Microsoft-Yahoo!
 Alex Epstein, an analyst at the Ayn Rand Institute, has published an op-ed explaining why antitrust regulators should not get in the way of any potential combinations of Microsoft, Google and Yahoo! Esptein notes, "What we are observing in the battle over Yahoo! is not genuine, merit-based competition, but competition based on political pull." You can read Epstein's article, "Set Yahoo! Free," at this link.
PATENT HOLD UP
 Bruce Kobayashi and Joshua Wright of George Mason University recently posted an article examining "restraint when applying the antitrust laws to conduct that is normally regulated by state and other federal laws," specifcially the use of antitrust "to regulate the problem of patent hold up of members of standard setting organizations." You can download their paper at this link.
Mises.org
 S.M. Oliva, president of the Voluntary Trade Council, authored an article for the Ludwig von Mises Institute on Mark and Marianne Hershiser's landmark First Amendment lawsuit against the Federal Trade Commission. You can read the article, "Consumer Protection or Legal Extortion?" at this link.
IP & Antitrust
 Damien Geradin, a professor at Tilburg University and a partner at Howrey LLP, recently presented a paper entitled, "What's Wrong with Royalties in High Technology Industries?" which focuses on royalties paid by companies seeking to implement industry standards, such as those at issue in the FTC's case against Rambus. You can dowload the paper at this link.
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Written by Skip Oliva
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Thursday, 19 June 2008 15:59 |
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This week the National Hockey League asked a federal judge for a declaratory judgment that could, theoretically, allow the league to “terminate” Madison Square Garden’s ownership of the New York Rangers. The move comes as part of the NHL’s response to an antitrust lawsuit brought by MSG last October over the 30-member league’s website policies.
In 2006, NHL Commissioner Gary Bettman, at the instruction of the league’s board of governors, established a committee to “develop a plan to maximize new media revenues.” The committee recommended moving individual NHL team websites to a “common technology platform” that would mix local and national content. In June 2006, league owners voted to approve this new media strategy, which also extended Commissioner Bettman’s previously granted authority to establish internet rules for the league.
The MSG-owned New York Rangers voted against the proposal, objecting to the common technology platform as a form of mandatory “revenue sharing” with smaller-market clubs. MSG proceeded to launch three internet initiatives without league approval: an online store selling Rangers merchandise, the insertion of virtual advertising into Rangers broadcasts and live internet streaming of Rangers to subscribers. In April 2007, the NHL ordered MSG to cease and desist these unauthorized programs. MSG complied and was fined $200,000 for violating the commissioner’s internet regulations.
Two months later, MSG told the NHL it would not move its website onto the common technology platform. After several weeks of negotiations, the NHL threatened new fines for non-compliance, and MSG responded on September 29, 2007, by filing its antitrust lawsuit and a motion for a preliminary injunction to prevent the league from enforcing its rules.
The heart of MSG’s antitrust case is that “the NHL has become an illegal cartel” by expanding the scope of the clubs’ joint venture “beyond what is legally permissible” under the Sherman Act and related New York State law. “[The NHL] was created by the individual member teams for a specific limited purpose, i.e. to assist them in producing a product – major league men’s professional ice hockey contests – that no team could produce alone,” MSG’s amended complaint states. “Notwithstanding these valuable and appropriate collective activities, the member clubs remain independently owned and operated businesses, fully capable of competing – and actually competing – with each other in various ways.”
MSG condemns what it views as “excessive league control” over the licensing of NHL club marks, the marketing of merchandise, relationships with advertisers and sponsors, broadcasting, and of course, new media activities. Although MSG voluntarily agreed to the NHL’s constitution and related contracts that require the Rangers to abide by league control over these subjects, MSG now says these agreements constitute “horizontal restrains on competition” that have caused antitrust injury.
MSG’s lawsuit does not seek any monetary damages; rather it has asked the U.S. district court in Manhattan for injunctive relief “against those collective activities, policies and rules of the NHL that are not reasonably necessary to the success of the NHL joint venture.”
In November 2007, U.S. District Judge Loretta A. Preska denied MSG’s request for a preliminary injunction that would have stayed the challenged NHL rules pending a trial on the merits. (The Second U.S. Circuit Court of Appeals affirmed Preska’s decision earlier this year.) She said MSG had “failed to demonstrate a likelihood of success on the merits” of its antitrust case. MSG had argued the challenged NHL rules constituted a “naked restraint” of trade that were always forbidden under the Sherman Act, but Preska found that MSG’s claims fell under the “rule of reason,” the general test used for analyzing challenged business conduct.
In a formal answer filed this week, the NHL denied any of its policies violated the Sherman Act. The NHL and its member clubs “are not capable of contracting, conspiring, or combining with one another within the meaning of the antitrust laws because they are a single economic entity, at least with respect to the conduct challenged in the Complaint,” the league’s answer said. Additionally, the NHL argued, “MSG’s claims are barred as a matter of law because . . . it is seeking to compete with a joint venture of which it is a member and free ride on the product created by the venture that would not exist but for the existence of the venture.”
The NHL also cited the Supreme Court’s unanimous 2006 decision in Texaco Inc. v. Dagher, as an affirmative defense. In Dagher, the Court held a lawful, economically integrated joint venture could set prices for the venture’s products without violating Section 1 of the Sherman Act.
Beyond its affirmative defenses, the NHL has countersued MSG, alleging the Rangers antitrust lawsuit violates the league’s constitution, a breach of contract. When MSG purchased the Rangers in 1995, it signed a consent agreement with the NHL that said the new owners agreed “not to take or support any positions or actions which may be inconsistent with any NHL obligations or the NHL Constitution” and “not to challenge or support any challenge to, at any time or in any forum, any aspect of the NHL Constitution and Agreements, except insofar as an appeal right is provided . . .”
MSG also signed a 2005 consent agreement that incorporated “[a]lmost all of the League’s current rules, practices and resolutions relating to broadcasting, intellectual property, advertising and the internet.” While the league acknowledged its “website migration plan” came into effect after 2005, the consent agreement required MSG to abide by rules adopted in the future, “even if MSG voted against such resolutions.”
In addition, the NHL noted that the Rangers franchise has previously supported limits on competition to protect the Rangers’ territorial rights, under the league’s constitution, to the New York City market. The NHL’s counter-complaint described the 1982 move of the Colorado Rockies to New Jersey:
“[T]he Rangers franchise invoked its territorial rights under the NHL Constitution and sought compensation from the Colorado Rockies in exchange for the Rangers’ consent to the relocation of the Rockies franchise. The Rangers negotiated an agreement pursuant to which the Colorado Rockies, which are now known as the New Jersey Devils, were required to pay the Rangers (i) $4 million for invading the Rangers’ territorial rights, and (ii) up to an additional $5 million of the Devils’ anticipated radio and television revenues for invading the Rangers’ local broadcasting territory.”
Although the Rangers’ previous owners negotiated the agreement with the Devils, in 1995 MSG asked Commissioner Bettman to compel New Jersey to comply with its terms:
“During those proceedings, MSG never took the position that its ‘invaluable territorial rights’ were unenforceable or the product of an illegal restraint of trade. Nor did MSG argue that NHL teams are horizontal competitors within the meaning of the antitrust laws, or that teams should be allowed to broadcast their games anywhere in the country irrespective of the territorial rights set forth in the NHL Constitution. To the contrary, MSG vigorously sought to protect its rights; extracted millions of dollars from one of its partners for infringing upon the Rangers’ territorial rights; and sought the League’s assistance in enforcing those rights.”
(The NHL neglected to mention the Rangers also received a $4 million “territorial payment” from the New York Islanders when the Nassau County, New York club entered the league in the 1970s.)
The NHL’s counter-claim seeks unspecified damages and a “judicial declaration” allowing the NHL to enforce the constitution and rules that the Rangers agreed to, including provisions for disciplinary proceedings against MSG “for purported violations of their contractual obligations to the League and other Member Clubs.”
In a “proposed notice” attached to its answer and counter-complaint, the NHL informs MSG managing partner James Dolan that the company is subject to disciplinary proceedings under Article 3.10 of the NHL’s constitution. If three-fourths of the league’s board of governors vote to sustain the charges, MSG is subject to penalties including “suspension or termination” of its membership in the league.
While it’s unlikely the NHL would terminate MSG’s ownership or the Rangers franchise, the disciplinary threat alone suggests “the league has had enough, and is prepared to use whatever hammer they have to in order to get MSG to drop the suit,” according to Eric McErlain, a hockey writer and blogger for AOL Sports.
Indeed, the NHL correctly recognizes the threat represented by a judgment in MSG’s favor. Holding that certain league actions, but not others, violate the “rule of reason” and are thus illegal under the Sherman Act would convert every intra-ownership dispute – in any professional sports league – into a federal antitrust case. Judges would supplant league owners and commissioners in deciding the scope of collective action and the “best interests” of the league. A single litigious owner could hold the entire league hostage by threatening an antitrust suit over any joint decision.
Unless the NHL and MSG settle, their litigation will likely continue for some time. Judge Preska issued a revised schedule this week that requires discovery to be completed by May 2009. A bench trial before the judge would not begin until late 2009. * * * You can download original documents from this case at this link. If you enjoyed this article, please consider making a contribution to the Voluntary Trade Council. |
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Last Updated ( Thursday, 19 June 2008 22:12 )
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Suggested Reading
Antitrust: The Case for Repeal
Dominick T. Armentano
2nd ed. 1999
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Markets Don't Fail!
Brian P. Simpson
2005
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The Antitrust Religion
Edwin S. Rockefeller
2007
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Winners, Losers & Microsoft
Liebowitz & Margolis
1999
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