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Monday, October 13, 2008
MSG New Media Antitrust Claim Survives Motion to Dismiss
While another NHL regular season has kicked off (faced off?) with relatively little fanfare, the MSG-NHL antitrust battle continues (see earlier posts by Marc here and here, and by Rick here). MSG can finally claim a victory, as Judge Preska denied the NHL's motion to dismiss with respect to the antitrust claims brought against its "New Media Strategy." Significantly, this case presents us with an opportunity to see if the single entity monster is out of the cage following the Seventh Circuit opinion in American Needle.
As Rick discussed, the Second Circuit affirmed Judge Preska’s denial of MSG’s motion for a preliminary injunction back in March 2008. MSG’s injunction challenged only the NHL’s New Media Strategy, which required, among other things, the migration of the MSG-owned Rangers’ website to an NHL-operated server. The Complaint filed by MSG, however, was much broader and challenged NHL restraints relating to four different categories: 1) merchandising and licensing, 2) broadcasting and streaming, 3) advertising and sponsorship, 4) and New Media.
In its motion to dismiss, the NHL raised two primary arguments. First, the NHL argued that all claims relating to the first three categories (ie, all non-New Media claims) were barred by a release in a Consent Agreement signed by MSG in 2005 (or, in the alternative, were barred by the doctrine of laches). Second, the NHL claimed that it constitutes a “single entity when deciding how to make and sell what only the venture can create” and thus is incapable of violating Section 1 of the Sherman Act (or, in the alternative, that MSG had failed to allege antitrust injury).
Judge Preska dismissed all of the non-New Media claims, finding that they were released pursuant to the Consent Agreement (and, in the alternative, were barred by the doctrine of laches). The Consent Agreement reads, in relevant part: “MSG forever releases and discharges [the NHL] from any and all claims…upon any legal or equitable theory [which] exist as of the date of the execution…relating to, or arising from, any hockey operations or any NHL activity, including, without limitation, the performance, presentation or exploitation of any hockey game….” Judge Preska held that the language of the release encompassed MSG’s non-New Media claims and that enforcement of the release would not violate public policy. In holding that the release does not violate public policy, Judge Preska essentially rejected the antitrust challenge to NHL’s various restrictions regarding merchandising, broadcasting, and advertising, concluding that the NHL’s “undisputed legitimacy diminishes the public policy concerns compared to those in the case of a Section 1 conspiracy whose very existence is unlawful, as in the case of a monopoly or price-fixing conspiracy.”
The New Media Strategy, however, did not exist at the time the Consent Agreement was signed, and thus was not barred by the general release. Judge Preska therefore had to determine if the single entity defense barred MSG’s New Media Strategy Section 1 antitrust claims. Although Judge Preska recognized that “[w]hat is essentially the same [single entity] argument has been rejected in a similar case by the Court of Appeals,” and that “[m]ost other Courts that have taken up the issue have reached the same conclusion,” Judge Preska concluded that the “Court need not—and will not—resolve the question at this juncture [because] the arguments advanced by the NHL in favor of single entity status require examining facts outside the pleadings.” In particular, Judge Preska noted that “there is no evidence in the record on the crucial question of market definition, let alone the inquiry into how the NHL actually operates as an economic actor in that market,” and “therefore the NHL’s arguments in favor of dismissal cannot be resolved at the pleading stage.”
Judge Preska’s brief discussion of the single entity question, however, does exhibit one of the more perplexing fundamental mistakes made by judges when considering the issue. Specifically, Judge Preska relied on the Fourth Circuit’s opinion in Seabury Management., Inc. v. Professional Golfers’ Ass’n of America, Inc., for support that the “PGA and a regional golfers association” constituted a single entity. Judge Easterbrook relied on the Seabury case for the same proposition in Chicago Pro Sports, Ltd. Partnership v. NBA, 95 F.3d 593 (7th Cir. 1996), and the NHL’s attorneys devoted an entire page to the case in their motion to dismiss.
The Seabury case, however, was brought against a trade association of professional golfers, the Professional Golfers’ Association of America. The case was not brought against PGA Tour, Inc., the producers of professional golf events in the United States. Contrary to what Judge Preska, Judge Easterbrook, and NHL counsel apparently believe, Seabury did not hold that a sports league or association and its member teams or tournaments constitute a single entity. Instead, Seabury only held that a trade association and a separately incorporated division of the association should be treated as a single entity for antitrust purposes because the two entities functioned as a “single economic unit.” Seabury thus lends little support to a sports league or association’s single entity argument.
Yet, Seabury continues to be cited as support for the single entity monster, which, for the time being at least (pending the next stage of this litigation) remains in the cage.*
*I believe the monster might be out of the cage with my use of the monster-out-of-the-cage expression. I blame (credit?) John Stearns (see description of Game 1).