United States: Minor League Teams Take A Swing At Baseball's Antitrust Exemption

Denver, Colo. (January 18, 2022) - A group of minor league baseball teams have filed suit in the U.S. District Court for the Southern District of New York in Manhattan against Major League Baseball (MLB) in a pitch to end a nearly century-old antitrust exemption first granted by the U.S. Supreme Court in 1922.

The Lawsuit

The suit is based on MLB's decision in 2019 to contract its minor league system from 160 teams to 120 teams. Charging that no other business in the U.S. would even consider such a "brazen horizontal agreement among competing businesses," the minor league plaintiffs allege that MLB and its clubs had no such qualms because of a judicially created "get out of jail free card," or antitrust exemption, first dealt to them by the Supreme Court in Fed. Baseball Club, Inc. v. Nat'l League of Prof'l Baseball Clubs, 259 U.S. 200 (1922) and subsequently reaffirmed in Toolson v. N.Y. Yankees, Inc., 346 U.S. 356, 356, 74 S. Ct. 78, 78 (1953) and Flood v. Kuhn, 407 U.S. 258, 259, 92 S. Ct. 2099, 2100 (1972).

Even though the Supreme Court had declined to revisit the baseball exemption as recently as 2018 by denying certiorari petitions in Wyckoff v. Office of the Comm'r of Baseball, 138 S. Ct. 2621 (2018) and Right Field Rooftops, LLC v. Chi. Cubs Baseball Club, LLC, 138 S. Ct. 2621 (2018), the minor league clubs argued that the Supreme Court signaled its willingness to reconsider the exemption in NCAA v. Alston, 141 S. Ct. 2141 (2021), in which a unanimous Court refused to exempt the NCAA from antitrust scrutiny despite its decades-old decision in Nat'l Collegiate Athletic Ass'n v. Bd. of Regents, 468 U.S. 85 (1984), which the NCAA had argued provided special protection from antitrust scrutiny for the NCAA's "amateurism" rules. In Alston, the Court not only refused to be bound by its previous NCAA decision in 1984, but also hinted at a willingness to revisit the baseball exemption.

Justice Gorsuch, writing for a unanimous Court in Alston, acknowledged that the Court "once dallied with something that looks a bit like an antitrust exemption for professional baseball" in its 1922 decision in Federal Baseball. Justice Gorsuch went on to note that not only has the Court refused to extend Federal Baseball's reasoning to other sports, it has also acknowledged criticisms of the decision as "unrealistic," "inconsistent," and "aberration[al]."

Apparently emboldened by these words, the minor league clubs argue in their complaint against MLB that they had "objectively good reasons" to believe that the Supreme Court would revisit the baseball exemption if presented with a proper case for reconsidering it. And they urged, "This is that case."

Potential Implications of District Court Decision

It would be a bold step for the district court to make new law on its own by accepting the minor league clubs' invitation to revisit the baseball exemption. It would be an equally bold step for the Second Circuit to do so, particularly in light of its refusal to do so as recently as 2018 in Wyckoff v. Office of the Comm'r of Baseball, 705 F. App'x 26 (2d Cir. 2017). But predictions about such bold steps have their own inherent limitations.

Antitrust exemptions and immunities are created by either federal legislation or federal courts. Regardless of their merit, exemptions and immunities to the antitrust laws come at a societal cost. The antitrust laws seek to promote and protect free and fair competition for the ultimate benefit of consumers. Antitrust exemptions and immunities can frustrate the achievement of those goals. As noted by the Antitrust Modernization Commission in its 2007 final Report and Recommendations, "[A]ntitrust exemptions can impose significant costs, which must be weighed against any benefits of an exemption."

Certain legislatively-created antitrust exemptions have been recently limited. For example, on January 13, 2021, former President Trump signed into law the Competitive Health Insurance Reform Act of 2020, which limited the antitrust exemption available to health insurance companies under the McCarran-Ferguson Act (1945). (The McCarran-Ferguson Act exempted the "business of insurance" from the federal antitrust laws to the extent regulated by state law).

Whether the Supreme Court would agree to play ball with the minor league clubs and grant a certiorari petition to revisit baseball's judicially-created antitrust exemption will depend on its willingness not to be constrained by the doctrine of stare decisis. In its 232-year history, the Court has done so only 233 times, and most recently, in the antitrust context, in Leegin Creative Leather Prods. v. PSKS, Inc., 551 U.S. 877 (2007) (overruling Dr. Miles Med. Co. v. John D. Park & Sons Co., 220 U.S. 373(1911)).

Lewis Brisbois' Antitrust & Competition Practice assists clients in developing and monitoring antitrust compliance policies and programs, responding to Civil Investigative Demands (CIDs) issued by the FTC, the DOJ, and state antitrust enforcement agencies, and representing both plaintiffs and defendants in matters involving antitrust laws and anticompetitive conduct. For more information on this or any other antitrust law development, contact the authors of this alert.

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