Shaw v. Dallas Cowboys Football Club, Ltd. ( 1999 )


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  •                                                                                                                            Opinions of the United
    1999 Decisions                                                                                                             States Court of Appeals
    for the Third Circuit
    4-9-1999
    Shaw v. Dallas Cowboys
    Precedential or Non-Precedential:
    Docket 98-1629
    Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1999
    Recommended Citation
    "Shaw v. Dallas Cowboys" (1999). 1999 Decisions. Paper 94.
    http://digitalcommons.law.villanova.edu/thirdcircuit_1999/94
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    Filed April 9, 1999
    UNITED STATES COURT OF APPEALS
    FOR THE THIRD CIRCUIT
    Nos. 98-1629 and 98-1887
    CHARLES SHAW; BRET D. SCHWARTZ; STEVE
    PROMISLO, INDIVIDUALLY, AND ON BEHALF OF ALL
    PERSONS SIMILARLY SITUATED
    v.
    DALLAS COWBOYS FOOTBALL CLUB, LTD.; NEW
    ENGLAND PATRIOTS FOOTBALL CLUB; NEW YORK
    GIANTS FOOTBALL, INC.; PHILADELPHIA EAGLES
    LIMITED PARTNERSHIP; SAN FRANCISCO FORTY-
    NINERS, LTD.; NATIONAL FOOTBALL LEAGUE,
    Appellants
    Appeal from the United States District Court
    for the Eastern District of Pennsylvania
    (D.C. Civ. No. 97-cv-05184)
    Argued March 11, 1999
    Before: MANSMANN, SCIRICA and NYGAARD,
    Circuit Judges.
    (Filed April 9, 1999)
    Howard J. Sedran, Esquire
    (ARGUED)
    Donald E. Haviland, Jr., Esquire
    Levin, Fishbein, Sedran & Berman
    510 Walnut Street
    Suite 500
    Philadelphia, PA 19106
    On the Brief:
    Michael D. Hausfeld, Esquire
    Daniel Small, Esquire
    Cohen, Milstein, Hausfeld & Toll
    1100 New York Avenue, NW
    Suite 500, West Tower
    Washington, D.C. 2005
    William Bernstein, Esquire
    Joseph R. Saveri, Esquire
    Lieff, Cabraser, Heimann &
    Bernstein, LLP
    Embarcadero Center West
    275 Battery Street, 30th Floor
    San Francisco, CA 94111
    Samuel D. Heins, Esquire
    Daniel E. Gustafson, Esquire
    Heins, Mills & Olson, P.L.C.
    700 Northstar East
    608 Second Avenue South
    Minneapolis, MN 55402
    David T. Shulick, Esquire
    Frank & Rosen
    1601 Market Street, Suite 2230
    Philadelphia, PA 19103
    Roberta D. Liebenberg, Esquire
    Liebenberg & White
    The Pavilion, Suite 810
    261 Old York Road
    Jenkintown, PA 1910-46
    Allyn Z. Lite, Esquire
    Goldstein, Lite & DePalma
    Two Gateway Center, 12th Floor
    Newark, NJ 07102-5003
    2
    Ira Neil Richards, Esquire
    Trujillo, Rodriguez & Richards,
    LLC
    The Penthouse
    226 West Rittenhouse Square
    Philadelphia, PA 19103
    Dennis Stewart, Esquire
    Milberg Weiss Bershad Hynes
    & Lerach
    600 West Broadway
    1800 One Americas Plaza
    San Diego, CA 92101-5050
    March Edelson, Esquire
    Hoffman & Edelson
    45 West Court Street
    Doylestown, PA 18901
    Joseph C. Kohn, Esquire
    Kohn, Swift & Graf, P.C.
    1101 Market Street, Suite 2400
    Philadelphia, PA 19107
    Bruce McNew, Esquire
    Taylor Gruver & McNew, P.A.
    3711 Kennett Pike, Suite 210
    Greenville, DE 19807
    Gregory Veith, Esquire
    P.O. Box 378
    Wynnewood, PA 19096
    COUNSEL FOR APPELLEES
    Peter J. Nickles, Esquire
    Timothy C. Hester, Esquire
    (ARGUED)
    Neil K. Roman, Esquire
    Covington & Burling
    1201 Pennsylvania Avenue, N.W.
    P.O. Box 7566
    Washington, D.C. 20044-7566
    3
    Richard P. McElroy
    Blank Rome Comisky & McCauley
    One Logan Square
    Philadelphia, PA 19103
    COUNSEL FOR APPELLANTS
    OPINION OF THE COURT
    MANSMANN, Circuit Judge.
    In this appeal involving a certified question, we must
    determine, as a matter of first impression, whether an
    agreement among members of the National Football League1
    to sell broadcast rights jointly to satellite distributors is
    exempt from scrutiny under the Sherman Act, 15 U.S.C.
    SS 1 et seq. Citing the Sports Broadcasting Act (the "SBA"),
    15 U.S.C. S 1291, the NFL sought dismissal of a class
    action antitrust suit brought by Charles Shaw, Bret D.
    Schwartz, and Steven Promislo ("Shaw"). The NFL asserted
    that the rights being sold were "residual" rights in a
    "sponsored telecasting" and therefore within the SBA's
    exemption to the antitrust laws. The District Court rejected
    this characterization, holding that the statutory exemption
    turns on the nature of the broadcast in question and that
    the phrase "sponsored telecasting" exempts only a
    commercially sponsored free broadcast. The District Court
    further observed that the SBA's legislative history
    contradicts the NFL's interpretation and that exceptions to
    the antitrust laws must be narrowly construed.
    Accordingly, we must first determine whether the SBA
    unambiguously exempts from antitrust law scrutiny only
    the right to sell those images for commercially sponsored
    free broadcast. If not, we must turn to the Act's legislative
    _________________________________________________________________
    1. The members of the National Football League which are parties to the
    agreement and to this action are the: Dallas Cowboys Football Club,
    Ltd.; New England Patriots Football Club; New York Giants Football,
    Inc.; Philadelphia Eagles Limited Partnership; and San Francisco Forty-
    Niners, Ltd. We refer to these members and the League itself collectively
    as the "NFL".
    4
    history. Because we agree with the District Court that it
    does, we will affirm.
    I.
    The NFL and its member teams own all rights to make
    and distribute images of football performances (the
    "games") between the teams. By agreement, they permit the
    broadcasting of approximately a dozen NFL games each
    week on free television networks, such as NBC or Fox.
    Because different games are broadcast within different local
    markets, however, any television viewer has free access to
    only two or three NFL games.2 This leaves an unserviced
    market for those NFL games outside a viewer's local
    broadcast area (e.g., the Pittsburgh Steelers fan who lives in
    Los Angeles). With the development and expansion of
    satellite distribution, that market can now be tapped. The
    NFL and member teams entered into a pooled agreement to
    sell jointly their rights in all football games broadcast
    nationwide to a satellite broadcast distributor (DIRECTV)
    which in turn offers those games as an all-or nothing
    package (the "NFL Sunday Ticket") to individual viewer-
    subscribers at a fixed cost per season.3
    Shaw filed this class action suit, alleging that the NFL's
    joint agreement with the satellite distributor violates
    Section 1 of the Sherman Act4 and seeking declaratory and
    injunctive relief. Specifically, Shaw alleges that the
    combined agreement causes artificially high and
    _________________________________________________________________
    2. Shaw v. Dallas Cowboys Football Club, Ltd. , 
    1998 WL 419765
    , *1-2
    (E.D. Pa. June 23, 1998).
    3. This cost is in addition to the subscriber's monthly satellite access
    fee.
    Id. at *2.
    4. The antitrust laws were designed for the protection of the public.
    Under Section 1 of the Sherman Act, as interpreted by the Supreme
    Court, agreements which unreasonably restrain trade are illegal. See,
    e.g., Standard Oil v. United States, 
    221 U.S. 1
    , 
    31 S.Ct. 502
    , 
    55 L.Ed. 619
     (1911). To make out a Section 1 violation, plaintiffs must prove: (1)
    a contract, combination or conspiracy; (2) a restraint of trade; and (3)
    an
    effect on interstate commerce. See Fuentes v. South Hills Cardiology, 
    946 F.2d 196
    , 198 (3d Cir. 1991).
    5
    noncompetitive prices for NFL satellite broadcasts and
    restricts the options available to NFL fans.
    The NFL filed a motion to dismiss pursuant to Fed. R.
    Civ. P. 12(b)(6), alleging that (1) the pooled sale to the
    satellite distributor is a sale of "residual" rights in a
    "sponsored telecast" exempted from antitrust law under the
    SBA, and (2) Shaw failed adequately to allege the necessary
    joint action. The District Court denied the NFL's motion on
    both grounds and, at the NFL's request, certified the
    question of SBA exemption for interlocutory review. 5
    II.
    Congress passed the Sports Broadcasting Act in 1961 in
    response to a federal court ruling6 that the NFL's package
    sale of games to a commercial television network (CBS)
    violated the Sherman Antitrust Act, 15 U.S.C. S 1. Its
    purpose was to preserve the availability of NFL games on
    free broadcast television.7 The SBA therefore exempts from
    the antitrust laws:
    any agreement by or among persons engaging in or
    conducting the organized professional team sports of
    football, . . ., by which any league of clubs participating
    in professional football . . . contests sells or otherwise
    transfers all or any part of the rights of such league's
    member clubs in the sponsored telecasting of the games
    of football, . . . engaged in or conducted by such clubs.
    15 U.S.C. S 1291 (emphasis added). Our first task is to
    consider the plain meaning of the statute, heeding the
    _________________________________________________________________
    5. Our appellate jurisdiction lies pursuant to 28 U.S.C. S 1292(b).
    6. See United States v. National Football League, 
    116 F. Supp. 319
     (E.D.
    Pa. 1953).
    7. See, e.g., S. Rep. No. 1087, 1961 U.S.C.C.A.N. at 3044 (noting the
    Senate Judiciary Committee's concern for "the public interest in viewing
    professional league sports"). See generally U.S. Football League v.
    National Football League, 
    842 F.2d 1335
    , 1346-7 (2d Cir. 1988)
    (discussing history of agreements between the NFL and major television
    networks and history of the SBA).
    6
    Supreme Court's direction that exceptions to the antitrust
    laws must be narrowly construed.8
    As the District Court explained and as the NFL does not
    dispute, the phrase "sponsored telecasting" refers to
    broadcasts which are financed by business enterprises (the
    "sponsors") in return for advertising time and are therefore
    provided free to the general public. Shaw, 
    1998 WL 419765
    , *3. Although the NFL concedes that a package of
    satellite broadcasts sold to individual subscribers is not a
    "sponsored telecasting", it asserts that its pooled sale to the
    satellite distributor is nonetheless within the SBA's
    antitrust law exemption because it constitutes a sale of
    residual or retained rights in the sponsored telecasts, i.e.,
    that it is "part of [those] rights."
    The NFL correctly asserts that it "still own[s] a partial
    right to the games broadcast by the free networks." Id. at
    *2. It errs when it characterizes its remaining rights as
    rights in the sponsored telecasts. The NFL's underlying
    rights are in the games themselves and, more specifically,
    they include the right to sell the images of those games for
    broadcast through various media. The broadcast rights sold
    to sponsored telecasters do not subsume the separate
    broadcast rights sold to a non-sponsored medium. 9 Each
    _________________________________________________________________
    8. See, e.g., Union Labor Life Ins. Co. v. Pireno, 
    458 U.S. 119
    , 126, 
    102 S. Ct. 3002
    , 
    73 L.Ed.2d 647
     (1991) (holding that exceptions to the
    antitrust laws are narrowly construed, as they circumvent Congress's
    commitment to open competition).
    9. The NFL attaches great significance to the fact that the satellite
    broadcasts utilize the same images as the sponsored telecasts, fed from
    the same network television cameras. The use of the same signal for
    broadcast over two media, however, does not render the rights in one
    broadcast derivative of rights in the other. One could just as readily
    conclude that the network television broadcast rights are derivative, and
    constitute part of the NFL's rights in the non-sponsored satellite
    broadcast. The network's provision of cameras and commentary does not
    remove the arbitrariness of calling one broadcast derivative of the other.
    Exemption from the antitrust laws cannot be predicated on the simple
    expedient of assigning ownership of cameras or payment of camera
    crews and commentators to a television network. Rather, it is predicated
    on the "sponsored telecast" of the image, i.e., its transmission in a form
    freely receivable by the public.
    7
    transaction is a sale of a part of the NFL's underlying right
    in the images of the games, but only the former is exempt
    from antitrust scrutiny. We agree with the District Court
    that one looks to the nature of "the broadcast which goes
    to these particular plaintiffs." Id. at *3. As that court
    observed, to hold otherwise - to adopt the construction
    urged by the NFL - would allow the exception to swallow
    the rule: a sponsored telecast to a limited geographic area
    would secure an antitrust law exemption for nationwide
    sales.10
    III.
    In light of the NFL's contentions regarding the meaning of
    the statutory provisions, the District Court considered the
    SBA's legislative history and concluded that it
    demonstrated that the Act did not exempt the challenged
    sale. See id. at *4. Although we need not turn to the Act's
    legislative history, we do so because the District Court
    examined it in detail.
    Our review of the Act's legislative history also leads us to
    conclude that it clearly reflects Congress's intent, and the
    NFL's express contemporaneous concurrence, that the Act
    address only the sale of games to a sponsored television
    network. See Telecasting of Professional Sports Contests:
    Hearing before the Antitrust Committee of the House
    Committee on the Judiciary on H.R. 8757, 87th Cong. 1st
    Sess. at 4 (Sept. 13, 1961) (stating that the bill applies to
    "sponsored telecasting" and "does not apply to closed
    circuit or subscription television");11 Id. at 36 (Aug. 28,
    _________________________________________________________________
    10. See id. ("Were the rule otherwise, the NFL could circumvent the
    statutory confines, nullify the statutory scheme, simply by always using
    earlier broadcasts with commercials. . . . [T]o construe the statute that
    way would cause [it] to self-destruct -- an absurd result.").
    11. Subsequent congressional hearings characterized subscription
    television as a "program to be received by members of the public only
    upon the payment by such members of a charge, fee, or other form of
    direct compensation." See Subscription Television, Hearings Before the
    Subcommittee on Communications and Power of The Committee on
    Interstate and Foreign Commerce, House of Representatives, 90th Cong.,
    1st Sess. at 2-3 (1967) (quoting H.R. 12435, 90th Cong., 1st Sess., para.
    (hh)).
    8
    1961) (wherein the NFL Commissioner acknowledged
    "absolutely" under oath his understanding that the bill
    "covers only the free telecasting of professional sports
    contests, and does not cover pay T.V.").12 As the District
    Court observed in its well-reasoned opinion, the NFL
    obtained in the 1961 Act an expressly limited exception to
    "the normal prohibition on monopolistic behavior"; one
    which permitted it to sell pooled rights to sponsored
    telecasters and which expressly did not apply to
    subscription television. The NFL got what it lobbied for; it
    cannot now expect the federal courts to transform"narrow,
    discrete, special-interest" legislation into a far broader
    exemption. Shaw, 
    1998 WL 419765
    , *5.13 This is
    _________________________________________________________________
    12. See also Chicago Pro. Sports Ltd. Partnership v. NBA, 
    808 F. Supp. 646
    , 649-50 (N.D. Ill. 1992) (reviewing legislative history and concluding
    that the SBA's legislative history showed that sponsored telecasting was
    limited to free commercial television); Letter from Charles F. Rule, Asst.
    Atty. Gen., Antitrust Division, U.S. Department of Justice, to the Hon.
    Howard M. Metzenbaum, Chairman, Senate Subcommittee on Antitrust,
    Monopolies, and Business Rights, March 30, 1988, reprinted in Antitrust
    Implications of the Recent NFL Television Contract: Hearing Before the
    Subcommittee on Antitrust, Monopolies, and Business Rights of the
    Commission on the Judiciary, 100th Cong., 1st Sess. 67 (1987) (citing
    legislative history and concluding - as did the FTC - that the SBA
    provides no antitrust immunity to the NFL for its contract with ESPN, a
    cable operator, as that programming is not within the "sponsored
    telecasting" exemption).
    The NFL argues on appeal that references in the House records to
    sales to networks and "other potential purchasers" of television rights
    conflicts with a finding that the exemption was not intended to extend to
    broadcasts requiring payment by viewers. This is not so. In the context
    of the 1961 Act, the "other potential purchasers" were quite probably
    other sponsored (but non-network) purchasers, such as local and
    regional television stations.
    13. See also Chicago Pro. Sports Ltd. Partnership v. NBA, 
    961 F.2d 667
    ,
    671 (7th Cir. 1992), cert. denied, 
    506 U.S. 954
    , 
    113 S. Ct. 409
    , 
    121 L.Ed.2d 334
     (1992) (holding that it is "inappropriate to extend [special
    interest laws] to achieve more of the objective the lobbyists wanted")
    (citations omitted). The Court of Appeals observed that "When special
    interests claim they have obtained favors from Congress, a court should
    ask to see the bill of sale." 
    Id.
    9
    particularly so, once again, because the Act must be
    narrowly applied.14
    IV.
    Because we find that the subscription satellite broadcast
    of NFL games is not a part of the NFL's rights to the
    sponsored telecasting of those games and therefore not
    within the Sports Broadcasting Act's exemption to the
    antitrust laws, we will affirm the District Court's decision.
    A True Copy:
    Teste:
    Clerk of the United States Court of Appeals
    for the Third Circuit
    _________________________________________________________________
    14. See supra note 8; see also Chicago Pro. Sports, 
    961 F.2d at 672
    (noting that "courts read exceptions to the antitrust laws narrowly, with
    beady eyes and green eyeshades") (citations omitted).
    10