Baseball, Hockey Fans Can Pursue Antitrust Claims over Restricted Availability of Game Telecasts

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

Subscribers to Internet services or television services offering live telecasts of “out-of-market” hockey and baseball games adequately alleged separate antitrust conspiracies involving the National Hockey League (NHL) and Major League Baseball (MLB), the federal district court in New York City has ruled (Laumann v. National Hockey League, December 5, 2012, Scheindlin, S.).

These sports fans alleged that, as a result of black-out or noncompete agreements, they were required to purchase all “out-of-market” hockey or baseball games even if they were only interested in viewing a particular game or games of one particular team located outside of their local markets. With the limited exception of nationally televised games, standard cable and satellite TV packages only offered “in-market” games (i.e., games played by the team in whose designated home territory the subscriber resided). A consumer interested in obtaining out-of-market games had two options: (1) television packages—such as NHL Center Ice and MLB Extra Innings—and (2) Internet packages—such as NHL Game Center Live and MLB.tv—which were controlled by the leagues.

The subscribers alleged a conspiracy involving the NHL, MLB, various clubs within the leagues, multichannel video programming distributors (MVPDs)—such cable distributor Comcast and satellite distributor DirecTV—and regional sports networks (RSNs). The RSNs are local television networks that negotiate contracts with individual NHL or MLB clubs to broadcast the majority of the local club’s games within that club’s telecast territory and to sell to the MVPDs. Some of the RSNs are owned by Comcast and DirecTV; however, two are independent of the MVPDs, but share ownership with an individual club. For example, Yankees Entertainment and Sports Networks, LLC is an RSN for New York Yankees that is co-owned with the New York Yankees.

Standing

The defendants challenged the television subscriber plaintiffs’ standing to sue on the grounds that they were indirect purchasers of the product in question and that their injuries were too remote from the alleged conduct. The television subscribers successfully argued that their claims fell within an exception to the Illinois Brick indirect purchaser doctrine, the court ruled. The middlemen were alleged to be co-conspirators.

The court, however, dismissed for lack of standing the plaintiffs who merely subscribed to Comcast and DirecTV, but did not subscribe to an out-of-market sports package. These plaintiffs did not allege that they were prevented from viewing games as a result of the black-out agreements or that they were charged supracompetitive prices for games that they wished to view. Rather, their claims were based on some unidentified increased price of their overall cable package allegedly stemming from the absence of competition from out-of-market baseball clubs and their RSNs. Their alleged injuries were both speculative and difficult to identify and apportion, the court ruled.

Conspiracy Allegations

Finding that at least some of the plaintiffs had standing, the court went on to find that an agreement between the MVPDs and the RSNs and league defendants to restrain trade was adequately alleged. While the plaintiffs did not allege that the MVPDs entered into horizontal agreements, they plausibly alleged vertical agreements that not only facilitated, but also were essential to the horizontal market divisions and the agreement to cede control over out-of-market games to the leagues.

The plaintiffs adequately alleged harm to competition resulting from the market division agreements. The court rejected the defendants' argument that, because the NHL and MLB were legitimate joint ventures and some cooperation with respect to the production of games was necessary, their conduct—the production and distribution of live telecasts of games —was “core activity” immune from antitrust scrutiny. “Making all games available as part of a package, while it may increase output overall, does not, as a matter of law eliminate the harm to competition wrought by preventing the individual teams from competing to sell their games outside their home territories,” the court explained.

In addition, the subscribers to Internet services adequately alleged reduced choice, insofar as in-market games were not available from any seller over the Internet. The Internet packages were available directly through the leagues and also required the purchase of all out-of-market games. Neither local games nor nationally televised games were available through these packages. The alleged purpose of the limitation on Internet programming was to protect the RSNs’ regional monopolies and to insulate MVPDs that carried them from Internet competition, the court explained. As a result, the Sherman Act, Sec. 1 claim could proceed against all defendants.

Monopoly Claims

Lastly, the court refused to dismiss claims against the NHL and MLB for conspiracy to monopolize the markets for video presentations and Internet streaming of major league hockey or baseball games. However, the plaintiffs did not support Sherman Act, Sec. 2 claims against the RSNs or MVPDs in the market for production of baseball and hockey games. Thus, the conspiracy to monopolize claim was dismissed against the RSN and MVPD defendants, but could proceed against the remaining defendants.

Bridgestone Agrees to Plead Guilty to Fixing Prices for Marine Hose

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

Bridgestone Corporation has agreed to plead guilty and to pay a $28 million criminal fine for its role in conspiracies to rig bids and to make corrupt payments to foreign government officials in Latin America related to the sale of marine hose and other industrial products, the Department of Justice announced yesterday.

The company has agreed to cooperate with the Justice Department in its ongoing investigations and has committed to extensive remediation and to enhance its compliance program and internal controls.

Conspiracy to Rig Bids, Fix Prices, Allocate Markets

According to a two-count criminal information filed on September 15 in the federal district court in Houston, the Japan-based Bridgestone conspired to rig bids, fix prices, and allocate market shares of marine hose in the United States and elsewhere in violation of Sec. 1 of the Sherman Act and, separately, conspired to make corrupt payments to government officials in various Latin American countries to obtain and retain business in violation of the Foreign Corrupt Practices Act (FCPA). The challenged conduct took place between 1999 and 2007.

As part of the antitrust conspiracy, Bridgestone and others allegedly agreed to allocate shares of the marine hose market, agreed to establish a price list for marine hose in order to implement and monitor the conspiracy, and agreed not to compete for one another’s customers through bid rigging.

Payments to Government Officials

With respect to the FCPA count, Bridgestone was charged with authorizing and approving corrupt payments to foreign government officials employed at state-owned entities in order to secure sales of marine hose in Mexico and other Latin America countries. The 11-page criminal information details e-mail exchanges purportedly detailing the company’s efforts to influence foreign officials through local sales agents.

Bridgestone, best known for its tires, is the fifth company to be charged in the Department of Justice Antitrust Division’s investigation into bid rigging in the marine products industry.

Last year, Parker ITR S.R.L. of Italy agreed to plead guilty and to pay a $2.29 million criminal fine for its role in the conspiracy. Two subsidiaries of the Swedish company Trelleborg AB, one based in Virginia and the other in France, agreed to plead guilty and pay a total of $11 million in criminal fines in 2009. British marine hose manufacturer Dunlop Oil & Marine Ltd. agreed to plead guilty and pay $4.54 million fine in 2008. Manuli Rubber Industries SpA of Italy also agreed to plead guilty to similar charges and to pay more than $2 million in criminal fines.

In addition, a number of industry executives have been charged with participating in the marine hose conspiracy, including Bridgestone’s former general manager of international engineered products, Misao Hioki.

While most of the executives have pleaded guilty, two have been acquitted. In 2008, an Italian national and a Florida man who both worked for Manuli were found not guilty of participating in the antitrust conspiracy by a jury in West Palm Beach, Florida. A German national and former executive with Dunlop's former parent company—Phoenix AG—who was indicted in 2007 is awaiting trial.

Company’s Response

Bridgestone issued in statement today, saying that the $28 million fine is a significant reduction from the applicable sentencing guidelines due to the company’s “extraordinary” cooperation in the investigation and remediation efforts. As part of the remediation efforts, Bridgestone has dismantled its International Engineered Products Department, closed its Houston office of Bridgestone Industrial Products of America, Inc., terminated many of its third party agents, and taken remedial actions with respect to its employees.

The Justice Department has been investigating Bridgestone’s involvement in international cartel activities relating to the sale of marine hose since May 2007, according to the statement.

The case is U.S. v. Bridgestone Corp., Criminal No. H-11-651.

A Department of Justice press release on the development appears here. Bridgestone’s statement appears here.

Canadian Franchisees’ Class Action Against Quizno’s Allowed to Proceed

This posting was written by Pete Reap, Editor of CCH Business Franchise Guide.

Class certification under Canada’s Class Proceedings Act was appropriate for an action brought by two Canadian Quizno’s franchisees on behalf of a class of all Canadian Quizno’s franchisees for breach of contract, illegal price maintenance, and conspiracy to fix prices, according to the Ontario Court of Appeal.

Even if the damage issues could not be handled on a class-wide basis, certification was proper because trial of the action’s common issues would significantly advance the litigation, the court determined

The appellate court affirmed a decision of the Ontario Superior Court of Justice, sitting as a divisional court, which reversed an earlier ruling by a motion judge that denied class certification (CCH Business Franchise Guide ¶7,398).

The franchisees alleged that Quizno’s, and the distributor that Quizno’s had selected to distribute food and other supplies to its Canadian franchises, established a price maintenance scheme in violation of the Competition Act through which large sums of money were extracted from the franchisees. The franchisees asserted that the prices they were contractually forced to pay for supplies pursuant to the scheme were inflated and commercially unreasonable.

Common Issues

In denying certification, the motion judge held that the franchisees failed to satisfy the common issue criterion for class certification because they failed to show that their damages, if any, could be proven in the aggregate on a class-wide basis.

The removal of the assessment of damages as a common issue had “the effect of an avalanche that buries the proposed common issues with an absence of commonality and a proliferation of individual issues.”

In reversing that ruling, the majority of the divisional court concluded that the motion judge’s reasoning was improperly focused on the issue of damages and that he committed reversible error in failing to consider the franchisees’ remaining proposed common issues.

There were enough significant common issues to each of the claims of illegal price maintenance, conspiracy, and breach of contract which would advance the litigation by proceeding on a class-wide basis, the divisional court ruled.

Price Maintenance

A finding of violation of the Competition Act’s price maintenance provision (since repealed in 2009, the court noted) did not require proof of loss or damage or a detailed analysis of the prices paid for each product by each franchisee and the prices that each franchisee would have paid but for the alleged illegal scheme.

The fact that franchisees would be required to show proof of loss or damage in order to recover damages for their price maintenance claim did not detract from the conclusion that breach of the price maintenance provision was a common issue that advanced the litigation.

If the court became satisfied that Quizno’s imposed sourcing fees and mark-ups by way of its distribution agreement in an attempt to influence upwards the prices paid by franchisees, and that the pricing scheme constituted illegal price maintenance, a substantial ingredient of liability for damages could be proven on a class-wide basis.

It was not necessary, at the class certification stage, to engage in debate over the relative strengths and weaknesses of the expert evidence presented by the two sides as the motions judge had done, the appellate court noted.

Conspiracy

In order to succeed on the conspiracy claim, the franchisees would be required to prove:

(1) that there was an illegal agreement to maintain prices between the defendants;

(2) that the distributor committed unlawful aiding and abetting conduct;

(3) that the defendants performed actions in furtherance of the conspiracy;

(4) that the defendants should have known the conspiracy would seriously harm the franchisees; and

(5) that the conspiracy caused damages to the franchisees.

The court affirmed the divisional court’s conclusion that—even in the absence of the fifth element (proof of the fact of loss)—the other elements of conspiracy were issues that would advance each franchisee’s claim and avoid duplication of factfinding and legal analysis.

Breach of Contract

A significant number of factual and legal issues integral to the franchisee’s breach of contract claim were common issues, the appellate court held, accepting the conclusions of the divisional court.

Issues that could be determined on a class-wide basis and advance the litigation included: the meaning of the contractual provisions, the existence and nature of any common law duty of fairness, and breach of contract by Quizno’s failure to provide the franchisees with specifications.

The June 24 decision is Quizno’s Canada Restaurant Corp. v. 2038724 Ontario Ltd. Text of the opinion will appear in the CCH Business Franchise Guide.

Further details regarding the CCH Business Franchise Guide appears here on the CCH Online Store.