Thursday, June 4, 2009
Posted by D. Daniel Sokol
James Keyte & Paul Eckles (both Skadden) address Sports Leagues and the Rule of Reason: How to Assess Internal Venture Restraints.
ABSTRACT: ...The question, then, is whether there is an alternative analytical framework the Court could adopt that could cut short or streamline these wasteful litigations but without a finding that sports leagues are a single entity? For many years, in addition to pressing its "single entity" defense, sports leagues have argued for a particular variant of the "ancillary restraints doctrine" that would find a League's internal decisions, rules, and practices are "ancillary" to the joint venture itself and, hence, reasonable as a matter of law.
As discussed below, the sports leagues have not had much success in the lower courts with this argument; moreover, the jurisprudence regarding the ancillary restraints doctrine in general has a muddled history and has largely been subsumed within the broader rule of reason. Professor Gary R. Roberts, who has been writing on this subject for decades, once framed the question this way: "The ultimate issue here is not whether leagues are single entities or a collection of independent firms; rather, it is whether or not the internal rules and decisions of leagues ought to be immune from case-by-case rule of reason review under section 1."
American Needle could provide the Supreme Court the opportunity to cut through that confusion over the rule of reason's application to sports leagues and adopt an analytical framework recognizing that legitimate joint ventures should have the discretion to run their businesses based on their own business judgment without being second-guessed by federal courts. For far too long, there has been a schism in the rule of reason framework as applied to sports leagues and other legitimate ventures. Thus, while certain types of restraints can be challenged without any economic analysis at all under the per se rule, there has been no analytic device at the other end of the spectrum to immunize from antitrust challenge under Section 1 the types of fundamental decisions that legitimate business collaborations must be allowed to make without continual second-guessing under the guise of Section 1.