Opinion ID: 397422
Heading Depth: 1
Heading Rank: 3

Heading: Fox Valley's Antitrust Claim

Text: 22 In the third of the suits consolidated here, Fox Valley filed a counterclaim alleging that USTA's threatened enforcement of its Rules 5 and 17 would be a group boycott, per se violative of Section 1 of the Sherman Act (15 U.S.C. § 1) which declares illegal every contract, combination   , or conspiracy in restraint of commerce among the several States   . 10 Judge Aspen granted summary judgment for Fox Valley and permanently enjoined USTA from preventing its members from racing at tracks which are not USTA members or have not paid USTA a specified fee. 487 F.Supp. at 1017. In support of his ruling, Judge Aspen found that the per se rule was appropriately applied to USTA's conduct, and that USTA could not avail itself of the narrow exception to the per se rule created by Silver v. New York Stock Exchange, 373 U.S. 341, 83 S.Ct. 1246, 10 L.Ed.2d 389. We consider each of these propositions in turn. 23 (T)he rule of reason (is) the standard traditionally applied for the majority of anticompetitive practices challenged under § 1 of the Act. Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 59, 97 S.Ct. 2549, 2562, 53 L.Ed.2d 568. In certain instances the detailed factual inquiry into actual anticompetitive effect that is characteristic of the rule of reason is supplanted by a per se rule. But (a) particular course of conduct will generally be termed a per se violation of the Act only after courts have had considerable experience with the type of conduct challenged and application of the Rule of Reason has inevitably resulted in a finding of anticompetitive effects. Havoco of America, Ltd. v. Shell Oil Co., 626 F.2d 549, 555 (7th Cir. 1980). 24 The Supreme Court has found certain group boycotts per se illegal. See, e.g., Fashion Originators' Guild of America, Inc. v. FTC, 312 U.S. 457, 61 S.Ct. 703, 85 L.Ed. 949 (organization of dress manufacturers and fabric designers boycotted retailers and manufacturers who dealt in copies of original designs or refused to promise not to deal in such copies); Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 79 S.Ct. 705, 3 L.Ed.2d 741 (retailers combined with appliance manufacturers and distributors to boycott competing retailer). As Smith v. Pro Football, Inc., 593 F.2d 1173, 1178 (D.C.Cir.1978) notes, the common attribute of per se illegal boycotts is a concerted attempt by a group of competitors at one level to protect itself from competition from non-group members who seek to compete at that level. 11 25 As Smith also teaches, however, (A per se rule) should not be applied, and has never been applied by the Supreme Court, to concerted refusals that are not designed to drive out competitors but to achieve some other goal. 593 F.2d at 1180. See also Cullum Electrical & Mechanical, Inc. v. Mechanical Contractors of South Carolina, 436 F.Supp. 418, 430 (D.S.C.1976), affirmed, 569 F.2d 821 (4th Cir. 1978), certiorari denied, 439 U.S. 910, 99 S.Ct. 277, 58 L.Ed.2d 255. The danger of rote application of the per se rule to all conduct that can be called a group boycott is that the sound teachings of experience will be extended into new and unfamiliar areas, where they have no proper application. 26 The term 'group boycott'    is in reality a very broad label for divergent types of concerted activity. To outlaw certain types of business conduct merely by attaching the 'group boycott' and 'per se' labels obviously invites the chance that certain types of reasonable concerted activity will be proscribed. Mackey v. National Football League, 543 F.2d 606, 619 (8th Cir. 1976), certiorari dismissed, 434 U.S. 801, 98 S.Ct. 28, 54 L.Ed.2d 59, quoting with approval Worthen Bank & Trust Co. v. National BankAmericard Inc., 485 F.2d 119, 125 (8th Cir. 1973), certiorari denied, 415 U.S. 918, 94 S.Ct. 1417, 39 L.Ed.2d 473. 27 Here the attributes of per se invalidity discernible in Klor's and Fashion Originators' Guild are not present. There is concerted activity only in the sense that USTA is a membership organization enforcing rules contained in its by-laws. There is no showing of a purpose to exclude competitors. At the most obvious level, Fox Valley had no intention of setting up an organization to rival USTA, and USTA was not Fox Valley's competitor in the business of organizing harness race meetings. There is no indication either of any subtler scheme, as for example groups of drivers or owners using USTA as a means to eliminate other drivers or owners, or certain tracks combining behind the facade of USTA to drive Fox Valley out of business. There is a strong showing, to the contrary, that USTA was organized to ensure honest harness racing rather than to impose a naked restraint of trade with no purpose except stifling of competition. White Motor Co. v. United States, 372 U.S. 253, 263, 83 S.Ct. 696, 702, 9 L.Ed.2d 738. Since (p)er se rules of illegality are appropriate only when they relate to conduct that is manifestly anticompetitive, Sylvania, supra, 433 U.S. at 49-50, 97 S.Ct. at 2557, USTA was entitled to have the effects of its application of Rules 5 and 17 evaluated under the rule of reason. Accord, Gunter Harz Sports, Inc. v. U.S. Tennis Ass'n, 511 F.Supp. 1103, 1115 (D.Neb.1981) (as non-profit sanctioning organization that (did) not compete at any level with the plaintiff as a manufacturer or distributor of tennis rackets or stringing systems, United States Tennis Association should have rule banning double-strung rackets examined under rule of reason rather than per se doctrine of Fashion Originators' Guild and Klor's ). 28 Nor have the courts had the kind of experience with organizations like USTA that would warrant extending the per se rule to this case. Except in the rare instances where conduct is unambiguously anticompetitive, 12 this lack of experience should lead us to inquire into the nature and idiosyncracies of a particular enterprise before we assign a label to its conduct. One indication of the inconcinnity between the state of our knowledge and the certitude of the per se rule is the extent to which the rule minimizes USTA's free-rider problems. 13 If Fox Valley can enjoy the benefits of affiliation with USTA and pay nothing, or pay only when a court orders it to do so, it has no incentive to do otherwise. And it can count on the breadth of USTA membership and on the relationship between USTA and state racing boards to keep USTA afloat for some time despite its (and other tracks') free-riding attempts. In treating USTA's efforts to forestall this result as per se violative of the Sherman Act, the district court forecloses all justifications USTA might make, perhaps without achieving any procompetitive result. 29 There is a second, independent basis for our holding that USTA's conduct should have been evaluated under the rule of reason. While defendants rely on Silver v. New York Stock Exchange, 373 U.S. 341, 83 S.Ct. 1246, 10 L.Ed.2d 389, in support of their argument that the per se rule should apply here, that opinion reserved rule of reason treatment for group boycotts whose justification derived from the policy of another statute or otherwise (348-349, 83 S.Ct. at 1252). 14 Judge Aspen recognized the applicability of the Silver exception, but gave it an extremely narrow reading. 487 F.Supp. at 1015-1016. Many lower federal courts have been less restrictive. There is now a considerable body of law, derived more or less proximately from Silver, recognizing that in certain self-regulatory contexts binding rules must be developed to safeguard the enterprise's viability, and that application of a per se standard of illegality to such endeavors is improper. Post-Silver court of appeals decisions have frequently acknowledged that in organized sports interdependence, cooperation, and at least a few rules are essential to survival, and have often eschewed per se analysis in passing upon antitrust challenges to such rules. Hatley v. American Quarter Horse Ass'n, 552 F.2d 646, 652 (5th Cir. 1977) (per se rule inapplicable to Association registration rule), citing with approval Bridge Corporation of America v. American Contract Bridge League, Inc., 428 F.2d 1365 (9th Cir. 1970), certiorari denied, 401 U.S. 940, 91 S.Ct. 940, 28 L.Ed.2d 220 (per se rule inapplicable to ACBL refusal to sanction local tournament); Deesen v. Professional Golfers' Association, 358 F.2d 165 (9th Cir. 1966), certiorari denied, 385 U.S. 846, 87 S.Ct. 72, 17 L.Ed.2d 76 (rule of reason applicable to PGA tournament entry restrictions). See also Neeld v. National Hockey League, 594 F.2d 1297, 1299 n. 4 (9th Cir. 1979) (per se rule inapplicable to NHL player eligibility rule); Smith v. Pro Football, Inc., supra, 593 F.2d at 1182 and n. 37 (legality of NFL draft not governed by per se rule); Mackey v. National Football League, supra, 543 F.2d 606, 618-620 (per se rule inapplicable to NFL Rozelle rule); Gunter Harz Sports, Inc. v. U.S. Tennis Ass'n, supra, 511 F.Supp. at 1116 (per se rule inapplicable to ban on double-strung tennis rackets). Cf. Philadelphia World Hockey Club, Inc. v. Philadelphia Hockey Club, Inc., 351 F.Supp. 462, 503-504 (E.D.Pa.1972) (in suit for preliminary injunction, per se rule inapplicable to NHL reserve clause; per se rule probably inapplicable at trial on merits as well). These cases provide support for the proposition that, in the context of organized sports and sanctioning organizations, courts should be hesitant to fasten upon tags such as group boycott and per se  in order to preclude inquiry into the business necessity for or precise harm occasioned by particular rules or practices. This proposition is in no sense undercut, as the dissent argues, by the Court's opinion in National Society of Professional Engineers v. United States, 435 U.S. 679, 98 S.Ct. 1355, 55 L.Ed.2d 637. Courts have not allowed the Rule of Reason (to) support a defense based on the assumption that competition itself is unreasonable, 435 U.S. at 696, 98 S.Ct. at 1368, and we permit no such defense here. We merely require that the trial court must find rather than presume harm to competition. 30 In summary USTA's efforts to apply its Rules 5 and 17 should be tested under the rule of reason, either because sporting activities and organizations are entitled to a fuller form of antitrust analysis in recognition of their need for self-regulation, or because the conduct at issue here is not within the undeniably anticompetitive per se boycott paradigm. As we recently stated in Lektro-Vend Corporation v. The Vendo Company, 660 F.2d 255, 268 (7th Cir. 1981): 31 It is by now well established that any rule of reason analysis requires a showing of anticompetitive market effect. To hold otherwise would ignore the very purpose of the antitrust laws which were enacted for the protection of competition, not competitors. 32 See also Quality Auto Body, Inc. v. Allstate Insurance Company, 660 F.2d 1195, 1203 (7th Cir. 1981). Thus our cases consistently hold that a plaintiff or counterclaimant must prove adverse impact in the relevant market to establish a Section 1 rule of reason violation (id. ). As in Lektro-Vend, USTA may be able to prove that it had a right to restrain in order to protect its legitimate interests. 660 F.2d at 269. The question for the court on remand will be whether the challenged conduct went beyond the level of restraint reasonably necessary to accomplish whatever legitimate business purpose might be asserted for it. Smith, supra, 593 F.2d at 1183. 33