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Monday, July 6, 2009

More from Professor Christopher Sagers on Judge Sotomayor and American Needle

posted by Shubha Ghosh
[Note: Professor Sagers, a rising star in the field of antitrust and competition policy who teaches at Cleveland-Marshall Law School,posts some additional thoughts on American Needle and Judge Sotomayor's take on the issues raised in the case.  Thank you, Professor Sagers, for your excellent contributions.]

In a post on this blog dated June 30 I speculated that it would be hard to guess how a future Justice Sotomayor might vote in the Court's decision in American Needle v. NFL, cert for which was granted the day before.  MAN did I have it wrong, having overlooked a recent concurrence by that judge that basically is on all fours, and is very encouraging.

Judge Sotomayor's concurrence in Major League Baseball Props., LLC v. Salvino, 542 F.3d 290 (2d Cir. 2008)
http://www.ca2.uscourts.gov/decisions/isysquery/a71a7a75-2cc9-4ec2-a13d-c5ebd55f1704/1/doc/06-1867-cv_opn.pdf#xml=http://www.ca2.uscourts.gov/decisions/isysquery/a71a7a75-2cc9-4ec2-a13d-c5ebd55f1704/1/hilite/),
ought to more or less control her vote in American Needle.  Salvino involved facts nearly on point with American Needle.  Defendant Salvino was a manufacturer of sports memorabilia.  Plaintiff Major League Baseball Properties (MLBP) was an entity substantially identical to central defendant in American Needle, NFL Properties, Inc., in that MLBP was also an entity created and owned by the MLB member teams and had been their exclusive IP licensing agent since the early 1980s.

MLBP brought infringement claims against Salvino for making team-logo-marked novelties, and Salvino counterclaimed in antitrust alleging that the exclusive licensing arrangement was a horizontal restraint in violation of section 1.  The Second Circuit affirmed summary judgment for MLBP on the antitrust counterclaims, finding that there was not even any explicit naked trade restraint at issue, and that under the rule of reason Salvino could not prevail.

Judge Sotomayor concurred, but pointed out that she would have applied the ancillary restraints doctrine.  She began by pointing out her concern over the majority's "flawed view that the Clubs have made no agreement on price," where she considered the creation of an exclusive sales agency to represent horizontal competitors to be a price-fixing conspiracy.  She wrote that "[a]n agreement to eliminate price competition from the market is the essence of price fixing."  542 F.3d at 334-35.  Critically, from the perspective of predicting how she might see American Needle, she added this policy observation:  "Were the majority correct, competing companies could evade the antitrust law simply by creating a 'joint venture' to serve as the exclusive seller of their competing products.  So long as no agreement explicitly listed the prices to be charged, the companies could act as monopolists through the 'joint venture,' setting prices together for their
 competing products . . . ."  Id. at 335.  Also encouraging is her reliance on Timken Roller Bearing Co.
 v. U.S., 341 U.S. 593 (1951), in which Justice Black famously held that as a matter of law the mere labeling of a conspiracy as a "joint venture" is irrelevant to its legality under section 1.  She cited as support for the same proposition the Collaboration Guidelines' observation that "labeling an arrangement a 'joint venture' will not protect what is merely a devise to raise price or restrict output . . . ." 

But the single most important observation in her concurrence seems to me  her citation to page 5 of Dagher, as authority for the view that the court "must decide . . . whether the [MLBP arrangement], which is price fixing in a literal sense, should nevertheless be reviewed under a rule of reason in light of MLBP's other efficiency-enhancing benefits."  Id. at 337.  This seems so important because a major open question under Dagher is just how broadly it should be read, and one plainly permissible reading of that opinion would be that all "internal" decision making that is part of an
 otherwise legal joint venture's "core" conduct should be absolutely immune from section 1, on a single-entity rational.  See, e.g., James A. Keyte, Dagher and “Inside” Joint Venture Restraints, ANTITRUST, Summer 2006, at 44.  Judge Sotomayor's citation to Dagher would seem pretty clearly to reject that reading.

Having reached that point, Judge Sotomayor then analyzed the MLBP's structure and activities through the ancillarity lens and found its price restraint to be reasonably necessary to the entity's procompetitive benefits.

Neither in the majority nor concurring decisions was there any discussion of single entity treatment.  This was presumably because a single-entity finding would be precluded under Second Circuit precedent (N. Am. Soccer League v. NFL, 670 F.2d 1249 (2d Cir. 1982)).

With any luck, at least two of the seemingly likely votes for affirmance (Alito, Kennedy, Scalia, Roberts, and Thomas) can be convinced of the danger and implausibility of the American Needle ruling.  And then with any real luck the then-Justice Sotomayor will write for the resulting majority, and will recap her excellent analysis from Salvino.  And if she does, here's hoping she'll cite to Dagher in exactly the same way.
In a post on this blog dated June 30 I speculated that it would be hard to guess how a future Justice Sotomayor might vote in the Court's decision in American Needle v. NFL, cert for which was granted the day before.  MAN did I have it wrong, having overlooked a recent concurrence by that judge that basically is on all fours, and is very encouraging.

Judge Sotomayor's concurrence in Major League Baseball Props., LLC v. Salvino, 542 F.3d 290 (2d Cir. 2008) http://www.ca2.uscourts.gov/decisions/isysquery/a71a7a75-2cc9-4ec2-a13d-c5ebd55f1704/1/doc/06-1867-cv_opn.pdf#xml=http://www.ca2.uscourts.gov/decisions/isysquery/a71a7a75-2cc9-4ec2-a13d-c5ebd55f1704/1/hilite/), ought to more or less control her vote in American Needle.  Salvino involved facts nearly on point with American Needle.  Defendant Salvino was a manufacturer of sports memorabilia.  Plaintiff Major League Baseball Properties (MLBP) was an entity substantially identical to central defendant in American Needle, NFL Properties, Inc., in that MLBP was also an entity created and owned by the MLB member teams and had been their exclusive IP licensing agent since the early 1980s.

MLBP brought infringement claims against Salvino for making team-logo-marked novelties, and Salvino counterclaimed in antitrust alleging that the exclusive licensing arrangement was a horizontal restraint in violation of section 1.  The Second Circuit affirmed summary judgment for MLBP on the antitrust counterclaims, finding that there was not even any explicit naked trade restraint at issue, and that under the rule of reason Salvino could not prevail.

Judge Sotomayor concurred, but pointed out that she would have applied the ancillary restraints doctrine.  She began by pointing out her concern over the majority's "flawed view that the Clubs have made no agreement on price," where she considered the creation of an exclusive sales agency to represent horizontal competitors to be a price-fixing conspiracy.  She wrote that "[a]n agreement to eliminate price competition from the market is the essence of price fixing."  542 F.3d at 334-35.  Critically, from the perspective of predicting how she might see American Needle, she added this policy observation:  "Were the majority correct, competing companies could evade the antitrust law simply by creating a 'joint venture' to serve as the exclusive seller of their competing products.  So long as no agreement explicitly listed the prices to be charged, the companies could act as monopolists through the 'joint venture,' setting prices together for their
 competing products . . . ."  Id. at 335.  Also encouraging is her reliance on Timken Roller Bearing Co.
 v. U.S., 341 U.S. 593 (1951), in which Justice Black famously held that as a matter of law the mere labeling of a conspiracy as a "joint venture" is irrelevant to its legality under section 1.  She cited as support for the same proposition the Collaboration Guidelines' observation that "labeling an arrangement a 'joint venture' will not protect what is merely a devise to raise price or restrict output . . . ." 

But the single most important observation in her concurrence seems to me  her citation to page 5 of Dagher, as authority for the view that the court "must decide . . . whether the [MLBP arrangement], which is price fixing in a literal sense, should nevertheless be reviewed under a rule of reason in light of MLBP's other efficiency-enhancing benefits."  Id. at 337.  This seems so important because a major open question under Dagher is just how broadly it should be read, and one plainly permissible reading of that opinion would be that all "internal" decision making that is part of an
 otherwise legal joint venture's "core" conduct should be absolutely immune from section 1, on a single-entity rational.  See, e.g., James A. Keyte, Dagher and “Inside” Joint Venture Restraints, ANTITRUST, Summer 2006, at 44.  Judge Sotomayor's citation to Dagher would seem pretty clearly to reject that reading.

Having reached that point, Judge Sotomayor then analyzed the MLBP's structure and activities through the ancillarity lens and found its price restraint to be reasonably necessary to the entity's procompetitive benefits.

Neither in the majority nor concurring decisions was there any discussion of single entity treatment.  This was presumably because a single-entity finding would be precluded under Second Circuit precedent (N. Am. Soccer League v. NFL, 670 F.2d 1249 (2d Cir. 1982)).

With any luck, at least two of the seemingly likely votes for affirmance (Alito, Kennedy, Scalia, Roberts, and Thomas) can be convinced of the danger and implausibility of the American Needle ruling.  And then with any real luck the then-Justice Sotomayor will write for the resulting majority, and will recap her excellent analysis from Salvino.  And if she does, here's hoping she'll cite to Dagher in exactly the same way.

http://lawprofessors.typepad.com/antitrustprof_blog/2009/07/more-from-professor-christopher-sagers-on-judge-sotomayor-and-american-needle.html

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