By Jeffrey May, J.D.
A putative class of subscribers to DirecTV’s ‘NFL Sunday Ticket’ adequately alleged injury to competition, antitrust standing. Sherman Act, Section 2 claims also revived.
A divided U.S. Court of Appeals in San Francisco has overturned dismissal of an antitrust suit brought on behalf of a putative class of residential and commercial subscribers to National Football League (NFL) Sunday Ticket against the NFL, its teams, and DirecTV. The appellate court concluded that, at this preliminary stage, the plaintiffs stated a cause of action for a violation of Sections 1 and 2 of the Sherman Act that survived a motion to dismiss. Specifically, the appellate court held that the plaintiffs alleged an injury to competition and antitrust standing. In addition, monopoly claims were adequately stated (In re National Football League’s Sunday Ticket Antitrust Litigation, August 13, 2019, Ikuta, S.).
Generally, fans can watch their local team’s game on free, over-the-air television. This case was brought by viewers who purchased a DirecTV package in order to watch so-called "out-of-market games." The challenged arrangement between the NFL and DirecTV essentially requires fans to purchase a bundled package of all NFL Sunday games in order to ensure access to games between teams outside of their local markets. Fans cannot purchase games individually. Not happy with the bundle, the subscribers sued under antitrust law.
As the appellate court explained, 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. In addition to agreements with CBS and Fox to coordinate to create a single telecast for every Sunday-afternoon NFL game, the "NFL-DirecTV Agreement" 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.
At the outset, the appellate court noted that the NFL and DirecTV did not argue on appeal that the Sports Broadcasting Act (SBA) applied to the Teams-NFL or NFL-DirecTV. The SBA provides a tailored antitrust exemption for "professional team sports" to sell their rights to "sponsored telecasts" through a joint agreement. However, the SBA does not exempt league contracts with cable or satellite television services, for which subscribers are charged a fee, from antitrust liability. Thus, the court said that the agreements were largely governed by the U.S. Supreme Court’s 1984 decision in Nat’l Collegiate Athletic Ass’n v. Bd. of Regents of Univ. of Oklahoma, which analyzed a similar league sport broadcasting arrangement under the Sherman Act, without any applicable statutory exemption. In that case, the Supreme Court struck down the NCAA’s restrictive telecast agreements as violating the Sherman Act. It held that an agreement among college football teams eliminated competition in the market for college football telecasts.
Injury to competition. According to the appellate court, because the plaintiffs in this case alleged that the interlocking agreements involved the same sorts of restrictions that the court in NCAA concluded constituted an injury to competition, the complaint plausibly alleged an injury to competition. The appellate court also concluded that the plaintiffs were not required to establish a relevant market because the alleged restrictions on the production and sale of telecasts constituted "a naked restriction" on the number of telecasts available for broadcasters and consumers.
In concluding that the plaintiffs alleged injury to competition, the court rejected a number of arguments raised by the appellees. Rejected was the assertion that the underlying NFL-DirecTV agreement was an exclusive distribution agreement of the type that was presumptively legal that had to be viewed separately from the horizontal NFL-Teams agreement. The court took a holistic look at how the interlocking agreements impacted competition and concluded that the vertical NFL-DirecTV Agreement worked in tandem with the Teams-NFL agreement to restrain competition.
Also rejected was the argument that the plaintiffs failed to allege an injury to competition because the production of the telecasts necessarily required joint action, and therefore the restrictions were pro-competitive. "In the absence of a legal requirement that the NFL teams, NFL, and broadcasters coordinate in filming and broadcasting live games, the Los Angeles Rams (for instance) could contract for their own telecast of Rams games and then register the telecasts for those games with the Rams (and perhaps the team against whom they are playing)," the court explained.
The defendants also unsuccessfully argued that competition was not injured because the challenged agreements were not output reducing. The plaintiffs plausibly alleged that the output was the number of telecasts of games, and that the defendants’ interlocking agreements reduced that output.
Market power. As for market power, the complaint adequately alleged that the defendants imposed "a naked restriction" on output. Thus, the plaintiffs did not fail to allege market power. "Given that professional football games have no substitutes ... the defendants in this case have effective control over the entire market for telecasts of professional football games," the court explained.
Antitrust standing. The Illinois Brick doctrine did not prevent the plaintiffs from establishing antitrust standing, the court ruled, citing the U.S. Supreme Court's recent decision in Apple Inc. v. Pepper . The plaintiffs adequately alleged that DirecTV conspired with the NFL and the NFL Teams to limit the production of telecasts to one per game, and that they suffered antitrust injury due to this conspiracy to limit output. Rejected was the defendants' argument—an argument accepted by the dissenting judge—that the co-conspirator exception to the Illinois Brick doctrine was limited to cases where an indirect purchaser "establishes a price-fixing conspiracy between the manufacturer and the middleman" under Ninth Circuit precedent.
Monopoly claims. The appellate court also rejected the adequacy of the Sherman Act, Sec. 2 claims. The plaintiffs alleged that, by entering into interlocking agreements, the defendants conspired to monopolize the market for professional football telecasts and indeed monopolized it. On the issue of specific intent to monopolize, the court held that the NFL-Team and NFL-DirecTV agreements were apparently designed to maintain market power.
Dissent. A dissenting opinion by Circuit Judge N. Randy Smith would have denied the plaintiffs standing. According to the dissent, the plaintiffs’ claim for damages stemming from the alleged horizontal agreement among the NFL Teams would require the very analysis prohibited by the Illinois Brickrule. The dissent also would limit the "co-conspirator exception" to the Illinois Brick rule to cases in which the co-conspirators fixed the price paid by the plaintiff. That was not the case in this action as the plaintiffs alleged a conspiracy among defendants to limit output, according to the dissent.
The case is No. 17-56119.
Attorneys: Mark M. Seltzer (Susman Godfrey LLP), Edward Diver (Langer Grogan & Diver PC), and Scott Martin (Hausfeld LLP) for Plaintiffs-Appellants. Greg H. Levy, Derek Ludwin, John S. Playforth, and Sonia Lahr-Pastor (Covington & Burling LLP) and Beth A. Wilkinson and Sean Eskovitz (Wilkinson Walsh & Eskovitz LLP) for Defendants-Appellees. Craig C. Corbitt (Corbitt Law Office) for Amici Curiae Economists.
Companies: Ninth Inning, Inc.; National Football League; NFL Enterprises LLC; DirecTV Holdings LLC; DirecTV, LLC
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