Federal Judge Hands Resounding Victory to NHL in Antitrust Case

Nov 21, 2007

A federal judge from the Southern District of New York thoroughly checked Madison Square Garden (owner of the New York Rangers hockey team) in the glass last month when it found that the Rangers showed no obvious anti-competitive result from a National Hockey League directive to bring all team web sites under the NHL’s direction.
 
That holding meant the court would adopt the rule of reason analysis, rather than the quick look doctrine, thereby raising the threshold that the plaintiff would have to overcome in proving its antitrust claim was meritorious.
 
At the center of the dispute was the NHL’s desire to create a national brand.
 
“Insofar as it is a provider of sports entertainment, the NHL competes with other sports that attract a national audience, such as baseball and football,” wrote the court. “One problem that the NHL has had is bridging fan support for local teams with interest in the sport as a whole. Hockey fans, for example, are less likely to watch the playoffs once ‘their team’ is eliminated than are fans of other sports. In order to grow hockey in competition with other sports and entertainment offerings, the NHL has decided to take steps to improve the strength of the League brand.”
 
The NHL believes that one way to enhance its national brand was by bring all team web sites under its purview and on a single content management system. It also identified other reasons “for the transition, including: ensuring minimum quality standards across team sites; enabling greater interconnectivity; facilitating the sharing of local content; and the creation of a $2 million savings.”
 
At the same time, the Rangers devoted considerable energy through the years to developing its own web site. Ownership was not inclined to turn over what it believed to be a competitive advantage in its own market – where it competes with the New Jersey Devils and New York Islanders – to the league.
 
The standoff came to a head this fall when the NHL announced it was fining the Rangers $100,000 each day that it operated its website outside of the League platform. The Rangers responded with a complaint for injunctive relief on September 28, 2007.
 
Specifically, it alleged that the NHL “has become an ‘illegal cartel’ in its attempts to prevent off-ice competition between and among the NHL member clubs. Regarding the New Media Strategy, in particular, the Rangers alleged that there is no competitive justification for ‘seizing’ the Rangers website.”
 
In analyzing the case, the court found that the plaintiff “does not contend that the League’s Internet Regulations constitute a per se violation of the Sherman Act. Instead it argues that the League’s directive to migrate newyorkrangers.com is ‘blatantly anticompetitive’ and a ‘naked’ horizontal restraint by virtue of its being ‘an agreement among competitors on the way in which they will compete with each other.’ NCAA v. Bd. of Regents, 468 U.S. 85, 99 (1984).
 
“Therefore, according to MSG, this Court should declare the NHL restraint unlawful under NCAA without need of “elaborate industry analysis” or “proof of market power.”
Id. at 109. MSG’s position is that in the context of a sports league joint venture, only those restraints that are necessary for the product to be made available at all, such as rules dictating the size of the field or the number of players on the team, are permissible.
 
“On this basis, MSG submits that the burden of proving an actual adverse effect on competition in the relevant market, ordinarily belonging to the Plaintiff under a rule of reason analysis, should be dispensed with in this case. In their words, ‘the shoe is on the other foot.’
 
“This is an unduly narrow reading of the caselaw. A truncated rule of reason analysis, a ‘quick look,’ would indeed relieve the Plaintiff of its initial burden of identifying a relevant market and showing an actual adverse effect on competition. See, e.g., Major League Baseball Properties Inc. v. Salvino, 420 F.Supp.2d 212, 220 (S.D.N.Y. 2005). However, a quick look analysis is appropriate only when the anticompetitive effects of the restraint are obvious, where an observer with even a rudimentary understanding of economics ‘could conclude that the arrangements in question would have an anticompetitive effect on customers and markets. Cal. Dental Ass’n v. Fed.
Trade Comm’n, 526 U.S. 756, 770 (1999).
 
“It is far from obvious that this restraint has no redeeming value. Like Judge Casey in Salvino, I find that the Defendants have established, without contradiction, several pro-competitive effects of the New Media Strategy.”
 
In sum, the court found that the quick look doctrine “is inappropriate because the casual observer could not summarily conclude that this arrangement has an anticompetitive effect on customers. See Salvino, 420 F.Supp.2d at 220.”
 
In addition, “MSG’s reliance on NCAA is misplaced. There, the Supreme Court reviewed a finding that the NCAA’s plan for limiting television coverage of college football games violated the antitrust laws. After the benefit of a full trial, the District Court found the NCAA plan unreasonably restrained competition in the relevant market of live college football television in three ways: (1) by fixing the price for particular telecasts; (2) by its exclusive contracts amounting to a group boycott of all other potential competitors; and (3) by placing an artificial limit on the production of televised college football. See
NCAA, 468 U.S. at 96. The Supreme Court upheld the ruling of the trial court, finding the anticompetitive consequences of the NCAA arrangement were apparent, a ‘naked restraint on price and output,’ that required some competitive justification. Id. At 110.
 
“The instant case is distinguishable on several grounds. First, there is no evidence that hockey fans ‘receive absolutely no benefit from the controls’ as there was in NCAA. In fact, the only evidence in the record suggests that fans prefer the websites under the New Media Strategy over the old.
 
“Second, the District Court in NCAA did not find any pro-competitive efficiencies from the challenged restraint that enhanced the competitiveness of college football television rights, and, in fact, found that the NCAA could be marketed just as effectively without the television plan.”
 
Returning to the instant case, the court concluded that because “I find that the NHL’s New Media Strategy is not a ‘naked restraint’ and that it has pro-competitive
virtues, the quick look doctrine is inapplicable.
 
“(T)he rule of reason is the appropriate standard of review for MSG’s claim. See, e.g., North Am. Soccer League v. Nat’l Football League, 670 F.2d 1249, 1259 (2d
Cir. 1982) (“agreements between members of a joint venture . . . are subject to scrutiny under the rules of reason.”).
 
As an aside, the court the opined on why the plaintiff’s claim would fail under the Rule of Reason analysis, too.
 
Madison Square Garden, L.P. v. National Hockey League et al.; S.D.N.Y.; 07 CV 8455 (LAP); 11/2/07
 


 

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