Settlement Saves MLB Antitrust Exemption (For Now)

On November 2, 2023, it was reported that Major League Baseball (MLB) , had agreed to a settlement with two former minor league clubs in a lawsuit challenging MLB’s antitrust exemption and which was on path for review by the Supreme Court.? The settlement comes after a range of interests submitted amicus briefs supporting the clubs’ petition and overturning the exemption.? The settlement resolves the litigation and keeps the exemption intact but might invite copycat lawsuits from other aggrieved former minor league clubs.

Case Background

The case arises out of the decision by MLB and its 30 member clubs to reconfigure its Minor League Baseball (MiLB) arrangements.? For more than 100 years, MLB and MiLB clubs operated pursuant to a Professional Baseball Agreement (PBA) through which MLB clubs affiliated with MiLB clubs, most of which were independently owned and operated, up to six affiliates per club. ?In 2019, there were 160 MiLB affiliates.

The PBA expired in 2020 at which point MLB and its clubs agreed on a new plan that restricted clubs to four affiliates each.? The result was the reduction in MLB-affiliated MiLB clubs from 160 to 120, with the survivors being those with economic or political ties to MLB, according to the plaintiffs.

Four clubs that did not make the cut (the Staten Island Yankees, Tri-City Valley Cats, Salem-Keizer Volcanoes, and Norwich Sea Unicorns) sued, alleging that MLB’s plan was an unreasonable restraint of trade in violation of Section 1 of the Sherman Act.? The plaintiffs alleged that MLB’s plan constitutes a horizontal agreement among competitors to artificially restrict the market for affiliation agreements between MiLB clubs and MLB clubs.? Moreover, the plaintiffs alleged that the MLB clubs have engaged in an unlawful group boycott by refusing to do business with the excluded clubs.

The plaintiffs knew that their claims ran head on into baseball’s antitrust exemption, first established by the Supreme Court in Federal Baseball (1922) and reluctantly upheld in 1953 (Toolson) and 1972 (Flood).? In the Curt Flood Act of 1998 (CFA), Congress repealed the exemption insofar as it concerned MLB players but left it alone with regard to other areas of baseball, a disputed issue in the case.

The District Court and Second Circuit Decisions

As expected, the Southern District of New York ruled in MLB’s favor based on the antitrust exemption.? Nostalgic Partners, LLC v. The Office of the Commissioner of Baseball, 637 F. Supp. 3d 45 (S.D.N.Y. 2022).? But in many ways the case was a win for the plaintiffs.? The court found that the plaintiffs had sufficiently alleged violations of antitrust law and had antitrust standing (a different concept from ordinary standing).? The court stated that the plaintiffs “successfully allege that a competitive market without the agreement would have produced a greater number of affiliations.”

On appeal, the clubs acknowledged that the Second Circuit was required to affirm the District Court’s dismissal of the case in light of baseball’s antitrust exemption.? However, it was also their expressed desire that the Second Circuit would “dispatch this case to the Supreme Court with a message attached: Enough already.”? The Second Circuit was not persuaded.? While the District Court was willing to opine that the clubs presented meritorious antitrust claims if not for baseball’s exemption, the Second Circuit declared that it “must continue to apply Supreme Court precedent unless and until it is overruled by the Supreme Court” and “need go no further.” Nostalgic Partners, LLC v. The Office of the Commissioner of Baseball, 2023 WL 4072836 (2d Cir. June 20, 2023).?

The Petition

On September 18, 2023, the Tri-City Valley Cats and Norwich Sea Unicorns filed a Petition for a Writ of Certiorari with the Supreme Court, requesting it to review and overturn the Second Circuit’s decision.?

The clubs made four arguments in an effort to persuade the Supreme Court to take its case: (1) baseball is a large national business affecting dozens of local economies; (2) lower courts have reached uncertain and disparate decisions on the scope of the exemption; (3) the exemption is not entitled to stare decisis effect because its “factual predicate – MLB’s reliance on the reserve clause – no longer exists”; and (4) this case is “an ideal vehicle for revisiting the exemption” since the lower courts agreed the clubs presented plausible antitrust claims but for the exemption.

The petitioners took several steps to play to the composition and ideology of the current Court.? First, they quoted from a 2009 article from Justice Alito in which he described “the real losers” from baseball’s antitrust exemption as the “local people.”? Second, the petition argued that the exemption interferes with states’ abilities to protect their citizens from anticompetitive harm through their own antitrust laws.? Third, the petitioners argued that stare decisis should not prevent the Court from overturning the exemption.? Lastly, the petition cited the Supreme Court’s 2021 unanimous decision in NCAA v. Alston, in arguing that sports must comply with antitrust law.

The Amicus Briefs

The first, and perhaps most expected amicus brief, came on October 17, 2023 from the Major League Baseball Players Association (MLBPA).? Although the CFA eliminated the antitrust exemption as it applies to MLB players, the MLBPA’s brief focuses in part on its representation of MiLB players, who are still restrained by the exemption.? In April 2023, MLB and the MLBPA reached a first-ever collective bargaining agreement (CBA) concerning employment of MiLB players.? MLBPA pointed out that if future CBA negotiations are unsuccessful, the MiLB players cannot disclaim the MLBPA as their bargaining representative and file an antitrust lawsuit, as is common in professional sports.? Otherwise, the MLBPA is able to provide a unique perspective on the CFA, pointing out that the 1994 strike led MLB and the MLBPA to jointly push for the elimination of the exemption with regard to the market for MLB players.

Second, multiple professors of sports and the law submitted two separate briefs (with counsel), including Marc Edelman of Baruch College with John Holden of Oklahoma State University, as well as Brad Snyder of Georgetown University Law Center and author of “A Well-Paid Slave: Curt Flood’s Fight for Free Agency in Professional Sports.” The most interesting part of Edelman and Holden’s brief was their contention that because of the exemption “MLB is currently engaged in numerous anticompetitive practices,” including through its territorial restraints, contraction of teams, licensing of trademarks, licensing of data, broadcast agreements, restrictions on non-player personnel, and prevention of rival leagues. For their part, Snyder and his co-authors argue that Federal Baseball has been overextended. They say that the Court analyzed “whether the interstate aspects of the business [of baseball] were essential to its character or merely ‘incidental’” and that that test should have been revisited and reapplied as the facts changed over time.

Third, the Rensselaer County Regional Chamber of Commerce, Inc., home of the petitioner Tri-City ValleyCats, submitted an amicus brief.nbsp; The Chamber’s brief focused on the alleged harm done by the exemption to the cities and towns which host or seek to host MiLB clubs. In this respect, the brief focused on harm to consumer welfare, a malady intended to be addressed by antitrust law.

Fourth, a brief was submitted by the Committee to Support the Antitrust Laws, an admittedly plaintiffs’ side coalition.? Two of the brief’s signatories hail from Hauseld LLP, which has been counsel in multiple antitrust matters against the NCAA. This brief acknowledged that that the Supreme Court has only overturned its antitrust precedent three times in 133 years but argues that that result was warranted in this case because the exemption is inconsistent with the Court’s antitrust policy.

Finally, two briefs were submitted by government actors.? Senators Mike Lee (R-Utah) and Marco Rubio (R-Fla.) submitted a brief with Representatives Paul Tonko (D-NY) and Joe Courtney (D-CT), whose districts include the petitioner clubs.? The Congressmen’s brief argues that Congressional inaction on baseball’s antitrust exemption should not be read as assent to it.? Next, attorneys general from eighteen states from all over the country submitted a brief.? This brief argued that the exemption “offends [state] sovereignty by impermissibly limiting [their] historic police powers,” including antitrust enforcement.? Further, under principles of federalism, the states argued that state law can only be overridden by federal law where there is clear Congressional intent.

The Next Inning?

The undisclosed settlement ends the case and removes it from the Supreme Court’s consideration.? The exemption thus lives.? But it may increasingly come under attack.? First and foremost, the other 36 former minor league affiliates that did not participate in this litigation and settlement may now bring suit – the briefs are already written for them.? Similarly, any other party that believes it has been adversely affected by MLB’s antitrust exemption – perhaps those involved in the issues identified by Edelman and Holden – may now see a clearer and easier path to challenging MLB and the exemption.? Consequently, it may be the case that the exemption’s demise has only been delayed.

?