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Stan Brand's Opening Session speech

MiLB Vice President discusses baseball's antitrust exemption
December 7, 2009
INDIANAPOLIS -- Over the years, I have reported to you at the Winter Meetings on baseball's antitrust immunity and the threat that has arisen about once a decade to undermine the stability and economic foundations of Minor League Baseball. With the passage of the Curt Flood Act in 1998, which preserved and reaffirmed minor league baseball's exemption from the antitrust laws, the achievement of calm in the labor management relationship at the Major League level, and the institution of a comprehensive steroid testing program, the last decade has been quiet on the antitrust front. Once again, however, the storm cloud of an antitrust assault could be gathering over the Nation's capital. As is almost always the case, these antitrust storm warnings have nothing to do with minor league practices or structure, but the clouds nevertheless carry the potential to rain on our house.

This time the storm centers around a case that the United States Supreme Court has decided to hear, with the ironic sounding caption, American Needle v. National Football League. Stripped to essentials, American Needle, a corporation that manufactured and sold headwear carrying NFL trademarked logos, sued the league when it ended their license agreement and determined instead to enter into an exclusive agreement with a competing company after soliciting bids from interested vendors. American Needle responded to the loss of the headwear license by suing under Section 1 of the Sherman Antitrust Act alleging that the NFL's exclusive agreement represented a conspiracy by individual NFL teams, which each owned their team logos and trademarks, to restrict other vendors' ability to obtain licenses for each teams' intellectual property. The Court of Appeals ruled that the NFL was a single entity under a well known but rarely available precedent establishing that a single business entity, like a corporation with multiple subsidiaries or divisions, cannot conspire with itself to monopolize the licensing and sale of its intellectual property.

The Court found that since 1963 the NFL teams have, in its words "acted as one source of economic power-under the auspices of NFL Properties-to license their intellectual property collectively and to promote NFL football." The Court further found that nothing in the federal antitrust law prohibits NFL teams from cooperating so that the league can compete against other entertainment providers. The Court's ruling is limited to a conclusion that the NFL is entitled to rely on the single entity defense only for licensing its intellectual property and that is the specific question to be considered by the Supreme Court. It seems unlikely that in deciding that question, it would say anything impacting baseball's exemption in the areas delineated in the Curt Flood Act, including 1) the amateur draft; 2) the relationship between the Minor and Major Leagues; and 3) franchise relocation.

So why should we in the Minor Leagues care, or be concerned, about the outcome of a narrow antitrust ruling having only to do with the NFL's intellectual property agreements? The first reason for concern is that we have learned that events external to the direct conduct of Minor League Baseball can roil the antitrust waters and cause us to have to defend the baseball exemption generally and our structure and practices specifically. It was after all the Major League owner's conflict with then Commissioner Vincent, resulting in his eventual resignation, which caused the Congress to take up the banner of assault on the baseball antitrust exemption in the early 1990s. The battle to preserve baseball's antitrust exemption lasted over half a decade, culminating in passage of the Curt Flood Act which specifically reaffirmed that important aspects of the Major - Minor League relationship were exempt. (more) But the effort to preserve our legal status was necessitated by the direct conflict between Major League Baseball and those in Congress who saw the former Commissioner's resignation as contrary to perceived public interest and attempted to use repeal of the antitrust exemption as a hammer against baseball. We ultimately prevailed, but not without a significant expenditure of resources and some tense moments along the way.

The second reason for concern is that industries that lose cases in the Supreme Court often determine to carry the battle beyond the Court to Congress, seeking statutory reversal for adverse decisions of the Court with which they disagree.

There have been examples of this happening in the recent past. In the mid-1980s the motion picture industry waged a litigation campaign against personal use of video equipment to copy and view movies at home. When the Supreme Court ruled that time shifting technologies for personal home use did not constitute copyright infringement, the studios launched a major legislative effort to change the law.

We could face a similar challenge if the American Needle case goes against the petitioners and validates the single entity theory for NFL intellectual property. Because the Court has agreed to hear this case, the antitrust plaintiff community is already abuzz with commentary, speculation and rhetoric about the various potential outcomes of the case and its impact on various business communities. The cottage industries of lawyers and Washington based interest groups which feed the beast of lobbyists and trade associations looking for the next legislative battle can be expected to watch this case closely and to be ready to continue the effort to expand antitrust protection should the Court affirm the lower court ruling.

The third reason for concern is the changed regulatory attitudes that have occurred since the new Administration has taken office. For the previous eight years, under the Bush administration, there were virtually no government cases brought to enforce existing antitrust laws against industry. That has changed since January 2009 and the antitrust division under the Obama administration has launched several investigations into anticompetitive practices in the technology sector and the agricultural seed industry. While it is unlikely that the Antitrust Division would, on its own, determine to seek changes in legislation exempting baseball, a decision in the American Needle case validating the single entity theory could provide an impetus for the Department of Justice to enter the fray. Any examination of the single entity theory could bleed into examination of collateral aspects of the exemption. Rocking the antitrust apple cart in any one aspect of its application could expose the entire subject to review.

As we all know, any threat to the application of the exemption to the core relationship between Minor League and Major League baseball could adversely impact the incentive MLB has to continue its investment in the Minor Leagues in the form of the payment of Minor League player salaries. We need to protect this core relationship at all costs, since it could mean the difference between survival and elimination of Minor League Baseball, particularly at the lower classifications.

For all of these reasons, we will be vigilant in following the outcome of the American Needle case and in the event it precipitates a legislative response, we must be prepared to confront, once again, any effort that threatens the Curt Flood Act.

A lot will depend on how the Court rules in the case and how narrowly, or broadly, it decides it. In the event that the Court validates the lower court ruling and the single entity theory, we should be prepared to ensure that any legislative initiatives that may be undertaken do nothing to undermine the significant protections achieved in the Curt Flood Act. And we should be ready, which I have no doubt we will be, to explain to our fans, the Congress and the public why baseball's antitrust protection has served the public interest and the communities in which we play for almost nine decades.