Wednesday, November 07, 2007

NHL Internet Policy Not a Naked Restraint of Trade

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reports.

The owner of the New York Rangers was not entitled to a preliminary injunction barring the National Hockey League (NHL) from “seizing” the team’s Web site and transferring it to the league-operated technology platform, the federal district court in New York City has ruled.

Madison Square Garden, L.P. (MSG), owner of the Rangers, unsuccessfully argued that the NHL had “become an ‘illegal cartel’ in its attempts to prevent off-ice competition between and among the NHL member clubs.” MSG failed to demonstrate a likelihood of success on the merits or a sufficiently serious question going to the merits of its antitrust claim, according to the court.

In 2005, the NHL developed a New Media Strategy. Under the plan, each team’s Web site was to be migrated onto a common technology platform, serviced by a single content management system (CMS). Under the plan, the individual teams were responsible for supplying local content and advertising, while the league would retain space for national advertising and league news. The league saw a single CMS as an essential part of the New Media Strategy and believed that the CMS would ensure minimum quality standards and facilitate fan navigation.

MSG filed a complaint for injunctive relief in September 2007, after the NHL informed the team that it would be fined $100,000 each day that it operated its Web site outside of the League platform.

“Quick Look” Analysis

MSG attempted to label the New Media Strategy as a naked restraint of trade that would be subject to an abbreviated or “quick look” analysis to determine its lawfulness. However, the court “fail[ed] to perceive the nudity.”

A "quick look" analysis was appropriate only when the anticompetitive effects of the restraint were obvious, the court explained. A casual observer could not have summarily concluded that the arrangement had an anticompetitive effect on customers.

Rule of Reason

Thus, MSG had the burden of proving an actual adverse effect on competition in the relevant market under a rule of reason analysis. The team failed to carry its initial burden of showing a prima facie case of an anticompetitive restraint, since it did not demonstrate an actual adverse effect either on competition in the relevant market or market power. Rather, MSG focused on the harm the team perceived to itself.

Even if MSG had carried its initial burden, the league had shown offsetting procompetitive benefits. In light of these procompetitive benefits, the burden would have shifted back to MSG to prove either that the challenged restraint was not reasonably necessary to achieve the league’s procompetitive justifications or that those objectives might be achieved in a manner less restrictive of free competition. MSG failed to meet this burden as well, in the court’s view.

Procompetitive Effects

The league offered several procompetitive effects of the common technology platform. The increased online scale and standardized layout would attract national sponsors and advertisers interested in uniform exposure across the network. This was a key element of the league’s new growth strategy to enhance the NHL’s “national brand” and to compete better against other sports and entertainment products and their Web sites.

The common technology platform also would enable the sponsors and advertisers to reduce transaction costs by negotiating centrally with the league. The strategy would also assure minimum quality standards across team Web sites; increase the interconnectivity across the network; facilitate the sharing of team content; and reduce the costs of operating 30 team Web site operations.

The November 2, 2007, decision in Madison Square Garden, L.P. v. National Hockey League, et al., 07 CV 8455, will appear at 2007-2 CCH Trade Cases ¶75, 929.

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