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

Heading: Procompetitive Efficiencies

Text: 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.