Failure To Show Prior Agreement Dooms Golf Equipment Manufacturer in Antitrust Case

Aug 29, 2008

A federal judge from the District of Minnesota has granted the United States Golf Association’s motion to dismiss in a case where a sporting goods manufacturer alleged that the governing body of golf violated antitrust laws.
The court sided with the USGA after finding that the plaintiff failed to “provide a plausible factual context in which the USGA, golf pro shops, and golf retailers would conspire to interpret the Rules of Golf to exclude (the manufacturer’s) product.”
The USGA, which is a non-profit association of golf clubs, golf courses, and individuals, promulgates the rules of golf, which the court noted, are formed “to preserve the traditions of golf and to ensure that a player’s score is the product of skill, and not equipment. … Thus, the Rules of Golf regulate the equipment used in the game of golf.”
Since 2006, plaintiff Windage has manufactured the Windage device, a small, golf-ball-shaped plastic container with talc powder inside. A golfer uses the device to gauge wind direction by squeezing it to release a puff of talc power into the air.
On July 19, 2006, Windage submitted its device to the USGA for determination of whether the device conforms to the Rules of Golf. On August 17, 2006, USGA staff determined that the Windage device did not conform to Rule 14-3(b) because it was “an artificial device for the purpose of gauging or measuring conditions that might affect play.” Rule 14-3(b) provides in relevant part that “[e]xcept as provided in the Rules, during a stipulated round the player must not use any artificial device or unusual equipment . . . [f]or the purpose of gauging or measuring distance or conditions that might affect his play[.]”
Windage appealed the USGA staff’s ruling to the USGA Equipment Standards Committee and the USGA Executive Committee. Both committees affirmed the staff’s determination that the Windage device does not conform to Rule 14-3(b).
On December 19, 2007, Windage filed suit, alleging that the USGA “has arbitrarily applied the Rules of Golf to the Windage device to harm competition and stifle innovation in the markets for golf products that determine wind direction and for products that assist golfers with disabilities.”
Windage further alleged that “the USGA, its members, affiliates, and those acting in concert,” have engaged in a group boycott to restrain trade and inhibit research and development. Windage further claimed that “retail stores, pro shops and other golf retailers have refused to stock the product specifically because it is not USGA approved, and the lack of approval is a major sales obstacle for retailers and manufacturers.” Windage sought damages under federal and state antitrust statutes, and a declaratory judgment that the Windage device conforms to the Rules of Golf.
Windage argued specifically that the USGA’s decision violates § 1 of the Sherman Act, which provides that “[e]very contract, combination . . . or conspiracy, in restraint of trade or commerce . . . is declared to be illegal.” 15 U.S.C. § 1.
The USGA countered that Windage “has failed to adequately allege the existence of an illegal agreement.”
In considering the arguments, the court pointed to the Supreme Court’s 2007 decision in Bell Atlantic Corp. v. Twombly, where it addressed the pleading standard for § 1 claims. “The Twombly plaintiffs’ allegations of an illegal § 1 agreement rested exclusively on the parallel conduct of the defendant regional telecommunications providers. 127 S. Ct. at 1970. Before 1996, the defendants had government-sanctioned regional monopolies for local telephone service, but could not compete in the competitive long-distance market. Id. at 1961. The Telecommunications Act of 1996, 110 Stat. 56, restructured local telephone markets by allowing the defendants to enter the long-distance market and compete in each other’s territories. The Twombly plaintiffs’ § 1 claims rested on the parallel conduct of the defendants in refraining from entering each other’s markets and resisting new competition in their respective geographic markets. Id. at 1970.” In considering Bell Atlantic Corp’s claims, the Supreme Court wrote that a § 1 claim must set forth “enough factual matter . . . to suggest that an agreement was made.” Id. at 1965.
In the instant case, Windage argued that three paragraphs of its complaint satisfied the Twombly standard of pleading facts that “suggest that an agreement was made. Specifically, it claimed that the USGA “has engaged in a series of actions, agreements, understandings and/or arrangements with other individuals and entities whereby they have combined and conspired to participate in the conduct as set forth in this Complaint.” Paragraph 29 asserts “[t]he actions of the USGA, its members, affiliates, and those acting in concert, including golf pro shops and specialty stores that have refused to sell the Windage product, all have the effect of restraining competition . . . .” Paragraph 31 alleges “[t]he actions of member[s] of the USGA and its affiliates, including golf pro shops and specialty golf equipment shops, constitute a contract, combination or conspiracy to unlawfully restrain trade in the ancillary golf products market.”
The court found, however, that “neither these paragraphs, nor the remainder of Windage’s complaint, provide a factual context to suggest an agreement. While the quoted paragraphs, like the allegations in Twombly, allege a conspiracy in form, the only facts provided are that the USGA determined that Windage’s device does not conform to the Rules of Golf and unidentified golf retailers have refused to sell the device. However, Windage does not provide a plausible factual context in which the USGA, golf pro shops, and golf retailers would conspire to interpret the Rules of Golf to exclude Windage’s product. Windage does not allege that the USGA or the golf retail stores are direct competitors of Windage, or that they have a financial incentive to interpret the Rules of Golf to exclude Windage’s device. Although Windage alleges a group boycott, the golf retailers’ decisions not to stock the Windage device could just as well be independent self-interested behavior in response to golfers’ desire to play with products that conform to the Rules of Golf, as Windage itself avers in the Complaint. Windage has not alleged that the USGA, a non-profit entity, and its unnamed co-conspirators support a competitor of Windage, or that they have an economic motivation to exclude the Windage device. Therefore, the golf retailers’ parallel refusals to sell the Windage device does not create a plausible inference that the USGA and the golf retailers reached a preceding agreement.
Among its arguments, Windage suggested that the USGA “made an exception to Rule 14-3(b) to allow the use of laser and Global Positioning System that measure distance in certain circumstances. Windage contends it is ‘arbitrary,’ ‘inconsistent,’ ‘unfair,’ ‘unreasonable,’ and ‘unjustified’ for the USGA to make an exception to Rule 14-3(b) for distance devices while excluding wind devices.
“However, so long as [the USGA] made game-defining rules decisions based upon its purpose as a sports organization, an antitrust court need not be concerned with the rationality or fairness of those decisions. Irrational decisions and unfair treatment of suppliers will result in an unpopular game, and players and spectators will take their entertainment dollars elsewhere. Although Windage is dissatisfied with the USGA’s ruling and golf retailers’ reluctance to sell the Windage device, it cannot proceed to costly antitrust discovery by conclusorily labeling the conduct as a conspiracy and a group boycott.”
Windage, LLC v. United States Golf Association, and unnamed co-conspirators; D.Minn.; Civ. No. 07-4897 ADM/AJB; 2008 U.S. Dist. LEXIS 51065; 7/2/08
Attorneys of Record: (for plaintiff) Stanford P Hill, LEAD ATTORNEY, Bassford Remele, PA, Mpls, MN. (for defendant) Joseph W Anthony, LEAD ATTORNEY, Courtland C Merrill, Anthony Ostlund Baer Louwagie & Ross PA, Mpls, MN; Lee N Abrams, Mark McLaughlin, LEAD ATTORNEYS, Mayer Brown LLP, Chicago, IL.


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