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In re National Football League's Sunday Ticket Antitrust Litigation

United States Court of Appeals, Ninth Circuit

August 13, 2019

In re National Football League's Sunday Ticket Antitrust Litigation,
v.
DirecTV, LLC; DirecTV Holdings, LLC; National Football League, Inc.; NFL Enterprises, LLC; Arizona Cardinals, Inc.; Atlanta Falcons Football Club LLC; Baltimore Ravens, LP; Buffalo Bills, Inc.; Panthers Football, LLC; Chicago Bears Football Club, Inc.; Cincinnati Bengals, Inc.; Cleveland Browns, LLC; Dallas Cowboys Football Club, Ltd.; Detroit Lions, Inc.; Green Bay Packers, Inc.; Houston NFL Holdings, LP; Indianapolis Colts, Inc.; Jacksonville Jaguars, Ltd.; Kansas City Chiefs Football Club, Inc.; Miami Dolphins, Ltd.; Minnesota Vikings Football Club, LLC; New England Patriots, LP; New Orleans Louisiana Saints, LLC; New York Football Giants, Inc.; New York Jets Football Club, Inc.; Oakland Raiders, LP; Philadelphia Eagles Football Club, Inc.; Pittsburgh Steelers Sports, Inc.; San Diego Chargers Football Co.; San Francisco Forty Niners, Ltd.; The Rams Football Company, LLC; Buccaneers, LP; Tennessee Football, Inc.; Washington Football, Inc.; Football Northwest LLC; Denver Broncos Football Club, Defendants-Appellees. Ninth Inning, Inc., DBA The Mucky Duck; 1465 Third Avenue Restaurant Corp., DBA Gael Pub; Robert Gary Lippincott, Jr.; Michael Holinko, an individual, for himself and all others similarly situated, Plaintiffs-Appellants,

          Argued and Submitted December 7, 2018 Pasadena, California

          Appeal from the United States District Court for the Central District of California D.C. No. 2:15-ml-02668-BRO-JEM Beverly Reid O'Connell, District Judge, Presiding

          Mark M. Seltzer (argued), Susman Godfrey LLP, Los Angeles, California; Edward Diver, Howard Langer, and Peter E. Leckman, Langer Grogan & Diver P.C., Philadelphia, Pennsylvania; Scott Martin, Hausfeld LLP, New York, New York; for Plaintiffs-Appellants.

          Greg H. Levy (argued), Derek Ludwin, John S. Playforth, and Sonia Lahr-Pastor, Covington & Burling LLP, Washington, D.C.; Beth A. Wilkinson, Wilkinson Walsh & Eskovitz LLP, Washington, D.C.; Sean Eskovitz, Wilkinson Walsh & Eskovitz LLP, Los Angeles, California; for Defendants-Appellees.

          Craig C. Corbitt, Corbitt Law Office, San Francisco, California, for Amici Curiae Economists.

          Before: Sandra S. Ikuta and N. Randy Smith, Circuit Judges, and George Caram Steeh III, [*] District Judge.

         SUMMARY [**]

         Antitrust

         The panel reversed the district court's dismissal for failure to state a claim of an antitrust action brought by a putative class of residential and commercial subscribers to DirecTV's NFL Sunday Ticket, a bundled package of all NFL games available exclusively to subscribers of DirecTV's satellite television service.

         Each NFL team entered into a "Teams-NFL Agreement" with the NFL to pool their telecasting rights and give the NFL the authority to exercise those rights. Acting on behalf of its teams, the NFL entered into two additional agreements licensing the teams' telecast rights. Under the "NFL-Network Agreement," CBS and Fox coordinate to create a single telecast for every Sunday-afternoon NFL game, and the NFL permits CBS and Fox to broadcast a limited number of what are known as local games through free, over-the-air television. Under the "NFL-DirecTV Agreement," the NFL allows DirecTV to obtain all of the live telecasts produced by CBS and Fox, package those telecasts, and deliver the bundled feeds to NFL Sunday Ticket subscribers.

         Plaintiffs alleged that defendants' interlocking agreements work together to suppress competition for the sale of professional football game telecasts in violation of §§ 1 and 2 of the Sherman Act.

         The panel held that plaintiffs stated a § 1 claim under the rule of reason because they adequately alleged (1) a contract, combination, or conspiracy among two or more persons or business entities; (2) by which the persons or entities intended to harm or restrain trade; (3) and which actually injured competition; and (4) antitrust standing. The first and second elements were undisputed. As to the third element, the panel held that, under Nat'l Collegiate Athletic Ass'n v. Bd. of Regents of Univ. of Oklahoma, 468 U.S. 85 (1984), plaintiffs plausibly alleged that the interlocking agreements caused injury to competition. As to the fourth element, it was undisputed that plaintiffs had standing to challenge the Teams-NFL Agreement and the NFL-DirecTV Agreement. The panel held that plaintiffs also had standing to challenge the Teams-NFL Agreement because they alleged that their injury was caused by a single conspiracy. The panel concluded that Illinois Brick, limiting the standing of indirect purchasers, did not apply.

         The panel held that the plaintiffs stated a claim under § 2 of the Sherman Act in alleging that, by entering into interlocking agreements, the defendants conspired to monopolize the market for professional football telecasts and have monopolized it.

         Judge N.R. Smith dissented from Part III(C) of the majority's opinion, addressing antitrust standing. Judge Smith disagreed with the majority's conclusion that, because plaintiffs alleged a conspiracy among defendants to limit output, the direct purchaser rule of Illinois Brick did not apply to plaintiffs' damages claim related to the Teams-NFL Agreement.

          OPINION

          IKUTA, CIRCUIT JUDGE:

         Every Sunday during football season, millions of National Football League (NFL) fans tune in to watch their team play. If they live in the same area as their favorite team-such as Los Angeles Rams fans who live in Los Angeles-they can tune into their local Fox or CBS station to enjoy their team's game on free, over-the-air television. But if NFL fans happen to live far away from their favorite team-such as Seattle Seahawks fans residing in Los Angeles-they can watch every Seahawks game only if they purchase DirecTV's NFL Sunday Ticket, a bundled package of all NFL games available exclusively to subscribers of DirecTV's satellite television service.

         The plaintiffs, a putative class of Sunday Ticket subscribers, claim that this arrangement harms NFL fans because it eliminates competition in the market for live telecasts of NFL games. Without this arrangement restricting the televising of NFL games, plaintiffs argue, the individual teams would create multiple telecasts of each game and would compete against one another by distributing telecasts of their games through various cable, satellite, and internet channels. We conclude that at this preliminary stage, plaintiffs have stated a cause of action for a violation of Sections 1 and 2 of the Sherman Act that survives a motion to dismiss. We therefore reverse the district court's decision to the contrary.

         I

         To analyze the challenged arrangement between the NFL teams, the NFL, and DirecTV, it is necessary to understand the history of television broadcasting of NFL games. The NFL, an association of "separately owned professional football teams," was formed in 1920. Am. Needle, Inc. v. Nat'l Football League, 560 U.S. 183, 187 (2010). While the NFL had a rocky first two decades, its teams gradually became successful. See U.S. Football League v. Nat'l Football League, 842 F.2d 1335, 1343 (2d Cir. 1988). Indeed, by 1959, a majority of NFL team owners felt that there was a "growing interest in professional football and the healthier financial condition of the NFL teams." Am. Football League v. Nat'l Football League, 205 F.Supp. 60, 67 (D. Md. 1962), aff'd, 323 F.2d 124 (4th Cir. 1963). And as professional football gained popularity, so did the telecasts of its games.

         In the 1950s, the right to telecast NFL games was "controlled by individual teams," which independently licensed the telecasts of their games to television networks. U.S. Football League, 842 F.2d at 1346.[1] For example, in 1951, the "Dumont network televised five regular season games (twelve by 1954), as well as the championship game each year." Id. Additionally, in the mid-1950s, "the Columbia Broadcasting System ('CBS') began broadcasting certain NFL regular season games for $1.8 million per year, and the National Broadcasting Company ('NBC') acquired the right to televise the NFL championship game." Id.

         Concerned that too much competition between the teams in the market for broadcast rights might drive some teams out of business, the NFL amended its 1951 bylaws to address this issue. In Article X of the bylaws, the NFL required each NFL team to agree to minimize competition by refraining from telecasting its games into another team's local market whenever that local team was either playing at home or broadcasting its away game in its local territory.[2] United States v. Nat'l Football League, 116 F.Supp. 319, 321 (E.D. Pa. 1953) (NFL I).

         In 1951, the Justice Department brought suit in district court to enjoin enforcement of Article X, alleging that it violated Section 1 of the Sherman Act. Id. at 321. After a bench trial, Judge Grim held that the NFL could restrict the broadcast of distant games into home territories in order to protect attendance for the local team's game without violating antitrust law. Id. at 325-26. Because "primarily all of NFL revenues were derived from gate receipts," protecting live attendance at NFL games was important to the league's success. H.R. Rep. No. 93-483 at 5 (1973), reprinted in 1973 U.S.C.C.A.N. 2032, 2035; see NFL I, 116 F.Supp. at 325. However, the NFL could not restrict teams from broadcasting their games into another team's local market when that team was playing away games. NFL I, 116 F.Supp. at 326-27. Such a restriction, Judge Grim held, would be an impermissible restraint of trade that violated the Sherman Act. Id. at 327. Judge Grim therefore enjoined the NFL teams from entering into a contract that restricts "the sale of rights for the telecasting of outside games in club's home territory on a day when the home club is permitting the telecast of its away game in its home territory." Id. at 330.

         The NFL did not appeal the 1953 injunction imposed by NFL I, which remained in force until Congress addressed the issue. "For a number of years after the 1953 decision, the broadcasting practices of the member clubs of the National Football League stabilized." H.R. Rep. No. 93-483 at 4 (1973). The individual NFL teams competed against each other on the field and in the market for telecasting rights. Indeed, "[b]y the late 1950s, eleven individual teams had signed contracts with the Columbia Broadcasting System; two teams-Baltimore and Pittsburgh-had signed contracts with the National Broadcasting Company; and one team-Cleveland-had organized its own network." Id.

         This changed when the NFL began to face competition from its newly formed rival, the American Football League (AFL). While the NFL was precluded under NFL I from restricting the sale of telecasts, the AFL was not. Id. at 2034. As a result, the AFL "entered into league-wide television contracts," id., and pooled its television rights and revenues in a broadcast contract with ABC, U.S. Football League, 842 F.2d at 1346.

         In light of this disparity with the AFL, and out of concern "that the league's competitive balance on the field would eventually be destroyed if teams in major television markets continued to sell their broadcast rights individually," in 1961, the NFL teams also decided "to sell their collective television rights as a single package and to share broadcast revenues equally among all franchises." Id. (quoting the testimony of Commissioner Rozelle). In 1961, the NFL filed a petition with Judge Grim seeking to implement a new television contract between the NFL and CBS. United States v. Nat'l Football League, 196 F.Supp. 445, 447 (E.D. Pa. 1961) (NFL II). Under the terms of the NFL-CBS contract, the NFL teams would pool their television rights in the NFL and then the NFL would jointly sell those rights to CBS. Id. at 446-47. Judge Grim denied the petition, holding that the proposed agreement violated the 1953 injunction because if the agreement went into effect, "the member clubs of the League [would] have eliminated competition among themselves in the sale of television rights to their games." Id. at 447. Judge Grim therefore issued a second injunction (the 1961 injunction) enjoining the implementation of the pooled rights contract between NFL and CBS. Id.

         Rather than appeal the 1961 injunction, the NFL sought Congressional relief. In response to the NFL's lobbying, Congress passed the Sports Broadcasting Act (SBA), which "was specifically designed to establish parity between the National Football League and the American Football League." H.R. Rep. No. 93-483 at 5 (1973). The SBA effectively overruled NFL II, providing:

The antitrust laws, as defined in section 1 of the [Sherman] Act . . . shall not apply to any joint agreement by or among persons engaging in or conducting the organized professional team sports of football, baseball, basketball, or hockey, by which any league of clubs participating in professional football, baseball, basketball, or hockey contests sells or otherwise transfers all or any part of the rights of such league's member clubs in the sponsored telecasting of the games of football, baseball, basketball, or hockey, as the case may be, engaged in or conducted by such clubs.

15 U.S.C. § 1291. Thus, the SBA provides a tailored exemption for "professional team sports" to sell their rights to "sponsored telecasts" through a joint agreement. Id. In passing the SBA, Congress recognized "that agreements among league members to sell television rights in a cooperative fashion could run afoul of the Sherman Act," and that therefore an exemption from Section 1 of the Sherman Act was required. Nat'l Collegiate Athletic Ass'n v. Bd. of Regents of Univ. of Oklahoma, 468 U.S. 85, 104 n.28 (1984) (NCAA).

         For the next 25 years, the NFL teams pooled their telecasting rights to their games and sold them as a single package through free, over-the-air television. See In the Matter of Implementation of Section 26 of the Cable Television Consumer Protection & Competition Act of 1992, 8 F.C.C. Rcd. 4875, 4879-80 (1993).

         Because the SBA applied only to professional sports leagues, it did not apply to college football, which continued to be subject to the Sherman Act. See 15 U.S.C. § 1291. Like the NFL, the NCAA had a long-standing restriction on televising team games. See NCAA, 468 U.S. at 89-90. Beginning in 1951, the NCAA enforced procedures ensuring that "only one game a week could be telecast in each area, with a total blackout on 3 of the 10 Saturdays during the season," and "[a] team could appear on television only twice during a season." Id. at 90. The NCAA maintained this approach for the next two decades.

         Finally, in the 1980s, the NCAA's arrangement was challenged by colleges that wanted to negotiate more lucrative television deals for their popular football teams. Id. at 90-91. This challenge resulted in the Supreme Court's authoritative opinion on the antitrust law of league sports, National Collegiate Athletic Association v. Board of Regents of University of Oklahoma, 468 U.S. 85 (1984).

         In NCAA, the Supreme Court struck down the NCAA's restrictive telecast agreements as violating the Sherman Act. According to the Court, "[b]y participating in an association which prevents member institutions from competing against each other on the basis of price or kind of television rights that can be offered to broadcasters, the NCAA member institutions have created a horizontal restraint-an agreement among competitors on the way in which they will compete with one another." Id. at 99. Such an arrangement violated Section 1 of the Sherman Act because "[i]ndividual competitors lose their freedom to compete," and "[p]rice is higher and output lower than they would otherwise be, and both are unresponsive to consumer preference." Id. at 106-07.

         After NCAA, commentators documented the changes caused by the increased competition in college football telecasts. "With conferences and teams now free to sign their own deals, the number of televised college football games grew exponentially." Nathaniel Grow, Regulating Professional Sports Leagues, 72 Wash. & Lee L. Rev. 573, 617 (2015). Moreover, because college football teams could compete "against one another in the marketplace, broadcasters collectively pa[y] half as much for the rights to televise a larger number of games than the NCAA had previously received for its collective package." Id. By contrast, under the SBA, the NFL's control over the pooled broadcasting rights increased revenues from telecasting, see Michael A. McCann, American Needle v. NFL: An Opportunity to Reshape Sports Law, 119 Yale L.J. 726, 732 (2010), while decreasing the number of telecasts available to consumers, see Ariel Y. Bublick, Note, Are You Ready for Some Football?, 64 Fed. Comm. L.J. 223, 231, 234-36 (2011).

         While the NFL's collective sale of telecast rights to free, over-the-air television networks was squarely covered by the SBA, as television technology advanced, from over-the-air to cable to satellite television, the NFL and other professional leagues began using new methods of distributing telecasts of the games.[3] In 1987, the NFL entered into its first cable deal, selling the right to telecast eight Sunday games to ESPN. See 8 F.C.C. Rcd. 4875, 4879. Beginning in 1994, the NFL entered into an agreement with DirecTV, allowing DirecTV to sell Sunday Ticket exclusively through its satellite television service. Babette Boliek, Antitrust, Regulation, and the "New" Rules of Sports Telecasts, 65 Hastings L.J. 501, 541 (2014).

         Courts considering challenges to the telecasting arrangements between sports leagues and satellite television services have concluded that "'sponsored telecasting' refers to broadcasts which are financed by business enterprises (the 'sponsors') in return for advertising time and are therefore provided free to the general public." Shaw v. Dallas Cowboys Football Club, Ltd., 172 F.3d 299, 301 (3d Cir. 1999). Therefore, the SBA does not exempt league contracts with cable or satellite television services, for which subscribers are charged a fee, from antitrust liability. Id. at 303; see also Chicago Prof'l Sports Ltd. P'ship v. Nat'l Basketball Ass'n, 961 F.2d 667, 671 (7th Cir. 1992) (Bulls I) (holding that the SBA applies when a league has transferred rights to sponsored telecasting and therefore did not apply to the NBA's efforts to limit distribution by the Bulls of their games on a cable network); Chicago Prof'l Sports Ltd. P'ship v. Nat'l Basketball Ass'n, 95 F.3d 593, 595 (7th Cir. 1996) (Bulls II) (same); Kingray, Inc. v. NBA, Inc., 188 F.Supp.2d 1177, 1183 (S.D. Cal. 2002) ("'Sponsored telecasting' under the SBA pertains only to network broadcast television and does not apply to non-exempt channels of distribution such as cable television, pay-per-view, and satellite television networks.").

         The current arrangements for cable broadcasting of NFL games is as follows. The 32 individual NFL teams, each of which is a separate "independently owned, and independently managed business," Am. Needle, 560 U.S. at 196, entered into an agreement with the NFL ("Teams-NFL Agreement") to pool their telecasting rights and give the NFL the authority to exercise those rights, rather than exercising those rights individually. The consequence of this agreement is that an individual team cannot enter into individual agreements with networks, satellite TV providers, or internet streaming services. Instead, only the NFL can enter into an agreement to sell those rights.

         Acting on behalf of its teams, the NFL entered into two additional agreements licensing the teams' telecast rights: (1) "the NFL-Network Agreement," which governs "local games," and (2) "the NFL-DirecTV Agreement," which ...


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