Opinion ID: 2583
Heading Depth: 3
Heading Rank: 4

Heading: The NCAA Comparison

Text: Salvino contends that  NCAA ... is ... the yardstick that should have been used by the court to evaluate the arrangement at issue in the present case. (Salvino brief on appeal at 19.) We disagree, as we find the circumstances in NCAA to be different from those here in every meaningful respect. In NCAA, the Supreme Court considered rules of the National Collegiate Athletic Association (NCAA) with respect to the televising of college football games. The NCAA had entered into contracts with American Broadcasting Companies (ABC) and CBS, permitting those networks to broadcast such games, and had entered into a contract with Turner Broadcasting System, Inc. (TBS), for the cablecasting of such games. The NCAA did not license any other network, and the NCAA plan forbade its member colleges to enter into agreements for the televising of their games on any other network or any local station. See NCAA, 468 U.S. at 91-93, 105 n. 29, 104 S.Ct. 2948. The NCAA plan set an absolute maximum on the number of games that could be broadcast. It also contained appearance limitations with respect to each two-year period covered by the network contracts. The number of times that a given college could have its football games televised was limited to six, of which no more than four could be televised nationally. Thus, the NCAA plan limited both the total amount of televised intercollegiate football and the number of games that could be televised for any one team. See generally id. at 92-94, 104 S.Ct. 2948. The per-telecast prices paid by the networks to the NCAA were fixed. For example, the ABC television network paid fees of $600,000 for each of the 12 national games it telecast during the 1981 regular fall season, and $426,779 for each of the 46 regional telecasts in 1980. Id. at 93 n. 10, 104 S.Ct. 2948. Except for the price differences between national and regional telecasts, the colleges whose games were televised received equal payments for those telecasts. The district court, after a full trial, found that the NCAA plan violated § 1 of the Sherman Act by, inter alia, fixing the prices for particular telecasts and placing artificial limits on the televising of college football. It found that but for the NCAA plan, more college football games would be televised. The court of appeals affirmed, ruling that the NCAA plan constituted price fixing and hence was per se illegal. The Supreme Court affirmed, but it ruled that the plan should not have been held illegal per se; it should have been analyzed under the rule of reason. The Court stated that [t]here can be no doubt that the challenged practices of the NCAA constitute a restraint of trade in the sense that they limit members' freedom to negotiate and enter into their own television contracts. In that sense, however, every contract is a restraint of trade, and as we have repeatedly recognized, the Sherman Act was intended to prohibit only unreasonable restraints of trade. NCAA, 468 U.S. at 98, 104 S.Ct. 2948. Noting that Continental T.V., Inc., 433 U.S. at 51-57, 97 S.Ct. 2549, indicated that a restraint in a limited aspect of a market may actually enhance marketwide competition, and that  Broadcast Music squarely holds that a joint selling arrangement may be so efficient that it will increase sellers' aggregate output and thus be procompetitive, the NCAA Court stated that [t]hus, despite the fact that this case involves restraints on the ability of member institutions to compete in terms of price and output, a fair evaluation of their competitive character requires consideration of the NCAA's justifications for the restraints. NCAA, 468 U.S. at 103, 104 S.Ct. 2948. Accordingly, the Supreme Court proceeded to analyze the NCAA plan under the rule of reason. In so doing, it concluded that the plan unreasonably restrained competition; however, few of the factors relied on by the Court to reach that conclusion are present with respect to Salvino's claim against MLBP. The Supreme Court found that the NCAA plan was anticompetitive under rule-of-reason analysis because, inter alia, that plan deprived the individual colleges of their freedom to compete for television appearances. Rejecting the NCAA's contention that its plan produced procompetitive efficiencies ( see Part II.C.4.c. below), the Court noted that [t]he NCAA does not ... act as a selling agent for any school or for any conference of schools; rather, [t]he essential contribution made by the NCAA's arrangement is to define the number of games that may be televised, to establish the price for each exposure, and to define the basic terms of each contract between the network and a home team. Id. at 113, 104 S.Ct. 2948; see id. at 99, 104 S.Ct. 2948 (The NCAA plan places a ceiling on the number of games member institutions may televise, thereby plac[ing] an artificial limit on the quantity of televised football that is available to broadcasters and consumers.). As a consequence, the Court concluded, [p]rice is higher and output lower than they would otherwise be, and both are unresponsive to consumer preference. Id. at 107, 104 S.Ct. 2948. Except for the fact of revenue sharing, none of the factors emphasized by the Supreme Court in NCAA finds even a superficial parallel in the present case.
Whereas the Supreme Court noted that the NCAA did not act as a selling agent for those whose product was being sold, precisely the opposite is true of MLBP. A college that wished to have more than six of its games televised within a two-year period was forbidden, rather than helped, to do so by the NCAA. MLBP, in contrast, is the licensing agent for the MLB Clubs; it assists the Clubs in the licensing of their intellectual property. Further, whereas the NCAA plan create[d] a limitation on output by limiting the total number of televised games and the number of times any one college's games could be televised, NCAA, 468 U.S. at 99, 104 S.Ct. 2948, Salvino has not adduced any evidence of a limitation on the number of Club intellectual property licenses available here. MLBP does not limit the number of products that may be licensed (although it would doubtless refuse to license a product that it believed would reflect badly on Major League Baseball); indeed, MLBP presented evidence that it works with existing and prospective licensees to attempt to develop new products that would use MLB Intellectual Property. Salvino has not adduced any evidence that there is any agreement to limit the number of products that can be licensed or the number of entities to which licenses may be granted. Nor has Salvino pointed to any evidence from which it could reasonably be inferred that any limitation on the number of licenses, licensees, or products bearing MLB Intellectual Property is intended. Rather, as discussed in Parts I.B.2. and II.C.1. above, the business records presented by MLBP show precisely the opposite, the desire to increase the business of licensing MLB Intellectual Property. The NCAA Court also noted that output was reduced by the NCAA plan because only those broadcasters able to bid on television rights covering the entire NCAA can compete. NCAA, 468 U.S. at 108, 104 S.Ct. 2948. In effect, the NCAA offered only bulk licenses. That fact has no analogy here. Here, a prospective licensee can request and obtain from MLBP a license to use the intellectual property of some or all of the Clubs, or of any single Club.
In finding the NCAA's restrictive television plan anticompetitive because of its restraints on price, the Supreme Court stated that the NCAA has commandeered the rights of its members and sold those rights for a sum certain. In so doing, it has fixed the minimum, maximum and actual price which will be paid to the schools appearing on ABC, CBS and TBS. NCAA has created the mechanism which produces a uniform price for each national telecast, and a uniform price for each regional telecast. Because of the NCAA controls, the price which is paid for the right to televise any particular game is responsive neither to the relative quality of the teams playing the game nor to viewer preference. NCAA, 468 U.S. at 106 n. 30, 104 S.Ct. 2948 (internal quotation marks omitted) (emphases added). The NCAA Court stated that the fact that, under the conditions imposed by the NCAA, the market is not responsive to viewer preference, with the result that [m]any games for which there is a large viewer demand are kept from the viewers, and many games for which there is little if any demand are nonetheless televised, was [p]erhaps the most pernicious aspect of the NCAA plan. Id. at 107 n. 34, 104 S.Ct. 2948 (internal quotation marks omitted). The NCAA price controls and lack of responsiveness to demand find no parallels in the present record. First, a license to use MLB Intellectual Property is not sold for a sum certain; the licensing agreements call for licensees to pay MLBP a percentage of the moneys they receive from the sale of their products bearing MLB Intellectual Property. Thus, although the royalty percentages for various types of products may be standardized, the dollar amounts to be paid to MLBP by the licensees are not uniform but instead vary with the licensees' sales. Second, Salvino has presented no evidence to suggest that the licensing of MLB Intellectual Property is not entirely responsive to demand. MLBP does not issue licenses that are not requested; there is no evidence that an entity that wishes to obtain a license for particular intellectual property is required to accept or pay for a license that encompasses other intellectual property as well. Moreover, it may be presumed that a prospective licensee, acting in its own economic self-interest, requests licenses only with respect to products that it believes will be purchased. Thus, MLBP grants licenses that are responsive to the licensees' anticipation of consumer demand. Further, a licensee's actual sales of products bearing MLB Intellectual Property are, by definition, responsive to consumer demand. Assuming that the licensees assess consumer demand correctly, they will sell more products bearing logos of a Club that is more popular  more popular either because of its success on the playing field or because of a dedicated fan base  than products bearing logos of a less popular Club. Accordingly, because the license requires the licensee to pay a percentage of its sales prices, the licensee will pay MLBP higher dollar amounts with respect to the intellectual property of the more popular Clubs. Thus, the dollar amounts of the license fees received by MLBP with respect to the intellectual property of the various Clubs are not uniform from Club to Club, but instead are plainly responsive both to the relative quality of the various Major League Baseball teams and to the preferences of the buyers. Indeed, the fact that MLBP receives proportionately higher revenues with respect to some Clubs than others is the cornerstone of what Salvino complains of as price restrictions, i.e., the Clubs' agreement to share the profits equally. Finally, MLBP-licensed products that are not desired by the consumer are not purchased. And because the licenses granted by MLBP require payments of percentages of the licensee's sales, products left behind by the consumer do not result in payments to MLBP or to the Clubs. In sum, unlike the sum[s] certain payable in NCAA, the dollar sums payable for licenses to use the Clubs' intellectual property are not uniform and are entirely responsive to the preferences of licensees and retail product consumers.
The NCAA Court rejected the NCAA's contention that its restrictive television plan produced procompetitive efficiencies. The Court stated several reasons, none of which has been shown to have any applicability here. As a general matter, the Court found that the NCAA's procompetitive-efficiencies contention was not supported by the record because production was restricted, not enhanced, by the plan. If the NCAA's television plan produced procompetitive efficiencies, the plan would increase output and reduce the price of televised games. NCAA, 468 U.S. at 114, 104 S.Ct. 2948. In the present case, as described in Parts I.B.2., II.C.1., and II.C.3. above, the record shows that, similarly to the blanket licensing at issue in Broadcast Music, centralization of the licensing and protection of MLB Intellectual Property has produced many cost-savings and efficiencies. And, in contrast to the effect of the NCAA plan, as discussed in Parts I.B.2. and II. C.1. above, since the Clubs made MLBP their exclusive licensing agent for all retail products bearing MLB Intellectual Property, the number of licenses and licensees has multiplied. Moreover, unlike the record in NCAA, the present record contains no facts to support Salvino's hypothesis that if MLBP were not the Clubs' exclusive licensor with respect to retail products, even more licenses would be granted. When Salvino's economist, Guth, was asked at his deposition whether in his opinion there would be more licenses if the Clubs were allowed to license directly ( see Guth Dep. at 136-37), he stated, I can't give you a straight yes or no answer, because that's a question that needs to be explored with some empirical analysis ( id. at 137). Guth, however, had conducted no empirical analyses. ( See id. at 137-38.) The NCAA Court also rejected, for two reasons, the NCAA's procompetitive-efficiencies contention that rested on the proposition that the NCAA had a legitimate and important interest in maintaining a competitive balance among amateur athletic teams. NCAA, 468 U.S. at 117, 104 S.Ct. 2948. First, the Court noted that there was no real interdependence among the college teams, nor indeed any readily identifiable group of competitors, id. at 118, 104 S.Ct. 2948, such as to require steps to maintain a competitive balance. The NCAA does not claim that its television plan has equalized or is intended to equalize competition within any one league. The plan is nationwide in scope and there is no single league or tournament in which all college football teams compete. Id. at 117-18, 104 S.Ct. 2948 (footnote omitted). Second, the Court noted that even if the NCAA had an interest in maintaining competitive balance among the college football teams, [t]he television plan is not even arguably tailored to serve such an interest, id. at 119, 104 S.Ct. 2948, given that but for the NCAA plan, more college football games would be televised, see id. at 108, 118 n. 62, 104 S.Ct. 2948. The Court stated that [t]he hypothesis that legitimates the maintenance of competitive balance as a procompetitive justification under the Rule of Reason is that equal competition will maximize consumer demand for the product. The finding that consumption will materially increase if the controls are removed is a compelling demonstration that they do not in fact serve any such legitimate purpose. Id. at 119-20, 104 S.Ct. 2948 (footnote omitted). In the present case, in contrast, Major League Baseball is a highly integrated professional sports entity comprising two Leagues, in which all of the Clubs compete. Each season constitutes a single tournament, leading to playoffs among the League leaders, and ultimately to the World Series. As discussed in Part II.C.5. below, there is no dispute that competitive balance is a necessary ingredient in the continuing popularity of the MLB Entertainment Product. And unlike the NCAA restrictions on televising games, which were not even arguably tailored to serve an interest in competitive balance, 468 U.S. at 119, 104 S.Ct. 2948, the Clubs' agreement that MLBP's profits from licensing MLB Intellectual Property will be distributed equally among the 30 Clubs is a precisely tailored attempt to achieve, or at least increase, competitive balance. Finally, the NCAA contended that its television plan was procompetitive because it was necessary to permit college football games to compete in the market for sports programming, a market in which the NCAA claimed to lack power. The Supreme Court rejected this contention as well. See NCAA, 468 U.S. at 111-15, 104 S.Ct. 2948. The Court stated that [i]f the NCAA faced `interbrand' competition from available substitutes, then certain forms of collective action might be appropriate in order to enhance its ability to compete, id. at 115 n. 55, 104 S.Ct. 2948; but college football is unique, id. at 115, 104 S.Ct. 2948. The Court found it evident that the NCAA in fact does possess market power because intercollegiate college football telecasts are uniquely attractive to fans, football telecasts generate an audience uniquely attractive to advertisers[,] and ... competitors are unable to offer programming that can attract a similar audience. Id. at 111, 104 S.Ct. 2948. Because college football telecasts are unique, they constitute a separate market; and it follows inexorably ... that the NCAA possesses market power with respect to those broadcasts. `When a product is controlled by one interest, without substitutes available in the market, there is monopoly power.' Id. at 112, 104 S.Ct. 2948 (quoting United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 394, 76 S.Ct. 994, 100 L.Ed. 1264 (1956)). In the present case, the only evidence of record shows that product uniqueness is absent. Although Salvino suggests that the bundle of ... rights licensed by MLBP is ... highly differentiated from other bundles with which MLBP apparently believes it competes (Guth Decl. ¶ 6; see Salvino brief on appeal at 12 n. 5 (contending that Guth Decl. ¶¶ 5-6 define[s] a relevant market)), no factual support was offered for the suggestion that there are no available substitutes for MLB Intellectual Property because Guth had not conducted any factual studies ( see, e.g., Guth Dep. at 23-24). Thus, after Guth, in his deposition, reiterated an opinion given in his initial Report that `MLBP quite likely exercises sufficient control over pricing licenses for use of club marks for plush toys and similar products so that these constitute a relevant market' ( id. at 33 (quoting Guth Report ¶ 23)), the ensuing questioning revealed that that opinion was based not on factual evidence but on guess[es]: Q. So that's a market for club marks or market for plush toys and similar products? A. It's a market for club marks used in conjunction with plush toys and similar products. Q. Do you have any understanding of what Team Beans is? A. Not specifically. My recollection is Major League Baseball had or has licenses for one, maybe several entities for similar kind[s] of plush toys. Q. What is your understanding as to whether or not Team Beans product is within or outside the relevant market [in] your opinion? A. Sitting here today, I would think it's probably within the relevant market. Q. Why? A. It's my guess that those products defined in the framework of the discrete choice survey would likely show up as having price sensitivity vis-a-vis the Salvino products. I don't know that, but that's, you know, sitting here today, that would be my guess. Q. Are you aware that Salvino made some Bammers that did not have a club mark, but had a player name and number only on it? A. That's my recollection, yes. Q. Do you consider those products to be inside or outside of the relevant product market? A. Again, that's an empirical question. Sitting here today, I'd be [ ] less confident opining one way or the other, but it's entirely possible that they could be in the relevant part [sic; market?]. Q. Are you familiar with Salvino Bammers that carried NFL team logos? A. Not specifically. Q. Let's assume for the moment that Salvino made some Bammers. A. Sure. Q. The same size plush bear that carried a NFL team logo, New York Giants. For example, would you consider those to be in or outside the relevant market? A. I think that that's what a[n] empirical analysis really let[s] you focus on. I mean, that's where you're getting to the meaningful empirical questions, in my opinion. Whether you know baseball, given its seasonality and given its  the way in which its products are made available to public competes with club marks license for a similar product or indeed other products that are sports or non-sports and made in different seasons or the same season. Those are the issues that an empirical analysis ought to address. Q. Sitting here today, do you have any opinion as to whether Bammers with NFL marks would be within or outside the market? A. No. Frankly, I really don't. I mean, you're asking me whether an increase in the price on, you know, an NFL Bammer would lead people to buy a Major League Baseball Bammer instead of the NFL Bammer, and just listening to those words, I'm not sure I see a basis for concluding that it would, but I'm going to leave that to an empirical analysis. Q. But you haven't undertaken that empirical analysis yet either? A. That's correct. (Guth Dep. at 33-36 (emphases added); see also id. at 60 (Guth stating that to identify the relevant market, empirical studies would be needed not only with respect to the NFL, but also with respect to the NHL, NBA, Major Soccer League, et cetera, as well as popular cartoon items).) (We think Guth's views could also benefit from an empirical study that included regard for fan preferences. He indicated that [f]or purposes of [his deposition] testimony without having done empirical analysis, he supposed that a consumer who is unable to purchase an MLBP New York Yankee Bammer would eschew an NFL Jets Bammer and would substitute instead an MLBP Bammer representing the Boston Red Sox. ( Id. at 50, 58.).) While Guth had not conducted the empirical studies that he testified were needed before he could do more than make guesses as to what might be substitutable for MLB Intellectual Property licenses, there was ample evidence in the record that prospective licensees of MLB Intellectual Property displayed interest in using intellectual property of, inter alia, other sports entities and leagues. For example, as set out in Part I.B.2. above, representatives of Coca-Cola told the MLBP executive committee in 1966 that, a few years earlier, Coca-Cola had chosen to use NFL intellectual property for a nationwide promotional campaign, rather than MLB Intellectual Property, because of ease of licensing. Further, as set out in greater detail in Part I.B.3. above, when Salvino sought an MLBP license in 1999, Salvino stated that it had sold Bammers bearing the intellectual property of the MLB Players' Association, the NFL, the NBA, the NHL, Muhammad Ali, and other individuals. Indeed, a Salvino brochure declared that Bammers were `America's Number 1 Sports Collectible' in baseball, football, boxing, basketball, ice skating, hockey, and NASCAR. ( See Salvino Response to MLBP Rule 56.1 Statement ¶ 120.) In addition, Salvino's vice president testified, inter alia, that Salvino competed with 'anybody who produces sports licensed products; anybody who produces, you know, signed products, collectibles, memorabilia; anybody who produces licensed key chains, zipper pulls, non-licensed key chains, zipper pulls.' (Salvino Response to MLBP Rule 56.1 Statement ¶ 116.) Plainly, then, the only evidence presented to the district court indicates that, unlike the NCAA's unique product, college football, there are available substitutes for MLB Intellectual Property. Based in part on the above facts, Fisher opined that MLBP lacked power in the relevant market, which he defined as no narrower than the market for the licensing of intellectual property related to sports and certain entertainment products. Finally, there seems to be no genuine dispute that the market level that is at issue in this case is the licensing level, with demand at that level being influenced by demand at the consumer level ( see, e.g., Fisher Report ¶ 18; Guth Report ¶ 23), and that other professional sports entities have centralized licensing operations, e.g., NFL Properties, NBA Properties, and NHL Enterprises ( see Part I.A.3. above). Although Salvino purported to contest the assertion that MLBP competes with these other entities, Salvino's challenge does not present a genuine dispute, given the evidence (a) that Salvino has not disputed that the standard license issued by each of these other sports entities states that the entity has the exclusive right to license the names, initials, emblems, uniforms, and other intellectual property of each team within that professional sports league; (b) that Salvino obtained licenses for its Bammers using intellectual property of baseball, football, boxing, basketball, ice skating, hockey, and NASCAR; (c) that Salvino itself stated that being able to deal with NFL Properties provided the advantage of one-stop shop[ping]; and (d) that MLBP was informed by the Coca-Cola representatives that the NFL had a competitive advantage over MLB in the mid-1960s because the NFL had a centralized licensing entity and MLB did not. Further, when Guth was asked whether the fact that such sports leagues as the NFL, NBA, and NHL use centralized licensing entities would affect his analysis as to whether or not MLB needed a centralized licensing organization, Guth stated that although he did not think it would, he wouldn't dismiss [that factor] out of hand. (Guth Dep. at 115.) We consider this a telling response in the face of Salvino's contention that centralization of licensing in MLBP should be declared illegal per se or on a quick look  treatment that is inappropriate unless the anticompetitive nature of the practice is intuitively obvious.
The only aspect of the Supreme Court's criticisms of the NCAA plan that is even superficially similar to the present case is the Court's observation that the NCAA plan was a price restraint that tends to provide the same economic rewards to all practitioners regardless of their skill, their experience, their training, or their willingness to employ innovative and difficult procedures. NCAA, 468 U.S. at 107 n. 33, 104 S.Ct. 2948 (quoting Maricopa County Medical Society, 457 U.S. at 348, 102 S.Ct. 2466). However, the circumstances of both NCAA and Maricopa County Medical Society differ significantly from those here. In Maricopa County Medical Society, the Court was concerned with a plan that involved the fixing of maximum prices that physicians could charge for health services to policyholders under specified insurance plans. The physicians were independent competing entrepreneurs. 457 U.S. at 357, 102 S.Ct. 2466. In the present case, in contrast, the Clubs are professional baseball teams that are interdependent members of the Major Leagues. Further, as discussed in Part II.C.5. below, the need for competitive balance among the Clubs is essential to the well-being of the Leagues. NCAA, which, like the present case, involved sports teams, is significantly different from the present case because it involved a sport at the college level. Colleges exist primarily to provide an education for their students; indeed, some colleges have no football program at all. In contrast, the present case involves a sport at the professional level. Providing baseball entertainment in their respective Leagues is the Clubs' raison d'être; if a Club cannot compete sufficiently to attract fans, it ceases to exist ( i.e., moves to another geographic location and becomes a different Club). The professional baseball entertainment product is enhanced and protected by fostering competitive balance among the Clubs. Colleges with sports teams that are competitively weak nonetheless continue to exist and pursue their primary goal, education. In sum, unlike Maricopa County Medical Society and NCAA, this case involves an integrated professional sports league in which the competitors are not independent but interdependent, competitive balance among the teams is essential to both the viability of the Clubs and public interest in the sport, and profit sharing is a legitimate means  approved by both of the economists in this case, see Part II.C.5. below  of maintaining some measure of competitive balance.