Court Opinion

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Opinions of the United
1999 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

4-9-1999

Shaw v. Dallas Cowboys
Precedential or Non-Precedential:

Docket 98-1629

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Recommended Citation
"Shaw v. Dallas Cowboys" (1999). 1999 Decisions. Paper 94.
http://digitalcommons.law.villanova.edu/thirdcircuit_1999/94

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Filed 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 EAGLES
LIMITED PARTNERSHIP; SAN FRANCISCO FORTY-
NINERS, 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 19106
On 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

                        2
Ira 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

                         3
       Richard 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 must
determine, as a matter of first impression, whether an
agreement among members of the National Football League1
to sell broadcast rights jointly to satellite distributors is
exempt from scrutiny under the Sherman Act, 15 U.S.C.
SS 1 et seq. Citing the Sports Broadcasting Act (the "SBA"),
15 U.S.C. S 1291, the NFL sought dismissal of a class
action antitrust suit brought by Charles Shaw, Bret D.
Schwartz, and Steven Promislo ("Shaw"). The NFL asserted
that the rights being sold were "residual" rights in a
"sponsored telecasting" and therefore within the SBA's
exemption to the antitrust laws. The District Court rejected
this characterization, holding that the statutory exemption
turns on the nature of the broadcast in question and 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 exceptions to
the antitrust laws must be narrowly construed.

Accordingly, we must first determine whether the SBA
unambiguously exempts from antitrust law scrutiny only
the right to sell those images for commercially sponsored
free broadcast. If not, we must turn to the Act's legislative
_________________________________________________________________

1. The members of the National Football League which are parties to the
agreement and to this action are the: Dallas Cowboys Football Club,
Ltd.; New England Patriots Football Club; New York Giants Football,
Inc.; Philadelphia Eagles Limited Partnership; and San Francisco Forty-
Niners, Ltd. We refer to these members and the League itself collectively
as the "NFL".

                                 4
history. Because we agree with the District Court that 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 permit the
broadcasting of approximately a dozen NFL games each
week on free television networks, such as NBC or Fox.
Because different games are broadcast within different local
markets, however, any television viewer has free access to
only two or three NFL games.2 This leaves an unserviced
market for those NFL games outside a viewer's local
broadcast area (e.g., the Pittsburgh Steelers fan who lives in
Los Angeles). With the development and expansion of
satellite distribution, that market can now be tapped. The
NFL and member teams entered into a pooled agreement to
sell jointly their rights in all football games broadcast
nationwide to a satellite broadcast distributor (DIRECTV)
which in turn offers those games as an all-or nothing
package (the "NFL Sunday Ticket") to individual viewer-
subscribers at a fixed cost per season.3

Shaw filed this class action suit, alleging that the NFL's
joint agreement with the satellite distributor violates
Section 1 of the Sherman Act4 and seeking declaratory and
injunctive relief. Specifically, Shaw alleges that the
combined agreement causes artificially high and
_________________________________________________________________

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

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

4. The antitrust laws were designed for the protection 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, plaintiffs must prove: (1)
a contract, combination or conspiracy; (2) a restraint of trade; and (3)
an
effect on interstate commerce. See Fuentes v. South Hills Cardiology, 946
F.2d 196, 198 (3d Cir. 1991).

                               5
noncompetitive 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" rights in a
"sponsored telecast" exempted from antitrust law under the
SBA, and (2) Shaw failed adequately to allege the necessary
joint action. The District Court denied the NFL's motion on
both grounds and, at the NFL's request, certified the
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 (CBS)
violated the Sherman Antitrust Act, 15 U.S.C. S 1. Its
purpose was to preserve the availability of NFL games on
free broadcast television.7 The SBA therefore exempts from
the antitrust laws:

       any agreement by or among persons engaging in or
       conducting the organized professional team sports of
       football, . . ., by which any league of clubs participating
       in professional football . . . contests sells or otherwise
       transfers all or any part of the rights of such league's
       member clubs in the sponsored telecasting of the games
       of football, . . . engaged in or conducted by such clubs.

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

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

6. See United States v. National Football League, 116 F. Supp. 319 (E.D.
Pa. 1953).

7. See, e.g., S. Rep. No. 1087, 1961 U.S.C.C.A.N. at 3044 (noting the
Senate Judiciary Committee's concern for "the public interest in viewing
professional league sports"). See generally U.S. Football League v.
National Football League, 842 F.2d 1335, 1346-7 (2d Cir. 1988)
(discussing history of agreements between the NFL and major television
networks and history of the SBA).

                                6
Supreme Court's direction that exceptions to the antitrust
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 enterprises (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 package 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 sale of
residual or retained rights in the sponsored telecasts, i.e.,
that it is "part of [those] rights."

The NFL correctly asserts that it "still own[s] a partial
right to the games broadcast by the free networks." Id. at
*2. It errs when it characterizes its remaining rights as
rights in the sponsored telecasts. The NFL's underlying
rights are in the games themselves and, more specifically,
they include the right to sell the images of those games for
broadcast through various media. The broadcast rights sold
to sponsored telecasters do not subsume the separate
broadcast rights sold to a non-sponsored medium. 9 Each
_________________________________________________________________

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 exceptions to the
antitrust laws are narrowly construed, as they circumvent 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 could just as readily
conclude that the network television broadcast rights are derivative, and
constitute part of the NFL's rights in the non-sponsored satellite
broadcast. The network's provision of cameras and commentary does not
remove the arbitrariness of calling one broadcast derivative of the other.
Exemption from the antitrust laws cannot be predicated on the simple
expedient of assigning ownership of cameras or payment of camera
crews and commentators to a television network. Rather, it is predicated
on the "sponsored telecast" of the image, i.e., its transmission in a form
freely receivable by the public.

                                7
transaction is a sale of a part of the NFL's underlying 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 which goes
to these particular plaintiffs." Id. at *3. As that court
observed, to hold otherwise - to adopt the construction
urged by the NFL - would allow the exception to swallow
the rule: a sponsored telecast to a limited geographic area
would secure an antitrust law exemption for nationwide
sales.10

III.

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

Our review of the Act's legislative history also leads 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 television
network. See Telecasting of Professional Sports Contests:
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 closed
circuit or subscription television");11 Id. at 36 (Aug. 28,
_________________________________________________________________

10. See id. ("Were the rule otherwise, the NFL could circumvent the
statutory confines, nullify the statutory scheme, simply by always using
earlier broadcasts with commercials. . . . [T]o construe 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 Committee on
Interstate and Foreign Commerce, House of Representatives, 90th Cong.,
1st Sess. at 2-3 (1967) (quoting H.R. 12435, 90th Cong., 1st Sess., para.
(hh)).

                               8
1961) (wherein the NFL Commissioner acknowledged
"absolutely" under oath his understanding that the bill
"covers only the free telecasting of professional sports
contests, and does not cover pay T.V.").12 As the District
Court observed in its well-reasoned opinion, the NFL
obtained in the 1961 Act an expressly limited exception to
"the normal prohibition on monopolistic behavior"; one
which permitted it to sell pooled rights to sponsored
telecasters and which expressly did not apply to
subscription television. The NFL got what it lobbied for; it
cannot now expect the federal courts to transform"narrow,
discrete, special-interest" legislation into a far broader
exemption. Shaw, 1998 WL 419765, *5.13 This is
_________________________________________________________________

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 sponsored 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, reprinted 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 contract with ESPN, a
cable operator, as that programming is not within the "sponsored
telecasting" exemption).

The NFL argues on appeal that references in the House 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 not so. In the context
of the 1961 Act, the "other potential purchasers" were 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, 113 S. Ct. 409, 121
L.Ed.2d 334 (1992) (holding that it is "inappropriate 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 Congress, a court should
ask to see the bill of sale." Id.

                                9
particularly so, once again, because the Act must be
narrowly applied.14

IV.

Because we find that the subscription satellite broadcast
of NFL games is not a part of the NFL's rights to the
sponsored telecasting of those games and therefore not
within the Sports Broadcasting Act's exemption to the
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

_________________________________________________________________

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

                               10