Corporate & Securities Law

After Excluding an Economist’s Expert Report, the Second Circuit Upholds Major League Baseball’s Licensing of Team Logos

By Matthew S. Wild

The United States Court of Appeals for the Second Circuit recently held that Major League Baseball?s licensing of team logos was subject to rule of reason review under Section 1 of the Sherman Act.  The court affirmed summary judgment in favor of MLB because the appellant did not challenge the licensing program under that rule.  Major League Baseball Properties, Inc. v. Salvino, Inc., No. 06-1867 (2d Cir. Sept. 12, 2008) (attached MLB Properties v. Salvino).  The baseball clubs give (with a few exceptions) exclusive licensing rights to a single entity.  According to the MLB?s expert Frank Fisher (a world renowned economist), this system offers many efficiencies including allowing MLB licensing to compete better with other sports licensing; offering one-stop shopping to licensees; centralized management on matters such as quality control, intellectual property rights enforcement and negotiations and sales to licensees.  According to Fisher, these efficiencies should result in lower licensing fees.  The appellant had offered an expert report from economist Mr. Louis A. Guth, a Special Consultant for NERA, who disputed these efficiencies and asserted that the MLB licensing entity functioned as a cartel unresponsive to demand.  The Second Circuit affirmed the exclusion of Guth?s report under Daubert v. Merrell Dow because (unlike Fischer?s report) it was unsupported by evidentiary citations or empirical analysis.  The Second Circuit held that the rule of reason and not the per se rule or ?quick look? analysis applied because the ?arrangement might plausibly be thought to have a net precompetitive effect, or possibly no effect at all on competition.?  Through different reasoning, the Second Circuit in this case reached the same result as the Seventh Circuit did in a challenge to a nearly identical licensing program by the NFL.  See American Needle Inc. v. Nat?l Football League, No. 07-4006, 2008 WL 3822782 (7th Cir. Aug. 18, 2008) discussed in the Post of September 4, 2008.  In that case, the Seventh Circuit held that the NFL teams were incapable of conspiring with themselves under the Copperweld doctrine in these particular circumstances.  In this case, the Second Circuit did not address the Copperweld doctrine, but it did observe that the relevant market should include licenses for other professional sports.  Therefore, it would be unlikely for the MLB?s licensing activities to have an effect on competition.  This case should prove useful for practitioners for its discussion of when the per se rule, rule of reason or quick look analysis applies, the tests used under these analyses and the pitfalls of an inadequate expert report.

Full post as published by Antitrust Commentary on October 06, 2008 (boomark / email).