NATIONAL FOOTBALL LEAGUE et al.
v.
NORTH AMERICAN SOCCER LEAGUE et al
No. 81-2296
Supreme Court of the United States
December 6, 1982
On petition for writ of certiorari to the United States Court of
Appeals for the Second Circuit.
The petition for a writ of certiorari is denied.
Justice REHNQUIST, dissenting.
This lawsuit is an attack under 1 of the Sherman Act by the
North American Soccer League and most of its member teams ("NASL")
on the cross- ownership rule imposed by the National Football
League ("NFL") on the owners of its member teams. The rule, in
essence, prohibits NFL owners from obtaining a controlling interest
in any other major league professional sports team. The Court of
Appeals found that the rule violates 1 under the Rule of Reason,
and enjoined the NFL from enforcing it.
Page 459
U.S. 1074, 1075
The NASL's complaint alleged that the cross-ownership rule
excludes it from a substantial share of the market for
"professional sports capital and entrepreneural skill." The NFL
contended that the relevant market was for capital generally, and
that the rule does not exclude anyone from a significant share of
the capital market. The District Court decided that the relevant
market is in between-a market for "sports capital"-but did not
define precisely the extent of this market. It then decided that
any competition between the NFL and the NASL in that market is
competition between two single economic entities.
505 F.
Supp. 659 (SDNY 1980). It thus held that 1 of the Sherman Act
does not apply because the NFL is a single economic entity that
cannot combine or conspire with itself. Id., at 689.
The Court of Appeals rejected this view.
670
F.2d 1249 (CA2 1982). It thought "[t]he characterization of the
NFL as a single economic entity does not exempt from the Sherman
Act an agreement between its members to restrain competition." See
Perma Life Mufflers, Inc. v. International Parts Corp.,
392 U.S. 134, 141-142, 88
S. Ct. 1981, 1985-1986, 20 L. Ed. 2d 982 (1968); Timken Roller
Bearing Co. v. United States,
341 U.S.
593, 598, 71 S. Ct. 971, 974 (1951). The Court of Appeals
thought the objective of the cross-ownership rule is to protect
individual teams as well as the league from competition.
At this point, the Court of Appeals had dealt with the District
Court's entire holding. The District Court expressly declined to
consider whether the cross-ownership rule violates the Rule of
Reason. 505 F.Supp., at 689. The application of the Rule of Reason
is to be made by "the factfinder [who] weighs all of the
circumstances of a case." Continental T.V., Inc. v. GTE Sylvania,
Inc.,
433 U.S.
36, 49, 97 S. Ct. 2549, 2557, 53 L. Ed. 2d 568 (1977). See,
e.g., Berkey Photo, Inc. v. Eastman Kodak Co.,
603 F.2d
263, 302 (CA2 1979). The proper course for the Court of Appeals
thus would have been to remand for findings by the District Court.
However, it proceeded to decide the merits on its own.
Page 459
U.S. 1074, 1076
The Court of Appeals first decided that there is a market for
"sports capital and skill," which is a submarket of the capital
market. "[A]n owner may in practice sell his franchise only to a
relatively narrow group of eligible purchasers, not to any
financier." It did not define this market except to say that it is
"not limited to existing or potential major sports team owners,"
but "is relatively limited in scope and is only a small fraction of
the total capital funds market." 670 F.2d, at 1260. It is not clear
whether the Court of Appeals was attempting to define the relevant
market differently than did the District Court. If it was, it
should have applied the clearly erroneous standard to the District
Court's finding rather than substituting its own judgment.
Associated Radio Service Co. v. Page Airways, Inc.,
624 F.2d
1342, 1348-1349 (CA5 1980); Martin B. Glauser Dodge Co. v.
Chrysler Corp.,
570 F.2d
72, 82 n. 18 (CA3 1977); Telex Corp v. International Business
Machines Corp.,
510 F.2d
894, 915 (CA10 1975) (per curiam). See Pullman-Standard v.
Swint, --- U.S . ___, ___, 102 S. Ct. 1781, 1789, 72 L. Ed. 2d 66
(1982).
The Court of Appeals then proceeded to apply the Rule of Reason.
There is no dispute as to the proper statement of the Rule. "The
true test of legality is whether the restraint imposed is such as
merely regulates and perhaps thereby promotes competition or
whether it is such as may suppress or even destroy competition."
Chicago Board of Trade v. United States,
246 U.S.
231, 238, 38 S. Ct. 242, 244 (1918).
On the basis of the facts as described by the Court of Appeals I
seriously doubt whether the Rule of Reason was violated. The Court
of Appeals held the cross-ownership rule is anticompetitive because
it restricts the access of NASL teams to sports capital, and that
this anticompetitive effect outweighs any procompetitive effects of
the rule. It rejected the argument that the rule enables NFL owners
to compete effectively in the entertainment market by assuring them
of the undivided loyalty of fellow-owners.
Page 459
U.S. 1074, 1077
I believe the Court of Appeals gave too little weight to the
procompetitive features of the cross-ownership rule and engaged in
excessive speculation as to its anticompetitive effect.
The NFL owners are joint ventures who produce a product,
professional football, which competes with other sports and other
forms of entertainment in the entertainment market. Although
individual NFL teams compete with one another on the playing field,
they rarely compete in the market place. The NFL negotiates its
television contracts, for example, in a single block. The revenues
from broadcast rights are pooled. Indeed, the only inter-team
competition occurs when two teams are located in one major city,
such as New York or Los Angeles. These teams compete with one
another for home game attendance and local broadcast revenues. In
all other respects, the league competes as a unit against other
forms of entertainment.
This arrangement, like the arrangement in Broadcast Music, Inc.
v. CBS,
441 U.S. 1,
99 S. Ct. 1551, 60 L. Ed. 2d 1 (1978), is largely a matter of
necessity. If the teams were entirely independent, there could be
no consistency of staffing, rules, equipment, or training. All of
these are at least arguably necessary to permit the league to
create an appealing product in the entertainment market. Thus, NFL
football is a different product from what the NFL teams could offer
independently, and the NFL, like ASCAP, is "not really a joint
sales agency offering the individual goods of many sellers, but is
a separate seller offering its [product] of which the individual
[teams] are raw material. [The NFL], in short, made a market in
which individual [teams] are inherently unable to compete fully
effectively." Id., at 21-22, 99 S.Ct., at 1564.
The cross-ownership rule, then, is a covenant by joint venturers
who produce a single product not to compete with one another. The
rule governing such agreements was set out over 80 years ago by
Judge (later Chief Justice) Taft: A covenant not to compete is
valid if "it is merely ancillary to the
Page 459
U.S. 1074, 1078
main purpose of a lawful contract, and necessary to protect the
covenantee in the enjoyment of the legitimate fruits of the
contract, or to protect him from the dangers of an unjust use of
its fruits by the other party." United States v. Addyston Pipe
& Steel Co., 85 F.2d 1, 282 (C.C.A.6, 1898), aff'd as modified,
175 U.S. 211, 20
S. Ct. 96 (1899).
The cross-ownership rule seems to me to meet this test. Its
purposes are to minimize disputes among the owners and to prevent
some owners from using the benefits of their association with the
joint venture to compete against it. Participation in the league
gives the owner the benefit of detailed knowledge about market
conditions for professional sports, the strength and weaknesses of
the other teams in the league, and the methods his co-venturers use
to compete in the market place. It is only reasonable that the
owners would seek to prevent their fellows from giving these
significant assets, which are in some respects analogous to trade
secrets, to their competitors.
The courts have not, to my knowledge, prohibited businesses from
requiring employees to agree not to compete with their employer
while they remain employed. See, e.g., Lektro-Vend Corp. v. Vendor
Co.,
660 F.2d
255 ( CA7 1981), cert. denied, ___ U.S. ___, 102 S. Ct. 1277,
71 L. Ed. 2d 461 ( 1982). I cannot believe the Court of Appeals
would expect a law firm to countenance its partners working
part-time at a competing firm while remaining partners. Indeed,
this Court has noted that the Rule of Reason does not prohibit a
seller of a business from contracting not to compete with the buyer
in a reasonable geographic area for a reasonable time after he has
terminated his relationship with the business. National Society of
Professional Engineers v. United States,
435 U.S. 679, 688-689, 98
S. Ct. 1355, 1363-1364, 55 L. Ed. 2d 637 (1978) (citing Mitchel v.
Reynolds, 1 P. Wms. 181, 24 Eng.Rep. 347 (1711)). It is difficult
for me to understand why the cross-ownership rule is not valid
under this standard.
The anti-competitive element of the restraint, as found by the
Court of Appeals, is that competitors are denied access
Page 459
U.S. 1074, 1079
to "sports capital and skill." In defining this market, the
Court of Appeals noted that although capital is fungible, the
skills of successful sports entrepreneurs are not. This
entrepreneurial skill, however, is precisely what each NFL owner,
as co-venturer, contributes to every other owner.
The validity of covenants not to compete does not depend upon
the availability to competing firms of similarly qualified
individuals, but rests on the principle that competitors may seek
to maintain their ability to compete effectively without running
afoul of the antitrust laws. The Court of Appeals seems to me to
have implicitly adopted the view that businesses must arrange their
affairs so as to make it possible for would- be competitors to
compete successfully. This Court has explicitly stated the
contrary: The inquiry under the Rule of Reason is concerned only
with " impact on competitive conditions." Professional Engineers,
supra, 435 U.S ., at 688, 690, 98 S.Ct., at 1363, 1365. "The
antitrust laws were enacted for 'the protection of competition, not
competitors.' " Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc.,
429 U.S.
477, 488, 97 S. Ct. 690, 697, 50 L. Ed. 2d 701 (1977) (quoting
Brown Shoe Co. v. United States,
370 U.S.
294, 320, 82 S. Ct. 1502, 1521, 8 L. Ed. 2d 510 (1962))
(emphasis in original). Indeed, the Second Circuit has applied this
principle in the past: "We should always be mindful lest the
Sherman Act be invoked perversely in favor of those who seek
protection against the rigors of competition." Berkey Photo, supra,
603 F.2d, at 273. The Court of Appeals should have been more
mindful of its own admonition.
The Court of Appeals also faulted the NFL for failing to show
that its restriction was as narrow as possible. Although the Court
of Appeals did not cite any authority for this objection, it seems
to be relying on the requirement of Addyston, supra, that the
restraint be "necessary to protect the covenantee." 85 F., at 282.
The Court of Appeals has taken this statement too far by adopting
the least restrictive alternative analysis that is sometimes used
in constitutional law. The antitrust laws impose a standard of
reasonableness, not a standard of absolute necessity. The Court of
Ap-
Page 459
U.S. 1074, 1080
peals ignored its own holding that the proper standard is that
the constraint be "reasonably necessary." Berkey Photo, supra, at
303 ( quoting American Motor Inns v. Holiday Inns, Inc.,
521 F.2d
1230, 1249 ( CA3 1975)). Accord, Lektro-Vend, supra, 660 F.2d,
at 265. The Court of Appeals also ignored its own holding that the
possibility of less restrictive alternatives is only one among many
proper considerations for the factfinder. Berkey Photo, supra, at
303.
In any event, it seems to me that the cross-ownership rule is
narrowly drawn to vindicate the legitimate interests described
above. The owners are limited only in areas where the special
knowledge and skills provided by their co-owners can be expected to
be of significant value. They are not prohibited from competing
with the NFL in areas of the entertainment market other than
professional sports. An owner may invest in television movies, rock
concerts, plays, or anything else that suits his fancy.
It simply does not appear that the positive effects of the
challenged restraint in helping the NFL to compete in the economic
market place are outweighed by their negative effects on
competition. The antitrust laws do not require the NFL to operate
so as to make it easier for another league to compete against it. I
fear that, under the decision below, the maxim that the antitrust
laws exist to protect competition, not competitors may be reduced
to a dead letter.
I would grant certiorari.
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