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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.

Part 4: Baseball’s Antitrust Exemption.

Part 5: Touch ’em all, Curt Flood.

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: Jarod Bona

If, like me, you have ever spoken to someone that faces criminal indictment by a federal grand jury following a Justice Department antitrust investigation, you know why antitrust compliance counseling and training is a big deal—you don’t need reasons; hearing the crackle of the voice is enough to understand.

You might think that an antitrust investigation or lawsuit may not happen to you or your company. Perhaps you think that your company is too small or that since you don’t sit in smoke-filled rooms with many of your competitors laughing about your customers—or whatever image from books or movies is in your head, antitrust isn’t something you need to worry about.

You might be wrong. Are the chances great that you will be prosecuted or sued under the antitrust laws? Since you are reading a blog about antitrust, they are greater than average, but even still, the odds are relatively low.

But even if the likelihood of an adverse antitrust event is low, the consequences may be so extreme that it is something you should think about. You don’t anticipate that your house is going to burn down, but you—hopefully—take some precautions and probably have some sort of fire protection as part of your homeowner’s insurance.

With antitrust, a little knowledge can go a long way.

If you have an antitrust issue, it is not likely to be a small issue. Indeed, it may start with a government investigation, but could progress into dozens of antitrust class actions against your company.

As you might know, there is a cottage industry of plaintiff attorneys that read SEC filings and watch for government antitrust investigations. When they see something that raises the possibility of an antitrust violation, they pounce. Attorneys all over the country file lawsuits in their home jurisdictions against the target company—which could be your company if you aren’t careful. I go into more detail about this “antitrust blizzard” here.

Antitrust issues can arise for big and small companies and even individuals—like real-estate investors. If you don’t think your company is susceptible to antitrust liability or indictment, I’d like you to read one of my early blog posts that explains how easily a per se antitrust violation can happen.

The Federal Trade Commission even went after an association of music teachers for potentially violating the antitrust laws.

What is tough about antitrust is that the laws are not always intuitive; it isn’t like a law that says “don’t steal.” In fact, in one instance, the antitrust laws encourage you to try to steal.

Sometimes the law isn’t even altogether clear. Of course, you are unlikely to face criminal indictment over complicated questions of whether a bundle of products sold by a company with market power violates the antitrust laws. Or whether your vertical pricing arrangements went beyond Colgate policy protections. But you could face criminal antitrust penalties for allocating markets and customers and that isn’t obvious to all sales people.

The bottom line is that if you run or help to manage a company—and especially if your company has a sales team—you need some knowledge of the antitrust laws. At the very least, you should understand what to train your team members to avoid. Antitrust training can be invaluable.

You might also enjoy our article on Antitrust Compliance Programs in the US and European Union.

Antitrust compliance training and programs are even more important now that the US Department of Justice has announced that they will take these programs into account in their charging decisions.

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Author: Luis Blanquez

Luis Blanquez is a European Competition Attorney that works with Bona Law.

WHAT IS AN ANTITRUST COMPLIANCE PROGRAM?

An antitrust compliance program is an internal business policy designed by a company to educate directors and employees to avoid risks of anticompetitive conduct.

Companies that conspire with their competitors to fix prices, share markets, allocate customers, production or output limitation; have historically faced severe fines from antitrust enforcement all over the world.

Companies articulating such programs are in the best position to detect and report the existence of unlawful anticompetitive activities, and if necessary, be the first ones to secure corporate leniency from antitrust authorities.  This allows them to avoid substantial fines, and in some jurisdictions, such as the US and the UK, even criminal charges.

But not every program ensures compliance.  A successful compliance program must alert and educate sales force; issue-spot risks; encourage reporting of anticompetitive issues, and deter risky conduct.

Over the years, antitrust authorities all over the world have published some general guidance creating and managing compliance programs.  Even though there are differences between jurisdictions, all of them seem to have the following anchor points in common:

  1. No “one size fits all” model: You must tailor your compliance program.

Effective compliance programs require companies to tailor their internal policies according to their particular situation.

A generic out-of-the-box compliance program is not likely to be effective.  It is more important that the company conducts an assessment of the particular risk areas involved in its day-to-day business activities, with a specific focus on the structure and previous history of the industry.

Interaction of sales people with other competitors, with close attention to trade association meetings, is also an important point to consider.  To illustrate, employees with access to pricing information and business plans are more likely to meet their counterparts from other companies in trade association reunions or industry events.

  1. Development of training programs to educate directors and employees.

A company should ensure antitrust compliance training for all executives, managers and employees, especially those with sales and pricing responsibilities.

Genuinely effective compliance requires that companies apply the antitrust policy and training program to their entire organizational structure, preferably in writing.  It may take the form of a manual and must be plainly worded in all the working languages of the company, so everyone understands it.  The antitrust policy must contain a general description of antitrust law and its purpose, explaining the way the company enforces it, along with highlights of the potential costs of non-compliance.

An effective way to implement an antitrust policy is through a list of “Don’ts”, including illegal conduct such as price-fixing agreements, the exchange of future pricing information, or allocation of production quotas, among other conduct.

You might complement the forbidden conduct with a list of “Red Flags” to identify situations in which antitrust risks may arise (i.e. sales people attending trade associations or industry events).

You might also add a list of “Do’s” because employees are often more receptive to what they can do, rather than what they cannot do.

Finally, companies and their employees should document their antitrust compliance training in writing. This assures that employees take compliance efforts seriously and that antitrust enforcers understand that the company does so too.

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Author: Jarod Bona

Business can be brutal.

Let’s say you have this business. Maybe you started it recently, or maybe you’ve been around for some time. But, in any event, you offer a good product or service. Customers like you and you are making money.

This is—for many—the American dream. You have freedom, which plays itself out by your decision to exercise that freedom by working 80 hours per week. But you are working those 80 hours for your baby—your business.

And at least you have control over your circumstances: If you keep providing your customers with great value at a great price, you will succeed.

That’s true, except sometimes it isn’t.

Competing for customers in a market isn’t just about providing the best services, products, or prices. That is, of course, the biggest part of it, most of the time. If you do well for your customers, they will usually do well for you. But sometimes it is more complicated than that.

Companies compete within markets, but they also compete for markets.

What does that mean?

Let’s say you own a restaurant and there are five restaurants on your street. You compete within the market because whoever offers the best combination of atmosphere, price, and quality and can best match the needs (i.e. demand) of the prospective restaurant customers in that geographic area will make the most money. That is competing within the market.

But the more competition there is, the harder it is to make money. Every market is different, of course, but the greater the differentiation among competitors within the market and the less competition within that market, the more profit margins increase. This, of course, is just a rough approximation. Markets are complicated beasts.

The truth is, if you want to make more money as a business, it is best to avoid or minimize competition. That is why Peter Thiel tells you in Zero to One to create new markets or to build businesses that will face minimal competition. In that sense, a restaurant is a terrible business—too much competition. We wrote about avoiding competition and Peter Thiel’s excellent book here.

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Author: Jarod Bona

Even if you aren’t an antitrust lawyer, you have certainly seen notices of class actions, perhaps with a solicitation from an attorney stating in legalese that you may be entitled to money or something to that effect. You probably ignored them—and for good reason—perhaps the amount you could receive was small, or the subject didn’t really have anything to do with you or your business or you just didn’t want to suffer through the poor lawyer-drafted prose.

Did it surprise you to learn that while you were just minding your own business you were apparently a part of what looks like pretty major litigation?

In this article, I’ll offer some background about how antitrust class action settlements work and do it by describing a big one: In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation. This is the antitrust litigation against Visa, MasterCard, and their member banks.

As of early May 2019, this case is between second settlement (more about that below) and final approval. The settlement amount will range from $5.54 billion to $6.24 billion. The class members are merchants that have accepted Visa and/or MasterCard between January 1, 2004 and January 25, 2019.

Is that you or your company?

But before we begin, a disclaimer: Bona Law doesn’t typically represent classes in antitrust class action cases. We do represent defendants. But there is one exception: We will represent members of an existing class or opt-out plaintiff members, typically businesses. This, of course, follows our practice—which is common among large international firms as well, to represent both plaintiff and defendant companies in antitrust litigation (but not plaintiff-side classes).

If you are a defendant facing a class action, you might want to read our articles on an antitrust blizzard and defending an antitrust MDL.

Here is the disclaimer: In the Interchange Fee litigation, Bona Law (along with Cahen Law P.A.) represents multiple merchant members of the class that are seeking relief from either the existing settlement (if approved) or as an opt-out.

And here is a good life lesson: Whenever someone has an interest (including attorneys representing clients with an interest), consider their bias, which may be unintentional but present. So assume that we are biased here in favor of the merchants that are seeking relief from the evil antitrust violations.

With that out of the way, let’s jump into the substance.

How Do Class Action Settlements Work?

I won’t go too deeply into the basics of class actions or how class certification works. We’ve written about it elsewhere. You can read our blog post about defending against class certification here. You can read about the requirements of class certification here. And if you want to appeal a class certification decision, read this article.

Here is the gist of class actions: There are some cases in which many people are damaged only a little bit—maybe even just a few dollars. It doesn’t make sense for those people to hire an attorney and file a lawsuit to recover a few dollars. So—absent another method of relief—there won’t be lawsuits if a legal violation results in widespread but minimal harm to each. Some people may say “good” to that. But our legal system has adopted a private-attorney general model in antitrust and elsewhere that places some of the enforcement of law in the hands of private individuals and companies that have been harmed, and their attorneys.

If you want to learn more about the private attorney general model, you can read a law review article that I wrote many years ago with Carl Hittinger.

Even if each individual has sufficient incentive to file a lawsuit (i.e. enough money is at stake), the law has determined that there may be overall efficiencies for the individuals to handle their claims as part of a class if, for example, the common issues in the case predominate over any individual issues.

The class action approach, codified under federal law into Federal Rules of Civil Procedure, Rule 23, allows courts to hear and decide actions on behalf of an entire class of people that have been injured. Class actions, not surprisingly, happen a lot in antitrust, especially when plaintiffs allege that price-fixing, bid rigging, or market allocation, for example, led to an overcharge of some minimal amount, resulting in widespread, but often minimal individual damages.

There is a certification requirement, but other than that much of the litigation is just like any other case, except settlement.

If you want to settle with a class, it is a big to-do. That is because the class action can, in fact, eliminate the right to seek relief by people that may have no idea about the litigation. In addition, the attorneys that brought the action on behalf of the class typically receive their fees (which are usually contingency) out of the settlement proceeds (or judgment proceeds if the case gets that far).

So, to deal with all of these issues, a class-action settlement requires a preliminary approval by the court, a notice to the class, an opportunity for class members to opt-out or challenge the settlement, and, eventually, a final approval. And the court’s final approval is subject to appeal by class members that may disagree with the settlement. Then, if the settlement survives all of that, there is a process for paying the class members from the settlement funds through a claims administrator.

The paragraph above listed a lot of steps, each with its own nuances and details. So please just take that as the “gist” of it.

It will be easier to understand with a concrete example.

In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation

If we are going to talk about a particular class-action settlement, I can’t think of a better current one to discuss than the In re Payment Card Interchange and Merchant Discount Antitrust Litigation, which some people just call the “Visa-MasterCard case.” The settlement is valued at between $5.54 billion and $6.24 billion. That’s a lot of money, even for a big antitrust case.

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Author: Rachel Bailey, Legal Data Expert, Lex Machina

Data analytics is big business right now. Many types of businesses are using analytics to become more competitive and efficient. It’s no longer just “Moneyball” in sports, but styling analytics in retail, adaptive learning analytics in education and – you guessed it – litigation analytics in the legal sector.

While there are a variety of analytics purveyors in the legal space, one vendor recently released a report specifically on antitrust litigation. Lex Machina, a LexisNexis company, crawls PACER data and cleans and structures it to help users gain insights – and strategic advantage – in federal antitrust litigation.

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Author: Luis Blanquez

The U.S. Department of Justice recently published that the International Competition Network (“ICN”) has approved the Framework on Competition Agency Procedures (“CAP”), for antitrust enforcement agencies around the world to promote fundamental due process principles in competition law investigations and enforcement. This is an opt-in framework, based on the U.S. Antitrust Division’s initial Multilateral Framework on Procedures proposed at the last Council of Foreign Relations in June 2018. On May 1, 2019, the CAP will be open for signature to all competition agencies around the world, including ICN member and non-member agencies. It will come into effect on May 15, 2019, at the up-coming 2019 ICN annual conference in Cartagena, Colombia.

You can read our earlier article about the general ICN guiding principles for procedural fairness previously developed to build up the CAP.

For those of you that may be unfamiliar with the International Competition Network, it is a group that allows antitrust and competition officials from around the world to coordinate and share best practices (which is somewhat ironic). They hold conferences and produce a substantial amount of substantive material that is quite good. Non-governmental members can also participate. Indeed, several years ago, Jarod Bona co-authored a chapter about exclusive dealing for the Unilateral Conduct Workbook.

Competition Agency Procedures Participation

Participants in the CAP will include all competition agencies entrusted with the enforcement of competition laws, whether or not they are ICN members. Participants will join the CAP by submitting a registration form to the co-chairs.

Agencies entrusted with the enforcement of competition laws around the world that do not meet the definition of participant will also be able to participate in the CAP by submitting a special side letter declaring adherence to the principles and participation in the cooperation and review processes. An important question is whether China will participate.

The CAP will be co-chaired by three participants (“Co-chairs”) confirmed by consensus of the participants for three-year terms.

Principles on Due Process and Procedural Fairness

The CAP outlines a list of fundamental principles on due process in antitrust enforcement procedures.

First, with regard to non-discrimination, each participant will ensure that its investigations and enforcement policies afford persons of another jurisdiction treatment no less favorable than persons of its jurisdiction in like circumstances.

Transparency and predictability are also part of the fundamental principles, making sure all competition laws and regulations applicable to investigations and enforcement proceedings are publicly available. Each participant is also encouraged to have publicly available guidance, clarifying or explaining its investigations and enforcement proceedings.

During the investigative process, participants will also: (i) provide proper notice to any person subject to an investigation, including the legal basis and conduct for such investigation, (ii) provide reasonable opportunities for meaningful and timely engagement, and (iii) focus any investigative requests on information they deem relevant to the competition issues under review as part of the investigation.

Other principles outlined in the CAP are as follows: timely resolution of proceedings–taking into account the nature and complexity of the case; confidentiality protections; avoidance of conflict of interests; opportunity for an adequate defense, including the opportunity to be heard and to present, respond to, and challenge evidence; representation by legal counsel and privilege; written enforcement decisions including the findings of fact and conclusions of law on which they are based, together with any remedies or sanctions; and the availability for independent review of enforcement decisions by an adjudicative body (court, tribunal or appellate body).

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Author: Jarod Bona

We are all connected. When something happens anywhere, we know about it everywhere. If someone has a great idea, they can tell everyone about it, right away.

These connections create incredible value. We as a society can take the best ideas and build upon them. Information as a resource is incredibly cheap and easily available. Filtering is the real problem now, but more on that later.

So, this is all great, but I worry. There is a downside to this over-connectedness. But more on that later.

There was once a time when people were worried that government would suppress speech, ideas, and innovation. The government still does this, of course. But it seems like there is less worry about it. In many ways, the government doesn’t have as much power as it used to have. That is, in part, because of our connectedness.

Society can speak swiftly and harshly toward government action that is excessive, unfair, or wrong (in society’s judgment). This creates a check on government conduct, in the same way that many people used to consider the press the fourth branch of government. Indeed, the collective voice of the people on social media has all but replaced the press, who now, like everyone else, tend to mostly pick sides.

Society, of course, doesn’t speak in one voice, but a conventional wisdom often develops and if you don’t follow it, you are criticized, harshly. This isn’t the case for every issue, obviously, but for many.

Back in the old days, speech took place in public forums—maybe a park, a conventional hall, or even a mall. That still happens, but you can only reach so many people at one place (unless you video it and post it on YouTube, for example). So the government’s role in this type of speech is much less.

Some influential speech still takes place on television. But people seem to be watching that less and less. Now, the most influential speech takes place online, mostly filtered through technology and social media companies like Google, Twitter, Facebook, etc.

I’ve mentioned the term “filter” several times now. There is so much content on these platforms that if you don’t filter it, the amount is so overwhelming, it just isn’t useful. Most people don’t have time to go through everything everyone says. So a filter is necessary.

If the government were to “filter” the speech at a public park, the ACLU and a bunch of other organizations would file a First Amendment Lawsuit, and that is a good thing.

But now, the most influential forums for speech must be filtered. But how? I am not sure any one person really knows. The technology and social media companies use something called an algorithm to do the work. That seems like it could be a good idea, assuming the algorithm is a good one. But how do we know?

Should the algorithm vary depending upon the recipient information stream? Again, that seems like a good idea. Having something completely customized for you is sort of fancy and certainly helpful. We all have different interests, needs, etc. But we all have “views” on certain issues too. As we develop wisdom, experience, and knowledge, those ideas should evolve and, in some cases, change dramatically. My views are not the same as they were twenty years ago. Yours probably weren’t either.

The idea that each of us has plastic unchanging views on everything from the origins of the universe to how to run a business to the most controversial political topics of the day is foolish.

But an algorithm that sends you a customized information stream is likely to send you a disproportionate amount of information that matches your present views and interests. In a way, that locks you into where you are—inhibiting your own growth. What if we aggregate that to, well, everyone on the planet that is on the internet. Uh oh!

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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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Bona-Law-Logo
Author: Jarod Bona

Our boutique antitrust law firm has a lot of work right now and we expect this to continue and even increase. You may have seen the announcement about our new antitrust (monopolization) and Lanham Act lawsuit in Colorado federal court. And that is just one of many cases, matters, and projects we have on our plate right now.

Fortunately, we have a strong team that can handle our workload; and we can easily expand quickly to add temporary team members with big-firm credentials as needed (which we have done). We also work with various third-party providers to assist with document review and other litigation-related tasks so we can fully leverage our attorney time.

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