Wednesday, September 24, 2008

Major League Baseball’s Licensing Practices Not Anticompetitive

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

The exclusive licensing agent for Major League Baseball (MLB) did not place unreasonable restraints on trade through its organization and intellectual property licensing activities, the U.S. Court of Appeals in New York City has ruled.

A grant of summary judgment in favor of the licensor, on antitrust counterclaims brought by a plush bear manufacturer that the licensor had sued for failing to acquire the requisite trademark licenses for some of its products (2006-2 Trade Cases ¶75,325), was therefore affirmed.

Rule of Reason

In concluding that the complaining manufacturer had failed to adduce evidence of adverse competitive effects or sufficient market power to inhibit competition market-wide, the lower court properly analyzed the licensor’s operations under the rule of reason, the appellate court decided.

The group’s role in licensing MLB intellectual property, including club and league trademarks, was not a naked restraint on trade. It facilitated the efficient protection and quality control of MLB intellectual property, the court noted. The mere fact that the manufacturer did not receive a license for its products was not sufficient to show such an effect. The record did not show any reduction in the licensing of the clubs’ intellectual property overall. To the contrary, the number of licenses granted had steadily increased over
the last 20 years.

No evidence was presented of an unlawful horizontal agreement on price. The league member clubs’ agreement to share equally in the profits from the agent’s intellectual property licensing did not, as the manufacturer contended, constitute per se illegal price fixing.

Quick Look Analysis

Quick look analysis also was inappropriate because the casual observer could not summarily conclude that the group’s arrangement had an anticompetitive effect on customers, the court observed.

An antitrust case concerning blanket music licensing, which the U.S. Supreme Court had decided under the rule of reason, was instructive in foreclosing the imposition of per se or quick-look liability, in the appellate court’s view. Like the exclusive licensing agent under attack in that suit (Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 1979-1 Trade Cases ¶62,558), MLB’s licensor not only expanded output, but also could offer a large number of products that individual intellectual property owners would not have been able to match.

Rejected was a contention that another Supreme Court decision (National Collegiate Athletic Assn v. Board of Regents of the University of Oklahoma, 1984-2 Trade Cases ¶66,139), in which a plan by college athletics’ governing body to set a maximum on the number of games that could be broadcast was found to have unreasonably restrained competition, governed the conduct at issue in the present case.

Aside from the fact of revenue sharing, none of the factors relied on by the Court to reach that conclusion found even a superficial parallel with respect to the claims against MLB’s licensor. Moreover, the court explained, ample precedent existed in which courts had declined to apply the per se rule to sports leagues where cooperation among competitors could “under some circumstances have legitimate purposes as well as anticompetitive effects.

The September 12 decision is Major League Baseball Properties, Inc. v. Salvino, 2008-2 Trade Cases ¶ 76,303.

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