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Garber Ltr. 3-3-14

Garber Ltr. 3-3-14

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Published by ngrow9
Letter from plaintiffs in Garber v. MLB responding to MLB's anticipated motion for summary judgment.
Letter from plaintiffs in Garber v. MLB responding to MLB's anticipated motion for summary judgment.

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Published by: ngrow9 on Mar 04, 2014
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03/04/2014

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HO
WARD
LANGER
JOH
N J.
GROG
AN*
E
DWARD
A.
D
IVER IR
V
ACKELSBERG
PETER
L
ECKMAN
EDWARD
A.
DIVER
DIRECT DIAL
(21
5)
320-5663
ndiver@langergrogan.com
LANGER
GROGAN
DIVER
P.C.
ATIORNEYS
AT LAW
1717
ARCH
STREET
SUITE
4130
PHILADELPHIA,
PA
19103
PH
ONE:
215-320-5660 F
AX:
215-320-5703
March
3
2014 Honorable Shira
A.
Scheindlin United States District Court, Southern District
of
New York 500 Pearl Street New York, NY 10007
GEOFFREY
C.
H
AZARD
JR
 
OF
CO
UN
S
EL
2263
C
ALIFORNIA
S
TREET
SAN FRANCISCO,
CA
94115
415-292
·
6535
ghazar
 
@langergrogan
 com
'ALIO
ADMITIED
IN
NEW
JERSEY
1
ALIO
ADMI
TIED
IN
CAL
IF
ORNIA
ADM
ITIED
IN
CALIFORNIA
ON
LY
Re:
Laumann 
et
al
v. National Hockey League
et
al.
12-cv-1817 (SAS)
Garber
et
al
v. Office
ofthe
Commissioner o[Baseball.
et
al.
12-cv-3704 (SAS) Dear Judge Scheindlin: Plaintiffs submit this letter in response
to
both letters submitted last week by the MLB Defendants and the NHL Defendants. Notably, the League Defendants' proposed motions focus entirely on issues on which they have the burden
of
proof
Neither league challenges Plaintiffs' contention that the leagues' systems directly restrain trade. Neither challenges Plaintiffs' proffered relevant markets. They do not contend that Plaintiffs cannot show that the restrictions at issue have an impact on competition. Nor could they. The territorial restraints at issue have the undisputed purpose and effect
of
restricting competition by preventing out-of-market distribution
of
teams' broadcasts in order to increase the value, and therefore the price,
of
the rights broadcasters purchase and exploit. In a rule-of-reason case, once the plaintiffs meet their burden
of
establishing harm
to
competition, the burden switches to the defendants to establish that there are procompetitive benefits that outweigh the direct harm.
See Ark. Carpenters Health Welfare
und
v. Bayer AG
604 F.3d 98, 104 (2d Cir. 2010). Only
if
defendants meet their burden, does the burden shift back to plaintiffs to establish that there are less-restrictive alternatives to the challenged restrictions.
Id.
Where, as here, the restraints directly restrain output, the defendants face
a
heavy burden
of
establishing an affirmative defense which competitively justifies this apparent deviation from the operations
of
a free market. 
NCAA
v
Bd
of
Regents
of
Univ
of
Okla. 
468 U.S. 85,
113
(1984). The restraints in this case, as in
NCAA
are direct and uncontestable. They explicitly restrict output for the stated purpose
of
protecting teams and broadcasters from competition in order to raise the value
of
the broadcast rights at issue. This places a heavy burden on defendants
to
justify the restraints, even without an initial showing
of
market power. Nevertheless, plaintiffs have put forth substantial evidence
of
market power and consequent effects on
competition-
evidence that none
of
the defendants contends is insufficient for purposes
of
summary judgment. The leagues' primary arguments are that, notwithstanding the direct harm to competition resulting from these restraints, there are procompetitive benefits that are sufficient to make the
Case 1:12-cv-03704-SAS-MHD Document 236 Filed 03/03/14 Page 1 of 4
 
Honorable Shira
A.
Scheindlin March 3, 2014 Page 2 restrictions, on balance, beneficial to competition.
1
There are a number
of
reasons why these arguments are inappropriate for summary adjudication. First, even
if
Defendants can establish the existence
of
any
of
their proposed procompetitive benefits, they must show that those benefits outweigh the direct harm to
competition a
weighing
of
competing economic effects that cannot be done as a matter
of
law.
2
Second, as noted, Defendants have the burden
of
proof on establishing the existence
of
procompetitive benefits, something they cannot
do
through summary judgment. In fact, the record overwhelmingly establishes that there are
no
procompetitive benefits cognizable under the antitrust laws for these restraints. Plaintiffs have produced a thorough report by Roger Noll, a leading expert in sports economics for decades. While it is not Plaintiffs' burden to refute the Defendants' purported procompetitive justifications at this point, Dr. Noll concluded:
1
Defendants' unsupported assertions
of
efficiency contradict the most basic principles
of
economics; protection from competition does not incentivize the clubs and their partners to increase output. Monopoly reduces incentives to make a product more attractive to consumers, and leads to
less
output and
less
consumer satisfaction, not more. 2) The territorial systems
hurt
competitive balance by locking teams into territories
of
unequal value. Economic studies also overwhelmingly show that centralized sales and revenue sharing do not improve competitive balance, but even
if
they did, direct revenue sharing is a far less restrictive means
of
equalizing revenue than the restraints in this case. 3) There is no basis for the concern that free-riding would reduce output in the absence
of
these restrictions (a position Defendants have never articulated in any meaningful way), and
if
output were reduced, it could easily be addressed with less restrictive means by imposing a tax
on
the benefits supposedly obtained by free riders. 4) The territorial restraints have no bearing on whether the parties would be able to reach separate reciprocal agreements concerning home and away broadcasts.
f
t is an issue, it could easily be handled by a league rule addressing that concern directly (as both leagues did long before the territorial systems were in place). Defendants have not challenged these well-supported conclusions or indicated what evidence they believe conclusively proves them to be incorrect. Moreover, their own defenses are often
1
The NHL also argues that it is protected by a general rule that joint venturers are entitled to agree not to compete with the venture. There is no such blanket allowance for suppressing competition by separate products with the products
of
a joint venture. Indeed, the Supreme Court rejected this argument in
NCAA.
468 U.S.at 114 n.58 ( Ensuring that individual members
of
a joint venture are free to increase output has been viewed as central in evaluating the competitive character
of
oint ventures. );
see also e.g. . Needle Inc.
v
NFL
560 U.S. 183,
201
(2010);
Polygram Holding Inc.
v
FTC
416 F.3d 29, 38 (D.C. Cir. 2005) (applying FTC Act).
2
The leagues have apparently abandoned their
argument articulated
in pre-motion letters last
year that
they are entitled to summary judgment under a novel, defensive quick-look theory by which they could prevail simply by showing the existence
of
any procompetitive benefit at any level.
See
NHL Letter, June 28, 2013; MLB Letter, July 2, 2013. That argument would have allowed any procompetitive benefit to trump countervailing harms to competition, even when the overall harm to competition was profound, a result that finds no support in the law.
Case 1:12-cv-03704-SAS-MHD Document 236 Filed 03/03/14 Page 2 of 4
 
Honorable Shira
A
Scheindlin March 3, 2014 Page 3 at cross purposes. Is it more important to develop a local following (by restraining national distribution) or a national following (by promoting national distribution)? Both, apparently. Many
of
Defendants' business justifications fail for another reason: they are not cognizable under the antitrust laws. Most
of
their positions assume that the clubs and their broadcast partners need to be protected from competition in order to make their businesses more profitable. The Supreme Court has repeatedly stated that protecting competitors from the consequences
of
competition is
not
a legitimate justification under the antitrust laws, and it has done
so
in the sports-broadcasting context in particular.
NCAA,
468 U.S. at 116 ( [T]he Rule
of
Reason does not support a defense based on the assumption that competition itself is unreasonable. (quoting
Nat'
Soc.
of
Prof' Engineers
v.
United States,
435 U.
S.
679, 696 (1978)). Defendants cannot reasonably contend that it can be established as a matter
of
law that, without the territorial restrictions, their broadcasts would be less available than they are now. In fact, that suggestion is implausible. First, the recent rise in the availability
of
baseball and hockey programming has nothing to do with the territorial restraints. There has been an increase in all kinds
of
programming because
of
technological
changes particularly
digital television and the
Internet that
have made it easier and less expensive to distribute programming. Second, even with increasing availability, there has been a dramatic rise in the prices paid for the rights to both baseball and hockey programming, because the supply, constrained by the territorial systems, is not keeping up with rising demand. An unrestrained market would serve that rising demand broadly and efficiently. Third, when teams and their RSN partners are permitted to distribute their games in areas outside
of
their local metropolitan areas, they almost always do so. Fourth, clubs and the leagues obtain a promotional benefit from broadcasting such that they would offer their rights even
if
fees were near zero, or even
if
they faced a modest loss. And the actual costs
of
broadcasting sports are far lower than most programming. Thus, there is no risk that there would be fewer games broadcast under any plausible set
of
assumptions. And finally, in similar markets with no territorial
restraints such
as Division I college football and basketballprogramming has exploded in response to rising demand. In short, there is no reason to think that the market would not work as markets are expected to work-matching supply with demand and driving prices down toward the marginal cost
of
production. Ultimately, the burden is on Defendants to explain why the but-for world would be different from what basic
economics-
together with substantial confirmatory evidence-predicts. Baseball Antitrust Exemption: MLB is now, for the first time, proposing a motion to apply its antitrust exemption in this case. Plainly,
if
it had any confidence in the defense, it would have done as it normally does, and presented it in its motion to dismiss, which had the potential to avoid years
of
costly litigation. There is good reason for baseball's reluctance to assert the defense. The antitrust exemption (whose continuing status is now questionable at best) has been squarely held
not
to apply to broadcasting practices.
Henderson Broad. Corp.
v.
Houston Sports
ss
n,
Inc.,
541
F. Supp. 263
S
.
D.
Tex. 1982). History supports this holding: baseball itself has consistently taken the position that the business
of
baseball does
not
include the business
of
broadcasting. Given that the exemption is a narrow application
of
stare decisis based on baseball's presumed reliance on earlier decisions, the league is in no place to argue for its application here.
Case 1:12-cv-03704-SAS-MHD Document 236 Filed 03/03/14 Page 3 of 4

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