Panel Affirms Ruling Favoring Baseball in Antitrust Case

Oct 10, 2008

The Second U.S. Circuit Court of Appeals has sided with Major League Baseball Properties, Inc. in an antitrust dispute, affirming the findings of a district court.
In so ruling, the panel of judges denied the plaintiff’s contention that the lower court “should not have required evidence with regard to market power or actual adverse effect on competition, but should instead have held MLBP’s activities either illegal per se or illegal under a ‘quick-look’ analysis.”
The court noted early on in the lengthy opinion that MLBP is a wholly-owned subsidiary of Major League Baseball Enterprises, Inc. (MLBE), an entity in which each of the 30 current MLB clubs (Clubs) owns an equal interest. Further, MLBP is, with limited exceptions, the exclusive worldwide agent for licensing the use of all names, logos, trademarks, service marks, trade dress, and other intellectual property owned or controlled by the MLB Clubs, MLB’s Office of the Commissioner (BOC), and MLBP (collectively “MLB Intellectual Property”), on retail products. MLBP also acts as agent for the Clubs with respect to, inter alia, trademark protection, quality control, design services, royalty accounting, and auditing.
Salvino, the plaintiff, is a California corporation that produces, sells, and distributes sports collectibles, including stuffed plush animals that are usually identified with sports celebrities. Between 1989 and 2001, Salvino obtained licenses from MLBP to use Club marks and other MLB marks on figurines of baseball players in uniform. In the license agreements, Salvino promised not to use the marks in any manner other than as licensed.
In the spring of 1998, Salvino developed a line of plush, bean-filled bears that it called “Bammers.” Salvino obtained licenses for sports-personality Bammers from several other professional sports entities and leagues as well.
Salvino produced baseball Bammers without Club logos for sale to commercial outlets such as hobby shops, Hallmark stores, and other retail chains. In the late 1990s, it sold Bammers in uniforms bearing Club logos to at least seven MLB Clubs, and sold Bammers with Club logos only on the sales tags to two MLB Clubs, for retail sale in their stadia or for free stadium giveaways. Salvino obtained licenses to use baseball player names and numbers from the Major League Baseball Players’ Association, Inc. (MLB Players’ Association”). However, despite discussing a possible license from MLBP for the use of MLB Club logos on Bammers in early 1999, the only license for a Bammer that Salvino obtained from MLBP was an April 1999 license for a Hank Aaron Bammer commemorating the 25th anniversary of Aaron’s breaking Babe Ruth’s home run record.
In October 1999, MLBP learned that Salvino had sold Bammers to the Arizona Diamondbacks baseball club with the Diamondbacks logo on them; Salvino had not obtained an MLBP license to use that logo. MLBP sent Salvino a cease-and-desist letter stating that Salvino was in violation of its existing license agreement with MLBP, in which “Salvino had represented and warranted that it would not, during the license period or any license period thereafter, use the Logos except as licensed under the license agreement”
Salvino responded by suing MLBP and MLBE in federal court in California (the “California action”), alleging that MLBP’s activities violated §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2, as well as § 7 of the Clayton Act, 15 U.S.C. § 18, and various state laws. As it related to the § 1 claim, Salvino’s complaint in that action alleged principally that “because MLBP distributes the income from its exploitation of trademarks equally to each member club–even though a relatively small number of clubs generates the bulk of the revenue–the incentive of many major league clubs to invest in and promote and compete through its trademark has been diminished and suppressed. As a result, the agreement between MLBP and the Clubs . . . has reduced output, diminished the quality of product offered to the public, diminished the choice of product offered to the public, reduced and suppressed price competition leading to higher prices to the public and reduced market efficiency to the detriment of the public.”
In April 2000, MLBP sued Salvino, asserting claims under federal and state law for, inter alia, trademark and trade dress infringement arising out of Salvino’s unauthorized use of MLB marks. Salvino’s California action was transferred to the Southern District of New York, where it was consolidated with the present action, with Salvino’s California action claims becoming counterclaims in the present action.
The litigation reached a climax at the district court level, with a federal judge favoring the defendant, and spawning the present appeal.
The plaintiff appealed, arguing that “the district court erred in ruling that the centralization in MLBP of the licensing of MLB Intellectual Property for use on retail products is to be analyzed under the rule of reason. Salvino principally adheres to the contention on which it relied in the district court, i.e., that MLBP’s operations should be evaluated only under a stricter standard–either the per se standard or the ‘quick-look’ standard–and that under those stricter standards, summary judgment was inappropriate.
“In support of this contention, it characterizes the Clubs’ agreement to make MLBP their exclusive licensor as ‘naked horizontal price and output restrictions that traditionally fall within the per se proscriptions.’
“Given that what Salvino refers to as ‘price’ fixing is in fact profit sharing by interdependent entities, and that Salvino adduced no evidence of any reduction of or agreement to reduce ‘output,’ we conclude, for the reasons that follow, that the district court properly applied the rule-of-reason standard and that under that standard Salvino failed to show any genuine issues to be tried.”
Major League Baseball Properties, INC. v. Salvino, INC.; 2nd Cir.; Docket No. 06-1867-cv, 2008 U.S. App. LEXIS 19349; 9/12/08
Attorneys of record: (for Plaintiff-Counterclaim-Defendant-Appellee)
James T. Mckeown, Milwaukee, Wisconsin (G. Michael Halfenger, Foley & Lardner, Milwaukee, Wisconsin, Gary A. Adler, Bingham McCutchen, New York, New York, on the brief). (for Defendant-Counterclaimant-Appellant) Maxwell M. Blecher, Los Angeles, California (John E. Andrews, Blecher & Collins, Los Angeles, California, on the brief).


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