A federal judge from the Northern District of California has denied a motion to dismiss filed by the National Football League, its teams and other defendants in a case in which a plaintiff claimed that the defendants engaged in anticompetitive behavior and entered into agreements in violation of state and federal antitrust laws.
In so ruling, the court found that more discovery was necessary before it could grant such a motion, and that the defendants, which also included NFL Properties and apparel maker Reebok, could revisit their arguments at a later point in the litigation.
Plaintiff Patrick Dang alleged that the “unlawful conduct relates to agreements about the licensing of NFL’s and NFL teams’ intellectual property for use in apparel for consumer retail.”
Dang based his suit on an agreement that took place in December 2000 when the NFL defendants granted Reebok an exclusive license to manufacture NFL-branded apparel. The agreement, the plaintiff argued, “marked a shift in the NFL’s licensing landscape,” wrote the court. “Before December 2000, he argues, NFL-related licensees had to compete against one another in order to obtain an NFLP license for the NFL or a particular NFL team. He also contends that the individual NFL teams competed against each other for the licensing of their own intellectual property. This arena of competition among both the individual NFL teams and the prospective licensees, the plaintiff argues, ‘ensured that the market for such apparel was subject to free market forces that served to provide the ultimate consumer of such apparel with superior product selection and competitive prices.’”
He alleged that in November 2011, he purchased an item of apparel bearing an NFL team’s logo and other intellectual property from a sports merchandise retailer- a so-called “indirect purchaser.” The plaintiff alleged that because of the “anticompetitive and unlawful agreement among the defendants, he paid an ‘anticompetitive overcharge for his purchase.’”
Dang alleged four causes of action:
Count I alleges that the December 2000 agreement is a horizontal agreement in restraint of trade that violates California’s Cartwright Act, Cal. Bus. & Prof. Code §§ 16720 et seq.
Count II alleges that the agreement also constitutes a vertical agreement in restraint of trade unlawful under the Cartwright Act.
Count III alleges that Defendants’ conduct is unfair and unlawful in violation of California’s Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code §§ 17200 et seq.
Count IV alleges a violation of the federal Sherman and Clayton Antitrust Acts, 15 U.S.C. §§ 1 et seq.
The motion to dismiss, which was brought pursuant to Rule 12(c) of the Federal Rules of Civil Procedure, addresses “the narrow issue of whether the plaintiff’s Cartwright Act claims (Counts I and II of the Complaint) are barred by the California Supreme Court’s ruling in Partee v. San Diego Chargers Football Co.” for the supposition that “the Cartwright Act is not applicable to the interstate activities of professional football.’ 34 Cal. 3d 378, 380, 194 Cal. Rptr. 367, 668 P.2d 674 (1983).”
Partee addressed “player-team-league relationships; specifically, whether the NFL’s operating rules violated the Cartwright Act,” according to the court. “The plaintiff, Dennis Partee, challenged five of the NFL’s operating rules as they existed in 1974: the draft, option clause, Rozelle rule, tampering rule and one-man rule. Id., 34 Cal. 3d at 381. The trial court found all but the option clause to violate state antitrust laws. Id.
“In reversing the trial court, the California Supreme Court compared the NFL’s operating rules to baseball’s reserve system. In Flood v. Kuhn, 443 F.2d 264 (2d Cir. 1971) aff’d, 407 U.S. 258, 92 S. Ct. 2099, 32 L. Ed. 2d 728 (1972), the Second Circuit Court of Appeals considered the application of state antitrust laws to baseball’s reserve system. The court determined 1) that professional baseball clubs, although existing as separate legal entities, are organized into leagues that each extend over several states, 2) that state antitrust regulation of baseball’s reserve system would impact the internal structure of the leagues and would require the league to comply with the strictest state antitrust standard, and 3) that the states’ interest in antitrust regulation was, in the context, not of particular urgency. Flood, 443 F.2d at 267-68. As such, the Second Circuit concluded that the burden to interstate commerce outweighed the states’ interests in regulating baseball’s reserve system, thereby barring state regulation under the Commerce Clause. Id. at 268.”
The court continued, noting that the California Supreme Court found that professional football was “a nationwide business structured essentially the same as baseball,” and that applying the Cartwright Act to the challenged NFL operating rules would have much the same effect as applying state antitrust laws to baseball’s reserve system. See Partee, 34 Cal. 3d at 384.
The parties in the instant case disagreed on “the scope of Partee.
“The defendants contend that Partee itself requires dismissal of the plaintiff’s Cartwright Act claims as a matter of law. However, it is clear that the licensing activities that are alleged in the complaint are qualitatively different from the labor contracts discussed in Partee, and the court agrees with the plaintiff that Partee should not be read to exempt, without limit, any interstate economic activity carried out by the owners of professional football teams. Rather, the Partee court focused on the necessity of the NFL’s operating rules regarding player-team-league relationships to the NFL’s nationwide league structure, relying on Flood to conclude that allowing California to regulate such an activity would impose a burden on interstate commerce that outweighed California’s interest in applying its antitrust laws to that relationship.
“Thus, while Partee holds that the Cartwright Act cannot be applied to the ‘interstate activities of professional football,’ the ‘interstate activities of professional football’ are those activities which, if regulated by the state law, would result in a burden on professional football that would outweigh the state’s interest in regulating such activities.
“To put it more generically, Partee is simply a straightforward application of Commerce Clause jurisprudence to a specific instance of state regulation of a nationwide enterprise.”
Patrick Dang, on behalf of himself and all others similarly situated v. San Francisco Forty Niners, LTD., et al.; N.D. Cal.; Case No.: 5:12-CV-05481-EJD, 2014 U.S. Dist. LEXIS 121344; 8/29/14
Attorneys of Record: (for plaintiff) Ralph B. Kalfayan, LEAD ATTORNEY, Krause Kalfayan Benink & Slavens, San Diego, CA; Roy A. Katriel, LEAD ATTORNEY, The Katriel Law Firm, San Diego, CA; Roy Arie Katriel, LEAD ATTORNEY, The Katriel Law Firm, La Jolla, CA. (for defendants) Sonya Diane Winner, LEAD ATTORNEY, Covington & Burling LLP, San Francisco, CA; Derek Ludwin, Washington, DC.
