Baseball and the Antitrust Laws Part IV: Baseball’s Antitrust Exemption


Author: Luke Hasskamp

This article—the fourth in a series—addresses some of the aftermath of the Supreme Court’s decision in Federal Baseball Club v. National League, where the Court unanimously held that federal antitrust laws did not apply to professional baseball. This includes the “birth” of baseball’s antitrust exemption in the Supreme Court’s 1953 decision in Toolson v. New York Yankees.

You can find the other parts to this series below:

Baseball and the Antitrust Laws Part 1: The Origins of the Reserve Clause

Baseball and the Antitrust Laws Part 2: The Owners Strike Back (and Strike Out)

Baseball and the Antitrust Laws Part 3: Baseball Reaches the Supreme Court

Baseball and the Antitrust Laws Part 5: Touch ’em all, Curt Flood.

The evolution of the Commerce Clause

It seems safe to say that it is widely known that baseball is exempt from antitrust laws. But that exemption did not arise in the Court’s 1922 ruling in Federal Baseball. Instead, there, the Court had concluded that the Sherman Act did not apply to baseball at all—because baseball was not a form of interstate commerce. This is an important distinction.

The Sherman Act makes it unlawful to “monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States . . . .” The reason Congress included “among the several States” in the statute is because its authority to enact the Sherman Act flowed from Article I, Section 8, Clause 3 of the U.S. Constitution, also known as the Commerce Clause.

Specifically, the Commerce Clause gives Congress the power “to regulate commerce with foreign nations, and among the several states . . . .” If the conduct at issue did not affect commerce “among the several states,” Congress had no authority to regulate it. Thus, because the Court determined that baseball did not affect interstate commerce, Congress had no power to subject it to antitrust scrutiny.

The Federal Baseball decision has been widely criticized, both at the time and today. But when considered in context, it is somewhat understandable. For starters, the game in the 1920s was obviously much different than the multi-billion-dollar industry that we know today. There were fewer teams, lower revenues, and games were not yet watched on television—the first televised Major League Baseball game would occur on August 26, 1939, a doubleheader played at Ebbets Field between the Brooklyn Dodgers and the Cincinnati Reds.

Perhaps an even more understandable explanation for the Federal Baseball outcome was the Supreme Court’s interpretation of the Commerce Clause at the time and, specifically, its definition of interstate commerce, which was narrower than it is today.

Federal Baseball was decided during the Lochner era, which encompassed the three decades following the Supreme Court’s 1905 decision in Lochner v. New York, 198 U.S. 45 (1905). During this period, the Court struck down a number of federal and state laws relating to labor and working conditions, as the Court took a narrow view of states’ police powers and Congress’s powers under the Commerce Clause.

The Lochner era came to an end beginning in 1937, with a series of decisions from the Court upholding several federal and state statutes in this realm, and, importantly, recognizing broader grounds upon which the Commerce Clause could be used to regulate state activity. Instead of viewing the Commerce Clause as a limitation on congressional authority, it now marked one of the most effective means by which Congress could expand its regulatory reach. The narrow definition of interstate commerce was tossed out and activity was now viewed as commerce if it had a “substantial economic effect” on interstate commerce.

Baseball’s deft touch

The late 1930s to the 1950s marked an era of strategic litigation, settlements, and lobbying by baseball. With this expansion of the Commerce Clause, many predicted that it would not be long before the Supreme Court overruled Federal Baseball. Accordingly, baseball sought to avoid legal challenges that would give the Supreme Court an opportunity to do so, and it also worked to negotiate concerns in Congress that led some members to call for legislation clarifying that the Sherman Act should apply to baseball.

An interesting example of the threat faced by professional baseball, and its strategic response to it, arose from the emergence of professional baseball in Mexico soon after World War II. To attract top talent, the Mexican league offered lucrative salaries more than double what players were making in the U.S., causing several players to abandon their contracts and play south of the border. One such player was Danny Gardella, who had been offered $4,500 to play for the New York Giants but $10,000 to play in Mexico for the 1947 season. (The Mexican League was owned by Jorge Pasquel, another colorful character in the long roster of colorful characters in professional baseball, who allegedly used campaigned funds siphoned from the Mexican presidential election to pay for the substantial salaries.)

Perhaps as expected, Major League Baseball was not pleased with the defections, and Commissioner Happy Chandler banned the defecting players for five years, a remarkable penalty considering such strict penalties had only been imposed for violations that impugned the integrity of the game itself, such as gambling or cheating on games. When Gardella returned to the U.S. after the 1947 season—the year in Mexico had not been a success, especially for the Mexican league—he was unable to find a team willing to take him. Thus, he sued in federal court in New York.

The district court granted Major League Baseball’s motion to dismiss. The court recognized that Federal Baseball appeared to rest on a shaky foundation, but it also recognized that it was not its place to overturn the decision—the authority rested with the Supreme Court. Gardella appealed to the Second Circuit Court of Appeals, where it was heard by Chief Judge Learned Hand, Judge Harrie Chase, and Judge Jerome Frank.

The Second Circuit reversed the matter on a 2-1 vote. Judge Chase felt strongly that, regardless of the Circuit’s view of Federal Baseball and interstate commerce, it was for the Supreme Court, not them, to overturn. But his two colleagues ultimately disagreed with him—and all three judges wrote separate opinions in the matter.

Judge Frank was less concerned about disposing of Federal Baseball, believing lower courts routinely recognized old Supreme Court precedent as dead. He felt it clear that “the Supreme Court’s recent decisions have completely destroyed the vitality of Federal Baseball” and “have left that case but an impotent zombi.” Still, Judge Frank thought they could decide the matter by simply distinguishing from Federal Baseball on the grounds that professional baseball had changed drastically over the previous 25 years, with games now broadcast on interstate radio and some television networks.

Judge Hand was the most conflicted of the three regarding the outcome, and he initially voted to join Judge Chase in affirming the district court. But Judge Hand changed his mind and now voted to reverse, believing the matter to be a question of fact, not law, and that Gardella should be given an opportunity to prove his case.

Major League Baseball elected to settle the matter with Gardella for approximately $60,000, and an agreement to lift his ban. (In fact, baseball settled with all the players who had defected to the Mexican League soon after.) Gardella believed his prospects in front of the Supreme Court were not strong, and baseball wanted to avoid giving the Court an opportunity to overturn Federal Baseball. Gardella then signed with the St. Louis Cardinals for the 1950 season, but he was sent to the minors after a single at bat, and never made it back to the big leagues.

Notably, Commissioner Chandler was never a popular commissioner with most team owners, and his contract was not renewed after a single term. But Chandler’s relationship with Congress—he was a former Governor and Senator from Kentucky—is credited as helping baseball navigate some of the rumblings in Congress aimed at addressing the baseball antitrust issue.

Toolson v. New York Yankees, 346 U.S. 356 (1953)

George Earl Toolson was a mediocre pitcher playing for the New York Yankees farm system, assigned to the Yankees’ AAA team, the Newark Bears, for the 1949 season. Toolson believed he was talented enough to pitch in the big leagues, if not for the Yankees some other team, but he could not get out of his contract with the Yankees due to the reserve clause. Before the 1950 season, the Newark Bears dissolved, and Toolson was assigned to the Binghamton Triplets, the Yankees’ Class-A team. He refused to report and instead filed suit in federal court in Los Angeles, where he struck out again, before both the district court and the Ninth Circuit. (Interestingly, one of the attorneys working on the case for baseball was Bowie Kuhn, who would go on to become the commissioner of baseball and a named defendant in Flood v. Kuhn, the next challenge faced by baseball to reach the Supreme Court.)

Toolson took his case to the Supreme Court, which granted cert. (The Toolson matter was actually a collection of three appeals: Toolson’s appeal from the Ninth Circuit and two Sixth Circuit decisions that had ruled against Jack Corbett, an owner of a minor league team, and Walter Kowalski, a minor leaguer who never made it to the majors.)

In a remarkable, and remarkably short one-paragraph per curiam opinion, the Court declined to overrule Federal Baseball on the grounds that Congress had had more than three decades since that decision to act if it felt differently. “We think that, if there are evils in this field which now warrant application to it of the antitrust laws, it should be by legislation.” If Congress wanted the antitrust laws to apply to baseball, it could do something about it.

Interestingly, the Court concluded the opinion by noting that “Congress had no intention of including the business of baseball within the scope of the federal antitrust laws.” This is a rather remarkable assertion. The Court was saying that when Congress enacted the Sherman Act in 1890, it intended to exempt baseball from its scope. Baseball, indeed, predated the Sherman Act by a decade or more, but there was virtually no reason to think that Congress had baseball in mind when it passed the legislation.

Justice Harold Hitz Burton filed a dissenting opinion, pointing out that, whatever the state of the game in 1922, current baseball clearly involved interstate commerce. He also questioned the suggestion that Congress had exempted baseball from the antitrust laws. He agreed that it would be within the discretion of Congress to do so, but he was adamant that “Congress, however, has enacted no express exemption of organized baseball from the Sherman Act, and no court has demonstrated the existence of an implied exemption from that Act of any sport that is so highly organized as to amount to an interstate monopoly or which restrains interstate trade or commerce.”

Yet, despite Justice Burton’s dissent, joined by Justice Reed, the Supreme Court had concluded 7-2 that Congress had impliedly exempted baseball from federal antitrust laws. This remarkable about-face by the Court bears repeating. In 1922, the Court had said that federal antitrust laws did not apply to baseball because baseball did not constitute interstate commerce and, thus, Congress did not have authority under the Commerce Clause to regulate it. In 1953, by contrast, the Court determined that, whether baseball constituted interstate commerce, Congress had decided to exempt baseball from federal antitrust laws when it enacted the Sherman Act in 1890, despite baseball’s fledgling status at the time.

Although none of the Justices seemed particularly excited about the means used to reach the outcome, Major League Baseball had a second major win before the Supreme Court, and it would not face another serious antitrust challenge for more than 20 years, until Curt Flood entered the picture.

(For a great, in-depth, and highly readable book on baseball’s history with the legal system, I highly recommend Professor Stuart Banner’s The Baseball Trust: A History of Baseball’s Antitrust Exemption.)


Image by rickyoumans from Pixabay

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