Articles Posted in Sports and Entertainment Law

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Author: Luke Hasskamp

This article—the third in a series—focuses on the Supreme Court’s decision in Federal Baseball Club v. National League, in which the Court unanimously held that federal antitrust laws did not apply to professional baseball. It is a curious decision, indeed, preceded by two prior decisions that helped to set the table.

Despite the focus of this series of articles on baseball’s unusual treatment under the antitrust laws, the first two articles did not actually address antitrust law. Instead, the focus was, primarily, contract law. Despite the clear anticompetitive implications of baseball’s reserve clause, which owners used to tie players to a team in perpetuity and to suppress player salaries, the initial challenges to these provisions were based on the law of contracts. And the initial lawsuits did not involve affirmative litigation brought by players but were instead brought by the owners, with the players raising these arguments in their defense.

Now the stage was set for the antitrust laws to enter the picture full force, and not just as a shield to protect players from teams’ requests for injunctions, but also as a sword to affirmatively attack professional baseball as an unlawful trust.

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)

The antitrust laws and baseball finally intersect: the Hal Chase case

The first antitrust baseball case fully litigated on the merits was American League Baseball Club v. Chase, 149 N.Y.S. 6 (N.Y. Sup. Ct. 1914), a dispute involving Hal Chase, a star first baseman who moved from the Chicago White Sox of the American League to the Buffalo Buff-Feds of the Federal League.

The suit was brought in New York by the White Sox, who sought to enjoin Chase from playing for Buffalo. At the conclusion of the matter, Judge Bissell rejected Chase’s “novel argument . . . presented with much earnestness” that baseball violated federal antitrust laws. 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 . . . .” Judge Bissell had no doubt that baseball was a monopoly, but he concluded that it was not involved in interstate trade or commerce. Instead, he reasoned: “Baseball is an amusement, a sport, a game that . . . is not a commodity or an article of merchandise subject to the regulation of congress . . . .” (Congress is constrained by the Commerce Clause of the U.S. Constitution. Thus, the connection to interstate commerce was essential. If baseball did not affect interstate commerce, Congress had no power to regulate it.)

Interestingly, Judge Bissell did rule that baseball had violated New York state law, meaning that the preliminary injunction initially granted could no longer be maintained. And his reasoning suggested that he also would have found baseball to have violated federal antitrust laws had it affected interstate commerce:

“A court of equity insisting that ‘he who comes into equity must come with clean hands’ will not lend its aid to promote an unconscionable transaction of the character which the plaintiff is endeavoring to maintain and strengthen by its application for this injunction. The court will not assist in enforcing an agreement which is a part of a general plan having for its object the maintenance of a monopoly, interference with the personal liberty of a citizen and the control of his free right to labor wherever and for whom he pleases; and will not extend its aid to further the purposes and practices of an unlawful combination, by restraining the defendant from working for any one but the plaintiff.”

Thus, with his legal victory, Chase was able to play with Buffalo for 1914 and 1915. While it was not a devastating blow for organized baseball—because “the question of the dissolution of this combination on the ground of its illegality” was not before the court—it must have seemed like an ominous conclusion to the ruling.

Chase ended up having a remarkable career for several reasons. Many players, including Babe Ruth and Walter Johnson, considered him the best first baseman ever, and he is sometimes considered the first true star of the franchise that would eventually become the New York Yankees. But Chase was also ultimately exposed as a notorious cheater, betting extensively on games and paying and receiving money to fix games. Indeed, he was indicted as part of the Chicago “Black Sox” scandal (though his role is disputed), but the State of California refused to extradite him due to a problem with the arrest warrant. He was ultimately blackballed from professional baseball and spent his remaining years on the west coast.

The Federal League takes on Organized Baseball: Round 1

In 1913, the Federal League emerged as a serious competitor to the National and American Leagues. And it intended to do so in court, as well as on the field, where it would wield the threat of a serious antitrust challenge. Indeed, in January 2015, the Federal League finally filed its affirmative suit against the National and American Leagues in federal court in Illinois, alleging that they amounted to a combination in violation of federal and state antitrust laws.

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Author: Steven Madoff

Steven Madoff is a former Executive Vice President at Paramount Pictures and General Counsel for its Home Entertainment Subsidiary. He is Of Counsel at Bona Law.

When you see someone acting strangely, do you ever wonder if they are possessed? If you do, it might be because of the everlasting influence of a classic film that I am certain you know: The Exorcist.

One of the great joys of a film is that you can turn down the lights, let your problems disappear, and enter a meditative zone where you become engrossed in the movie and nothing else. You surely know that a lot goes into making a film and that it takes many talented people working really hard to do it well.

But do you ever think about how much thought, work, and fighting (yes, fighting) goes into marketing, distributing, and monetizing a film? Indeed, because films continue to make money for years and sometimes decades after they are made—especially for a classic film like the Exorcist—the battles over revenue and its dissemination can be everlasting.

During my decades at the studios and in the film industry, I had a front row seat to the methods, money, and machinations of the entertainment industry.

Even still, after I left Paramount Pictures, I did not think of myself as an “expert.” I had worked at Paramount for 20 years, the last ten of which I served as Executive Vice President of Worldwide Business and Legal Affairs for the Home Entertainment and Pay Television Divisions. I had also worked at the Motion Picture Association of America for five years in a business development position and then as International Counsel. The Motion Picture Association of America is the trade association representing the interests of the (at the time) seven major Hollywood Studios: Disney, MGM/United Artists, Paramount, Sony Pictures, Twentieth Century Fox, Universal and Warner Bros.

So after 25 years working for the major studios, I knew that I was very experienced and highly knowledgeable about certain aspects of the motion picture and television industries, but I did not think of myself as an “expert” on whose word courts should rely.

That was, anyway, until shortly after leaving Paramount, I started receiving phone calls from other studios involved in one form of litigation or another that were looking for someone who could qualify as an expert and would be willing to render an opinion and possibly testify in court in their litigation. Each one was certain that based on my 25 years of experience in motion picture and television industry business affairs (including all forms of licensing, sales, distribution and acquisition transactions), I would qualify as an ”expert.”

Malcolm Gladwell wrote about the 10,000 hour rule in this book “Outliers.” This rule states that it requires at least 10,000 hours of practice to become an expert in a particular field. I figured that my 25 years of practice in one industry, at a minimum of 40 hours per week, equates to about 50,000 hours that I had practiced in motion picture and television business affairs. Maybe these people were right. As it turns out, my qualifications as an “expert” in multiple cases have never been successfully challenged. That may, in part, be attributed to the fact that I have always been very selective in choosing which matters I offered my services for—I stick with what I truly know.

One of the more interesting cases on which I provided services as an expert witness involved the classic motion picture, “The Exorcist.” The case was before the U.S. District Court for the Central District of California.

For those that don’t know, “The Exorcist” is the 1973 Warner Bros. release which, for many years, was the highest box office grossing horror motion picture of all time. In fact, adjusted for inflation “The Exorcist” is probably still the highest box office grossing horror motion picture of all time. It is certainly in the top five. If you haven’t seen it, you should.

Film finance can be complicated and there are typically investors that put up money or creative services for the film, alongside a studio and others, and, in exchange, they receive a contractual right to participate in the profits of the particular film. These are commonly known as participation agreements.

As often happens in Hollywood, claims were made against Warner Bros., the distributor of “The Exorcist” by a party who has a right to participate in the profits of the film. Basically, the claim was that Warner Bros. had not been properly exploiting “The Exorcist” in subsequent media and therefore the film’s gross revenue and profits were less than they otherwise could have been.

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Author: Luke Hasskamp

This is the second of a series of articles examining some of the interesting intersections between the law and baseball, with a focus on baseball’s exemption from federal and state antitrust laws. (Though, like the first article, this one does not quite reach the antitrust issues, as the initial challenges were brought under contract law.)

The first article looked at some of the early conflict between professional baseball players and team owners of the National League, which largely originated from the owners’ adoption of the “reserve clause,” which effectively tied a player to a single team for the entirety of his career, subject to the team’s discretion (and ten-days’ notice). Naturally, this led to litigation, particularly as other leagues emerged that sought to compete with the National League. The National League sued several players who tried to jump to the Players League—and the players won resounding victories in those early cases, with courts refusing to find the one-sided contracts to be enforceable on the ground that they were indefinite agreements and/or lacked mutuality.

[The third article is Baseball Reaches the Supreme Court.]

Thus, by the time the 1890 season ended—with the National League champion Brooklyn Bridegrooms and the American Association champion Louisville Colonels participating in a best-of-seven game “world” series that ended in a tie—it seemed that the reserve clause was doomed. But forces conspired to give the teams, yet again, the upper hand.

To begin, the Players League ended its first season as a financial failure, causing the League to disband. This relieved the National League of a major competitor. The National League received more good news following the 1891 season, when the American Association, another professional league, failed. This meant that, once again, there was only one professional league in town. Thus, even though the players had won important cases invalidating the reserve clause, they had nowhere else to play, which would remain the case for the next decade.

Things got a little more interesting in 1901 with the arrival of the American League, which emerged as a serious competitor. Indeed, the National League had instituted a per player salary cap of $2,400, while the American League offered salaries of up to $6,000, causing dozens of players to switch leagues.

One such player was Napoleon “Nap” Lajoie, a star player for the National League’s Philadelphia Phillies. Indeed, Lajoie was one of the first superstars of the game and was highly sought by the upstart American League. (Indeed, he refused to take a bad photo.) Despite his contract with the National League, Lajoie signed with the new American League team in town: the Philadelphia Athletics (which was to be managed by Connie Mack, who remained the manager of the Athletics for an incredible 50 years—the longest-serving manager in Major League Baseball history—amassing records for wins (3,731), losses (3,948), and games managed (7,755)).

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Author: Luke Hasskamp

This is the first of a series of articles intended to address some of the interesting intersections between the law and baseball, particularly baseball’s curious exemption from federal and state antitrust laws. More generally, it’s about the struggle between team owners and players since the dawn of professional baseball, and some of the quirks to emerge along the way.

You can read the second part of the baseball and antitrust series here: The Owners Strike Back (And Strike Out).

The third part of the series is Baseball Reaches the Supreme Court.

This article starts at the beginning with a fledgling set of teams in the National League in the late 19th century—with team owners trying to turn consistent profits and players beginning to emerge as stars, and the tension between the two.

The trouble started in 1879, when the owners of the teams in the National League agreed on the “reserve clause” which was a provision included in player contracts that effectively bound the player to his team for his entire career. (Here’s an example of such a reserve clause.)

At the time, most National League teams were losing money and faced bleak financial prospects. To curb expenses, the teams agreed on a strategy to keep salaries down: each team would be allowed to “reserve” up to five players for the following season. This meant that no other team could sign a reserved player unless he received permission to do so.

As expected, each team elected to reserve their five best players, i.e., their most expensive players. With no market competing for players’ services, team owners were able to suppress salaries for elite talent and increase profits. Indeed, just two seasons after the adoptions of the reserve clause, most teams had become profitable, the first time that had happened.

 Due to this success, the owners saw no reason to limit the reserve clause to the top five players. They steadily increased the reserve limit until, by 1887, a team was permitted to reserve its entire roster, 14 players at the time. 1887 is also the year that the reserve clause became an explicit provision in players’ contracts; until then, it had at first been a secret agreement between the owners and then, after it leaked, simply become a league rule that all players were required to abide by. Importantly (for the owners), the reserve clause crept beyond the National League into other competing leagues that would emerge during that time, including the American Association and the American League, which both agreed to honor National League’s reserve lists.

At this time, the contracts were decidedly one sided. Although teams effectively controlled a player for the entirety of his career, nothing bound the teams to their players, except for their contracts (and virtually all contracts had one-year terms). Any player could be traded or sold at any time, and they could be released on just 10-days’ notice.

John Montgomery Ward became an important early figure in challenges to baseball’s reserve clause. Known as Monte Ward during his playing days, he began his career at 19 as a pitcher for the Providence Grays. In 1879, he went 47–19 with 239 strikeouts and a 2.15 ERA, pitching 587 innings. The following season Ward went 39–24 with 230 strikeouts and a 1.74 ERA pitching 595.0 innings. Ward also has the distinction of pitching the second perfect game in professional history as well as the longest complete game shutout, going 18 innings in a 1-0 win over the Detroit Wolverines 1–0 on August 17, 1882, a record that will never be broken. (He also has a pretty epic baseball card.)

Following an injury to his pitching arm that, remarkably, was not attributed to his workload but to a mishap while sliding, Ward’s performance as a pitcher began to diminish, so the Grays sold him to the New York Gotham before the 1883 season (they were renamed the New York Giants in 1885.) The move was fortuitous for several reasons, including the fact that it enabled Ward to enroll at Columbia Law School, where he graduated in 1885.

Using his legal training, Ward organized and led the first labor union in professional sports, the Brotherhood of Professional Baseball Players. The principal goal of the Brotherhood was to raise player salaries, which had remained stagnant even though baseball’s popularity (and revenues) had risen considerably. A chief target of the Brotherhood’s effort was the reserve clause, which continued to suppress players’ salaries and limit their mobility.

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Baseball Antitrust Exemption

Author: Jarod Bona

Baseball is special. How do we know that? Is it the fact that it has been declared America’s Pastime? Or is it the feelings we have when we smell the freshly cut grass on a sunny spring day? Or is it the acoustics of a wood bat striking a leather-wrapped baseball? The answer is that  we know that baseball is special because the US Supreme Court has told us so.

Over the course of ninety-two years, the Supreme Court has consistently affirmed and re-affirmed a special exemption from the antitrust laws for the “business of providing public baseball games for profit between clubs of professional baseball.” There is a state action exemption, an insurance exemption, a labor exemption, and a  . . . baseball exemption? That’s right. A baseball exemption from the federal antitrust laws.

The Ninth Circuit—in an opinion courtesy of Judge Alex Kozinski—just applied this exemption in City of San Jose v. Office of the Commissioner of Baseball, which rejected San Jose’s antitrust lawsuit challenging Major League Baseball’s “attempt to stymie” the relocation of the Oakland Athletics to San Jose, California.

Update: On October 6, 2015, the US Supreme Court, without comment, declined to hear this case. Because the Supreme Court rejects the vast majority of petitions for cert., I wouldn’t read too much into this. Of course, if at least four Justices had wanted to revisit the historical exemption, they could have done so.

You might also enjoy Luke Hasskamp’s series on baseball and antitrust:

Part 1: Baseball and the Reserve Clause.

Part 2: The Owners Strike Back (And Strike Out).

Part 3: Baseball Reaches the Supreme Court.

Why is There a Baseball Exemption from the Antitrust Laws?

In the 1920’s, the Supreme Court decided a case called Federal Baseball Club of Baltimore v. National League of Professional Baseball Clubs, which held that the Sherman Act didn’t apply to the business of baseball because such “exhibitions” are purely state affairs. As Judge Kozinski explained, the reasoning behind the Supreme Court’s decision reflected the “era’s soon-to-be-outmoded interpretation of the Commerce Clause.” In other words, back in the day, courts didn’t assume that almost every economic activity was within federal jurisdiction.

Thirty-years later in Toolson v. New York Yankees, Inc., the Supreme Court affirmed Federal Baseball on different grounds. The Court recognized that the Commerce Clause reasoning no longer applied, but observed that despite the Federal Baseball governing law that the federal antitrust laws don’t apply to baseball, Congress hasn’t legislated to the contrary. So it left the baseball exemption.

Finally, in 1972, the Supreme Court decided the Classic Antitrust Case of Curt Flood v. Kuhn, which is the famous baseball exemption case. The Court specifically addressed baseball’s reserve clause, which essentially prohibited free agency. When a player’s contract ended, the team still retained the player’s rights. Once again, the Supreme Court upheld the baseball exemption based upon Congress’ inaction.

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Author: Aaron Gott

My morning routine usually begins with reading the news to keep up on current events. As an antitrust lawyer, I often find myself thinking about how stories that were deemed newsworthy for other reasons fail to recognize their often most troubling aspects: the antitrust concerns.

Last week, for example, the news was abuzz with Uber and Lyft drivers going “on strike” to protest their compensation from the companies. The drivers “banded together” in an effort to pressure the companies. Most might see this as a sort of unionization of the gig economy. But I saw it as an antitrust problem: ride referral drivers are independent contractors, so they are not, under well-established federal law, entitled to the union labor exemption from the antitrust laws. They are horizontal competitors who are agreeing to restrain trade. That sort of conduct is called a group boycott, and under these circumstances, it might be per se illegal under Section 1 of the Sherman Act.

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