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An Anomaly of Historic Proportions: MLB’s Anti-trust Exemption

An Anomaly of Historic Proportions: MLB’s Anti-trust Exemption. Julianna Pratt. Background. Sherman Anti-trust Act Passed in 1890, with the intent of protecting consumers from the actions of trusts and monopolies.

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An Anomaly of Historic Proportions: MLB’s Anti-trust Exemption

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  1. An Anomaly of Historic Proportions: MLB’s Anti-trust Exemption Julianna Pratt

  2. Background • Sherman Anti-trust Act • Passed in 1890, with the intent of protecting consumers from the actions of trusts and monopolies. • “Every contract, combination in the form of trust or other- wise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal.” (Transcript of Sherman Anti-Trust Act (1890), n.d.) • “Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty” (Transcript of Sherman Anti-Trust Act (1890), n.d.) • Clayton Anti-trust Act • Passed in 1914, to cover gaps in the Sherman Anti-trust Act • Per the FTC, it prohibits mergers and acquisitions where the effect “may be substantially to lessen competition, or to tend to create a monopoly.” (The Antitrust Laws, n.d.) • Exemptions • Labor Unions, Farming/Fishing Co-Ops, Insurance • Major League Baseball

  3. Legal Aspects and Definitions • Trust • Monopoly • Interstate Commerce • Incidental vs Essential

  4. Relevant Cases • Standard Oil Company of New Jersey v The United States (1911) • Standard Oil was created in 1870 • Oil refining highly decentralized, more than 250 competitors • Undercut competitor’s pricing, bought up all available refining supplies • By 1882 controlled more than 90% of the oil refining capacity • Creation of Standard Oil Trust • Public reaction • Anti-trust lawsuit • Violated Sherman Anti-trust Act by excessively restricting trades and the methods they used to put their competition out of business • Rule of Reason • Monopolist power vs restriction of trade

  5. Relevant Cases • Federal Baseball Club of Baltimore v The National League (1922) • Federal League • Competition to American and National Leagues in 1914-15 • Folded after the 1915 season • Baltimore sued the AL, NL, and Federal League officials • Conspiracy to monopolize baseball by destroying the Federal League • Justice Oliver Wendell Holmes • Baseball is “purely state affairs. It is true that in order to attain for these exhibitions the great popularity that they have achieved, competitions must be arranged between clubs from different cities and States. But the fact that in order to give the exhibitions the Leagues must induce free persons to cross state lines and must arrange and pay for their doing so is not enough to change the character of the business.” (Federal Base Ball Club of Baltimore v. National League of Professional Base Ball Clubs, n.d.)

  6. Relevant Cases • The United States v International Boxing Club of New York (1955) • James Norris & Arthur Wirtz • Joe Louis • Retired from boxing, managing boxers • Norris & Wirtz make a deal with Louis • $100,000 for promotional rights of boxers • Compete for heavyweight title • Broadcasting rights of fighters for 3-5 years • Effective monopoly • Venue rights and boxer promotion • Promoted (or assisted in the promotion) of 19 of 21 heavyweight boxing championships between June 1949 and March 1952 • Anti-trust lawsuit brought against Norris and Wirtz • Argued that they were similar to MLB in travel being incidental to their business • 7-2 decision by the Supreme Court against IBCNY

  7. Relevant Cases • Radovich v The National Football League (1957) • William Radovich • Detroit Lions • 1946- Trade/Pay Increase Request • Fred Madel, Jr. • Los Angeles Dons • All-America Football Conference • San Francisco Clippers • Pacific Coast League • NFL argued they should be given the same exemption provided to the MLB • Justice Tom Clark (majority) • Case law explicitly limit anti-trust exemption to MLB • Adhere to, but not extend the interpretation of the Sherman Anti-trust Act • Justice John Marshall Harlan (Dissent)

  8. Relevant Cases • Flood v Kuhn (1972) • Curt Flood • Saint Louis Cardinals • Traded to Phillies • Reserve Clause • Judge Irving Ben Cooper • "The game is on higher ground; it behooves every one (sic) to keep it there.“ • Supreme Court • Baseball in engaging in interstate commerce • Justice William Douglass (Dissent) • Reserve Clause benefits the owners at the expense of the players • Stare decisis • Courts will adhere to previous rulings when an issue is the topic of another lawsuit

  9. Relevant Cases • United States vs American Telephone and Telegraph (1984) • American Phone and Telegraph • Long distance • Legal Monopoly • Regional Bell Operating Companies • Western Electric • Department of Justice • AT&T’s legal monopoly had resulted in them becoming too powerful • Presiding judge rules that AT&T’s status from the FCC as a “common carrier” did not give them immunity from anti-trust lawsuits • AT&T forced to divest themselves of the RBOCs

  10. Conclusion • Purpose of Sherman Anti-trust Act • Monopoly • Restriction of trade • Interstate Commerce • MLB • Structure • Vs. Other professional Sports • Legal Opinions • Do you think Congress should step in?

  11. References • 15 U.S. Code § 18 - Acquisition by one corporation of stock of another. (n.d.). Retrieved from Cornell Univeristy Law School : http://www.law.cornell.edu/uscode/text/15/18 • A Brief History: The Bell System. (n.d.). Retrieved from AT&T: http://www.corp.att.com/history/history3.html • Federal Base Ball Club of Baltimore v. National League of Professional Base Ball Clubs. (n.d.). Retrieved from WikiSource: http://en.wikisource.org/wiki/Federal_Base_Ball_Club_of_Baltimore_v._National_League_of_Professional_Base_Ball_Clubs • Federal League. (n.d.). Retrieved from Wikipedia: http://en.wikipedia.org/wiki/Federal_League • FLOOD v. KUHN, 407 U.S. 258 (1972). (n.d.). Retrieved from Find Law: http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=US&vol=407&invol=258 • History :: AT&T Antitrust. (n.d.). Retrieved from Cybertelecom: http://www.cybertelecom.org/notes/att_antitrust.htm • Radovich v. National Football League - 352 U.S. 445 (1957). (n.d.). Retrieved from Justia US Supreme Court Center: http://supreme.justia.com/cases/federal/us/352/445/case.html • STANDARD OIL CO. OF NEW JERSEY v. U S, 221 U.S. 1 (1910). (n.d.). Retrieved from Find Law: http://caselaw.lp.findlaw.com/scripts/getcase.pl?navby=CASE&court=US&vol=221&page=1 • The Antitrust Laws. (n.d.). Retrieved from Federal Trade Commission: http://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/antitrust-laws • The AT&T Antitrust Consent Decree. (n.d.). Retrieved from Berkeley Technology Law Journal: http://btlj.org/data/articles/vol5/Sullivan.pdf • The Dismantling of Standard Oil & Trust . (n.d.). Retrieved from LINFO: http://www.linfo.org/standardoil.html • Transcript of Sherman Anti-Trust Act (1890). (n.d.). Retrieved from Our Documents: http://www.ourdocuments.gov/doc.php?flash=true&doc=51&page=transcript • United States v. International Boxing Club - 348 U.S. 236 (1955). (n.d.). Retrieved from Justia US Supreme Court Center: http://supreme.justia.com/cases/federal/us/348/236/case.html

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