unreasonably restrain trade are illegal. See, e.g., Standard Oil v. United States, 221 U.S. 1, 31 S.Ct. 502, 55 L.Ed. 619 (1911). To make out a Section 1 violation, plai ntiffs must prove: (1) a contract, combination or conspiracy; (2) a restra int of trade; and (3)

an effect on interstate commerce. See Fuentes v. South Hills Cardiology, 946 F.2d 196, 198 (3d Cir. 1991).

5noncompetitive prices for NFL satellite broadcasts and

restricts the options available to NFL fans.

The NFL filed a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), alleging that (1) the pooled sale to the satellite distributor is a sale of "residual" right s in a "sponsored telecast" exempted from antitrust law un der the SBA, and (2) Shaw failed adequately to allege the n ecessary joint action. The District Court denied the NFL's m otion on both grounds and, at the NFL's request, certified t he question of SBA exemption for interlocutory review. 5

II.

Congress passed the Sports Broadcasting Act in 1961 in response to a federal court ruling6 that the NFL's package sale of games to a commercial television network (C BS) violated the Sherman Antitrust Act, 15 U.S.C. S 1. Its purpose was to preserve the availability of NFL gam es on free broadcast television.7 The SBA therefore exemp ts from
the antitrust laws:

any agreement by or among persons engaging i n or conducting the organized professional team s ports of football, . . ., by which any league of club s participating in professional football . . . contests sell s or otherwise transfers all or any part of the rights of s uch league's member clubs in the sponsored telecasting of the games of football, . . . engaged in or conducted b y such clubs.

15 U.S.C. S 1291 (emphasis added). Our first task i s to consider the plain meaning of the statute, heeding the

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5. Our appellate jurisdiction lies pursuant to 28 U .S.C. S 1292(b).

6. See United States v. National Football League, 1 16 F. Supp. 319 (E.D. Pa. 1953).

7. See, e.g., S. Rep. No. 1087, 1961 U.S.C.C.A.N. a t 3044 (noting the Senate Judiciary Committee's concern for "the publi c interest in viewing professional league sports"). See generally U.S. Fo otball League v. National Football League, 842 F.2d 1335, 1346-7 (2d Cir. 1988) (discussing history of agreements between the NFL a nd major television networks and history of the SBA).

6Supreme Court's direction that exceptions to the an titrust

laws must be narrowly construed.8

As the District Court explained and as the NFL does not dispute, the phrase "sponsored telecasting" refers to broadcasts which are financed by business enterpris es (the "sponsors") in return for advertising time and are therefore provided free to the general public. Shaw, 1998 WL 419765, *3. Although the NFL concedes that a packag e of
satellite broadcasts sold to individual subscribers is not a "sponsored telecasting", it asserts that its pooled sale to the
satellite distributor is nonetheless within the SBA 's antitrust law exemption because it constitutes a sa le of residual or retained rights in the sponsored teleca sts, i.e., that it is "part of [those] rights."

The NFL correctly asserts that it "still own[s] a p artial right to the games broadcast by the free networks." Id. at *2. It errs when it characterizes its remaining rig hts as rights in the sponsored telecasts. The NFL's underl ying rights are in the games themselves and, more specif ically, they include the right to sell the images of those games for broadcast through various media. The broadcast righ ts sold to sponsored telecasters do not subsume the separat e broadcast rights sold to a non-sponsored medium. 9 Each

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8. See, e.g., Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 126, 102 S. Ct. 3002, 73 L.Ed.2d 647 (1991) (holding that ex ceptions to the antitrust laws are narrowly construed, as they circ umvent Congress's commitment to open competition).

9. The NFL attaches great significance to the fact that the satellite broadcasts utilize the same images as the sponsored telecasts, fed from
the same network television cameras. The use of the same signal for broadcast over two media, however, does not render the rights in one broadcast derivative of rights in the other. One co uld just as readily conclude that the network television broadcast righ ts are derivative, and constitute part of the NFL's rights in the non-spon sored satellite broadcast. The network's provision of cameras and c ommentary does not remove the arbitrariness of calling one broadcast d erivative of the other. Exemption from the antitrust laws cannot be predica ted on the simple expedient of assigning ownership of cameras or paym ent of camera
crews and commentators to a television network. Rat her, it is predicated on the "sponsored telecast" of the image, i.e., its transmission in a form freely receivable by the public.

7transaction is a sale of a part of the NFL's underl ying right

in the images of the games, but only the former is exempt from antitrust scrutiny. We agree with the District Court
that one looks to the nature of "the broadcast whic h goes to these particular plaintiffs." Id. at *3. As that court observed, to hold otherwise - to adopt the construc tion urged by the NFL - would allow the exception to swa llow the rule: a sponsored telecast to a limited geograp hic area would secure an antitrust law exemption for nationw ide
sales.10

III.

In light of the NFL's contentions regarding the mea ning of the statutory provisions, the District Court consid ered the SBA's legislative history and concluded that it demonstrated that the Act did not exempt the challe nged sale. See id. at *4. Although we need not turn to t he Act's legislative history, we do so because the District Court
examined it in detail.

Our review of the Act's legislative history also le ads us to conclude that it clearly reflects Congress's intent , and the NFL's express contemporaneous concurrence, that the Act address only the sale of games to a sponsored telev ision network. See Telecasting of Professional Sports Con tests: Hearing before the Antitrust Committee of the House Committee on the Judiciary on H.R. 8757, 87th Cong. 1st Sess. at 4 (Sept. 13, 1961) (stating that the bill applies to "sponsored telecasting" and "does not apply to clos ed circuit or subscription television");11 Id. at 36 (Aug. 28,

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10. See id. ("Were the rule otherwise, the NFL coul d circumvent the statutory confines, nullify the statutory scheme, s imply by always using earlier broadcasts with commercials. . . . [T]o con strue the statute that way would cause [it] to self-destruct -- an absurd result.").

11. Subsequent congressional hearings characterized subscription television as a "program to be received by members of the public only upon the payment by such members of a charge, fee, or other form of direct compensation." See Subscription Television, Hearings Before the
Subcommittee on Communications and Power of The Com mittee on Interstate and Foreign Commerce, House of Represent atives, 90th Cong., 1st Sess. at 2-3 (1967) (quoting H.R. 12435, 90th C ong., 1st Sess., para. (hh)).

81961) (wherein the NFL Commissioner acknowledged

"absolutely" under oath his understanding that the bill "covers only the free telecasting of professional s ports contests, and does not cover pay T.V.").12 As the D istrict Court observed in its well-reasoned opinion, the NF L obtained in the 1961 Act an expressly limited excep tion to "the normal prohibition on monopolistic behavior"; one which permitted it to sell pooled rights to sponsor ed telecasters and which expressly did not apply to subscription television. The NFL got what it lobbie d for; it cannot now expect the federal courts to transform"n arrow, discrete, special-interest" legislation into a far broader exemption. Shaw, 1998 WL 419765, *5.13 This is

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12. See also Chicago Pro. Sports Ltd. Partnership v . NBA, 808 F. Supp. 646, 649-50 (N.D. Ill. 1992) (reviewing legislative history and concluding that the SBA's legislative history showed that spon sored telecasting was limited to free commercial television); Letter from Charles F. Rule, Asst. Atty. Gen., Antitrust Division, U.S. Department of Justice, to the Hon. Howard M. Metzenbaum, Chairman, Senate Subcommittee on Antitrust, Monopolies, and Business Rights, March 30, 1988, re printed in Antitrust Implications of the Recent NFL Television Contract: Hearing Before the Subcommittee on Antitrust, Monopolies, and Business Rights of the Commission on the Judiciary, 100th Cong., 1st Sess. 67 (1987) (citing legislative history and concluding - as did the FTC - that the SBA provides no antitrust immunity to the NFL for its c ontract with ESPN, a cable operator, as that programming is not within t he "sponsored telecasting" exemption).

The NFL argues on appeal that references in the Hou se records to sales to networks and "other potential purchasers" of television rights conflicts with a finding that the exemption was not intended to extend to broadcasts requiring payment by viewers. This is no t so. In the context of the 1961 Act, the "other potential purchasers" w ere quite probably other sponsored (but non-network) purchasers, such as local and regional television stations.

13. See also Chicago Pro. Sports Ltd. Partnership v . NBA, 961 F.2d 667, 671 (7th Cir. 1992), cert. denied, 506 U.S. 954, 11 3 S. Ct. 409, 121 L.Ed.2d 334 (1992) (holding that it is "inappropria te to extend [special interest laws] to achieve more of the objective the lobbyists wanted") (citations omitted). The Court of Appeals observed that "When special interests claim they have obtained favors from Cong ress, a court should
ask to see the bill of sale." Id.

9particularly so, once again, because the Act must b e

narrowly applied.14

IV.

Because we find that the subscription satellite bro adcast of NFL games is not a part of the NFL's rights to t he sponsored telecasting of those games and therefore not within the Sports Broadcasting Act's exemption to t he antitrust laws, we will affirm the District Court's decision.

A True Copy:

Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

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14. See supra note 8; see also Chicago Pro. Sports, 961 F.2d at 672 (noting that "courts read exceptions to the antitru st laws narrowly, with beady eyes and green eyeshades") (citations omitted ).

10