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Friday, March 28, 2008
Second Circuit Affirms Denial of Preliminary Injunction in MSG v. NHL Antitrust Lawsuit

Last fall on the blog, Marc Edelman discussed (here and here) the pending antitrust lawsuit brought by Madison Square Garden, L.P. (MSG), the parent company of the N.Y. Rangers, against the NHL. On November 2, 2007, the district court denied MSG's request for a preliminary injunction against the NHL’s effort to ban the Rangers from operating an independent website, holding that MSG had failed to demonstrate a likelihood of success or a sufficiently serious question going to the merits. Last week, the Second Circuit Court of Appeals, in a summary order, affirmed the district court's ruling and stated: "While there will certainly be substantive issues for the district court to address on the merits - for example, how the antitrust laws apply to the NHL as a sports league, and what the relevant market is in this case - the district court’s conclusion that preliminary injunctive relief was unwarranted falls well within the range of permissible decisions, and did not constitute an abuse of discretion." (emphasis added)

In Marc's previous posts, single entity has been raised as a possible defense for the NHL. I'm not an advocate of applying the single entity defense to professional sports leagues, at least not in the context of claims brought by league members. Of all the cases addressing the application of the single entity defense to professional sports leagues, the case of Chicago Bulls v. NBA, 95 F.3d 593 (7th Cir. 1996) provides, by far, the most comprehensive discussion and analysis of the single entity defense. In the concurring opinion in that case, Judge Cudahy makes some very compelling arguments for rejecting the defense (and I would argue especially in the context of claims brought by league members). Here are some excerpts:
[T]he fact that the venturers remain competitors in other arenas might either distort the way the joint product is managed or allow the venturers to use the joint product as a smoke-screen behind which to cut deals to reduce competition in the other arenas.
It is perhaps true, as argued by the NBA and many commentators, that sports are different from many joint ventures because the individual teams cannot, even in principle, produce the product -- league sports. However, the fact that cooperation is necessary to produce league basketball does not imply that the league will necessarily produce its product in the most efficient fashion. There is potential for inefficient decisionmaking regarding the joint product of "league basketball" even when the individual teams engage in no economic activity outside of the league. This potential arises because the structure of the league is such that all "owners" of the league must be "owners" of individual teams and decisions are made by a vote of the teams. This means that the league will not necessarily make efficient decisions about the number of teams fielded or, more generally, the competitive balance among teams. Thus, the the fact that several teams are required to make a league does not necessarily imply that the current makeup of the league is the most desirable or "efficient" one.
And Judge Cudahy probably summed it up best by stating:
In any event, sports leagues argue that they must maintain independent ownership of the teams because separate ownership enhances the appearance of competitiveness demanded by fans. But the leagues cannot really expect the courts to aid them in convincing consumers that competition exists if it really does not. If consumers want economic competition between sports teams, then independent ownership and preservation of independent economic interests is likely an efficient choice for a sports league. But that choice, as with other joint ventures, brings with it the attendant antitrust risks. The NBA cannot have it both ways. (emphasis added)
The single entity defense shouldn't be used as a "shield" for independently-owned league members with independent economic interests to make decisions that may have minimal pro-competitive effects when compared with alleged anti-competitive effects. In the context of antitrust claims brought by league members, the rule of reason essentially constitutes a "checks and balances" on the decisions of entities with independent economic interests acting in concert. The league could avoid all of the risks inherent in a rule of reason analysis through collective ownership interest, thus eliminating any economic competition among members. But unless and until they implement that model, I agree with Judge Cudahy -- the league cannot have it both ways.


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Blogger Jon -- 4/18/2008 12:14 AM  

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