Major League Baseball Wins Over City of San Jose in Antitrust Lawsuit
In it’s January 15, 2015 opinion, the Court of Appeals for the Ninth Circuit ruled in favor of Major League Baseball (MLB) over the city of San Jose, who had challenged baseball’s exemption from antitrust regulation. City of San Jose v. Office of the Com’r of Baseball, No. 14-15139, 2015 WL 178358 (9th Cir. Jan. 15, 2015). Relying on three Supreme Court decisions decided between 1922 and 1972, the court held that baseball’s antitrust exemption included franchise relocation, and that the city of San Jose’s antitrust claims therefore had to be dismissed.
The MLB is organized in such a way that all MLB member clubs each have a designated operating territory in which they have to play their home games. In an attempt to boost profits, the Oakland Athletics wanted to move its home territory from the two California counties of Alameda and Contra Costa to San Jose, which they viewed as a more attractive venue. In preparation for the move the Athletics entered into an option agreement for land parcels with the city of San Jose, where they planned to build a stadium.
The problem with the planned move was that San Jose was a part of the exclusive operating territory of the San Fransisco Giants. MLB clubs are prohibited from moving into another team’s territory without approval from three-quarters of all MLB’s clubs. Although the MLB had established a so-called Special Relocation Committee in 2009 to look into the Athletics’ relocation request, four years later the committee had still not concluded on the issue. Because the Athletics had no approval to make the move, they could not start developing the land parcels in San Jose into a new stadium. San Jose filed the lawsuit against MLB, alleging violations of federal and state antitrust laws, the California consumer protection statute and California tort law because of what the city viewed as an attempt on MLB’s part to preserve the San Fransisco Giants’ monopoly in the area.
In his opinion for the court, Circuit Judge Kozinski first pointed to the Federal Baseball Club of Baltimore v. National League of Professional Baseball Clubs case from 1922, where the Supreme Court had held that the Sherman Act did not apply to the “business of giving exhibitions of baseball.” This finding was later affirmed in 1953 in Toolson v. New York Yankees, where the Court pointed out that Congress could have legislated on the issue of the baseball exemption in the thirty years that had gone by since Federal Baseball had been decided if they had wanted to do so. In the last case relied on by the court, Flood v. Kuhn from 1972, the Supreme Court upheld the baseball exemption from Federal Baseball, and again emphasized the overwhelming congressional acquiescence in the years after both Federal Baseball and Toolson. This acquiescence applied in particular to franchise relocation, because of the Curt Flood Act of 1998 where Congress withdrew the antitrust exemption for baseball in relation to the reserve clause and other labor issues, but specifically upheld the exemption for franchise relocation.
The court stated that although franchise relocation rules were exempted from antitrust regulation, it didn’t mean that other antitrust lawsuits related to the baseball industry would automatically be barred. MLB and the baseball franchises were not “immune” from antitrust suits, either, because ‘[t]here might be activities that MLB and its franchises engage in that are wholly collateral to the public display of baseball games, and for which antitrust liability may therefore attach.” However, the court said that “few, if any, issues are as central to a sport’s league’s proper functioning as its rules regarding the geographic designation of franchises.” Therefore, franchise relocation “are in the heartland of those precluded by Flood’s rationale.”