Antitrust Versus Labor Law in Professional Sports: Balancing the Brady v. NFL Scales after and Anthony v. NBA Gabriel Feldman* We are in the midst of a transformational period for labor negotiations in professional sports. Early last year, the National Football League (“NFL”) players dissolved their union and challenged the NFL owners’ lockout as an illegal boycott under section 1 of the Sherman Act. The resulting case, Brady v. NFL, was a landmark legal battle that raised complex, unprecedented issues that lie at the intersection of antitrust and labor law. The application of antitrust law in Brady v. NFL could fundamentally change the application of labor law and collective bargaining in professional sports. A similar legal battle — Anthony v. NBA — played out in the NBA after its collective bargaining agreement expired on June 30, 2011. This Article analyzes the difficult balance between labor and antitrust law presented by Brady and Anthony and argues that the NFL’s and the NBA’s (collectively, the “Leagues”) reliance on a faulty underlying premise undermines their positions in the cases. In particular, the implicit foundation of the Leagues’ argument is that the Rule of Reason in section 1 of the Sherman Act — the test for determining the legality of restraints under antitrust law — should not apply to labor restraints in professional sports because member teams are uniquely interdependent. The Leagues also contend that the Rule of Reason is unpredictable and incoherent such that antitrust scrutiny would automatically render illegal any and all concerted action by the owners. * Copyright © 2012 Gabriel Feldman. Associate Professor of Law and Director, Tulane Sports Law Program, Tulane Law School. I am grateful for helpful comments and suggestions from William Gould, Bob Batterman, Mark Levinstein, Adam Babich, and Abigail Gaunt. I am also thankful for the invaluable help from my research assistant, Jon Phelps. 1221 1222 University of California, Davis [Vol. 45:1221 The Leagues’ attacks on the Rule of Reason disregard the balance between antitrust and labor law, and represent yet another misguided attempt to achieve the “Shangri-la of everlasting immunity from the antitrust laws.” The assault on the Rule of Reason and antitrust law is misplaced for three reasons. First, courts consistently have held that the Rule of Reason applies to professional sports leagues, despite the interdependence of their member teams. Second, reasonable owner- imposed player restraints can, and have, survived antitrust scrutiny under the Rule of Reason. Third, although the Rule of Reason is an imperfect method for determining the legality of restraints, these imperfections do not justify elevating labor law over antitrust law after the dissolution of a players’ unions. The imperfections in the Rule of Reason test can be eliminated, or at least minimized, through the formulation of a more coherent, predictable, and workable Rule of Reason. This Article proposes a new model for streamlining the Rule of Reason test that will aid courts in applying the doctrine and allow for a more appropriate balance between federal antitrust and labor policy. TABLE OF CONTENTS INTRODUCTION ................................................................................. 1223 I. THE ORIGIN AND EVOLUTION OF THE LABOR EXEMPTIONS TO ANTITRUST LAW ..................................................................... 1227 II. THE EVOLUTION OF THE NONSTATUTORY LABOR EXEMPTION IN PROFESSIONAL SPORTS ....................................................... 1232 A. Multi-Employer Bargaining and Antitrust Scrutiny ......... 1232 B. The Unique Nature of Sports Unions ............................... 1236 C. The Evolution of the Nonstatutory Labor Exemption in Professional Sports .......................................................... 1238 D. The Latest Stage in the Evolution of the Nonstatutory Labor Exemption: Brady v. NFL and. Anthony v. NBA .. 1249 1. Brady v. NFL ............................................................. 1249 2. Anthony v. NBA ......................................................... 1251 III. THE NONSTATUTORY LABOR EXEMPTION MUST TERMINATE AFTER THE DISSOLUTION OF A UNION .................................... 1252 A. Extending the Nonstatutory Labor Exemption to Cover Post-Dissolution Agreements Would Subvert Both Federal Labor and Antitrust Policy ............................................... 1253 B. No Conflict Exists between Antitrust and Labor Law After the Dissolution of a Union ............................................... 1259 C. The Leagues Are Attempting to Manipulate the Nonstatutory Labor Exemption to Gain Broad Immunity from Antitrust Law .......................................................... 1266 2012] Antitrust Versus Labor Law in Professional Sports 1223 IV. EVOLUTION AND CONFUSION OF THE RULE OF REASON AND A PROPOSAL FOR A MORE WORKABLE APPROACH ...................... 1278 A. The Supreme Court’s Formulation of the Rule of Reason and Its Short Comings ..................................................... 1279 B. The Addition of the Less Restrictive Alternative as an Independent Prong of the Rule of Reason .......................... 1281 C. Towards a New Rule of Reason Standard ......................... 1289 1. Market Power Filter as a Heuristic ........................... 1289 2. Use of the Less Restrictive Alternative Inquiry to Help Determine Competitive Effects ....................... 1291 3. Seeking Guidance from Proportionality Analysis .... 1295 CONCLUSION..................................................................................... 1300 INTRODUCTION Earlier last year, the National Football League (“NFL”) players dissolved their union in order to challenge the NFL owners’ lockout as an illegal boycott under section 1 of the Sherman Act. The case, Brady v. NFL,1 was a landmark legal battle that raised complex, unprecedented issues that intersect antitrust and labor law in a way that could fundamentally alter collective bargaining in professional sports. A similar legal battle — Anthony v. NBA2 — ensued in the NBA after its collective bargaining agreement with its players expired on June 30, 2011. Brady and Anthony represent a core disagreement regarding the role of antitrust and labor law in professional sports. The two areas of law inherently conflict.3 Antitrust law — in particular, section 1 of the Sherman Act4 — encourages competition and prohibits cooperation among competitors. Labor law, by contrast, encourages cooperation among employees (i.e., competitors for employment) and between employers and employees.5 To reconcile this conflict and to promote collective bargaining, Congress and the courts have immunized the 1 644 F.3d 661, 663 (8th Cir. 2011). 2 Complaint, Anthony v. NBA, No. 11-5525 (N.D.Cal. Nov. 15, 2011). 3 See, e.g., Douglas L. Leslie, Principles of Labor Antitrust, 66 VA. L. REV. 1183, 1184 (1980) (“[T]he antitrust statutes promote competition and economic efficiency, while the federal labor statutes sanction activity that is arguably anticompetitive.”). 4 Section 1 of the Sherman Act, 15 U.S.C. § 1 (2006), provides in relevant part: “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.” 5 See Local Union No. 189, Amalgamated Meat Cutters & Butcher Workmen of N. Am. v. Jewel Tea Co., Inc., 381 U.S. 676, 711 (1965). 1224 University of California, Davis [Vol. 45:1221 collective bargaining process and resulting agreements from antitrust claims through a doctrine known as the “nonstatutory labor exemption.”6 Absent this immunity, many of the terms contained in collective bargaining agreements in professional sports — including salary caps, player drafts, and restrictions on free agency — would be subject to antitrust scrutiny.7 Courts have extended this immunity beyond the expiration of a collective bargaining agreement. The Supreme Court held in Brown v. Pro Football, Inc.8 that the NFL owners’ unilateral post-impasse9 imposition of employment terms was protected from antitrust attack. In Brown, the NFL players and owners negotiated to an impasse regarding the salary for “developmental squad” players.10 The owners, as permitted under labor law, then unilaterally implemented their last, best offer — a fixed salary scale for all players on the developmental squad.11 Although this fixed salary was not part of a collective bargaining agreement, the Supreme Court held that the nonstatutory labor exemption doctrine immunized the owners’ offer from antitrust claims.12 The Court reasoned that a collective bargaining relationship existed between the owners and the players, and that the application of antitrust law would interfere with federal labor policy and the collective bargaining process.13 Brady and Anthony raised the question of whether the rule announced in Brown shields a lockout or other concerted owner conduct from antitrust attack, even after the players have dissolved their union. The NFL and NBA (the “Leagues”) portray these cases as 6 A statutory labor exemption is contained in the Clayton Act, 15 U.S.C. § 17 (2006), and the Norris-LaGuardia Act, 29 U.S.C. §§ 52, 105 (2006). The “nonstatutory labor exemption” is a judicially created addition to the statutory exemption. Connell Constr. Co. v. Plumbers & Steamfitters Local Union No. 100, 421 U.S. 616, 621-22 (1975). 7 See, e.g., Mackey v. NFL, 543 F.2d 606, 620-22 (8th Cir. 1976) (applying the Rule of Reason to restrictions on player movement in the NFL); Smith v. Pro-Football Inc., 420 F. Supp. 738, 746-47 (D.D.C. 1976) (applying the Rule of Reason to the college player draft). 8 518 U.S. 231, 250 (1996). 9 An “impasse” in negotiations occurs when “good faith negotiations have exhausted the prospects of concluding an agreement, leading both parties to believe that they are at the end of their rope.” NLRB v. Whitesell Corp., 638 F.3d 883, 890 (8th Cir. 2011) (citing TruServ Corp. v. NLRB., 254 F.3d 1105, 1114 (D.D.C. 2001) (citations and footnotes omitted)). 10 Brown, 518 U.S. at 235. 11 Id. 12 Id. at 250. 13 Id. 2012] Antitrust Versus Labor Law in Professional Sports 1225 labor disputes and argue that concerted league conduct subsequent to a players’ union dissolution should be exempt from antitrust scrutiny. The Leagues’ argument is twofold. First, the Leagues contend that they have a statutorily protected right to implement a lockout to put economic pressure on the players.14 Second, the Leagues argue that thrusting antitrust law into these disputes would destroy multi- employer bargaining and interfere with the labor process.15 This Article argues that immunizing concerted owner conduct (such as a lockout) from antitrust attack after the dissolution of a union is inconsistent with Brown and the rationale underlying the nonstatutory labor exemption. A basic tenet of labor law holds that employees have a right to choose not to be represented by a union and to refrain from collective bargaining.16 If employees choose to forego collective bargaining and opt to negotiate and compete for employment opportunities individually, antitrust — and not labor law — applies.17 Depriving employees of their right to sue under section 1 of the Sherman Act on the grounds that they chose not to engage in collective bargaining would frustrate both antitrust and labor policy. This Article also argues that the Leagues’ view of the appropriate balance between antitrust and labor law rests on a faulty premise. In particular, the implicit foundation of the Leagues’ argument is that the Rule of Reason in section 1 of the Sherman Act — the test for determining the legality of restraints under antitrust law — should not apply to labor restraints in professional sports because teams are uniquely interdependent. The Leagues also contend that the Rule of Reason is unpredictable and incoherent, and that antitrust scrutiny would automatically render illegal any and all concerted owner action. Courts have consistently rejected these arguments over the past several decades.18 The Leagues’ expansive interpretation of the nonstatutory labor exemption in Brady and NPA is little more than a repackaging of these arguments. Once again, the Leagues’ arguments represent yet another misguided attempt at achieving the “Shangri-la of everlasting immunity from the antitrust laws.”19 That interpretation disregards the 14 See Brady v. NFL, 644 F.3d 661, 673 (8th Cir. 2011); Complaint at 17-20, NBA v. NBPA, No. 11 Civ. 5369 (S.D.N.Y. Aug. 2, 2011). 15 See Brady, 644 F.3d at 667; Complaint, supra, note 14 at 17-20. 16 29 U.S.C. § 157 (2006). 17 See Brown v. Pro Football, Inc., 50 F.3d 1041, 1057 (D.C. Cir. 1995); see infra Part IV. 18 See, e.g., American Needle v. NFL, 130 S. Ct. 2201, 2216-17 (2010). 19 Powell v. NFL, 930 F.2d 1293, 1309 (8th Cir. 1989) (Lay, C.J., dissenting). 1226 University of California, Davis [Vol. 45:1221 balance between antitrust and labor law, and is misplaced for three reasons. First, courts consistently have held that the Rule of Reason applies to professional sports leagues, despite the interdependence of their member teams.20 Second, reasonable owner-imposed player restraints can, and have, survived antitrust scrutiny under the Rule of Reason in past cases.21 Third, although the Rule of Reason is an imperfect method for determining the legality of restraints on trade,22 these imperfections do not justify elevating labor law over antitrust law after the dissolution of a union. The imperfections in the Rule of Reason can be eliminated, or at least minimized, through the formulation of a more coherent, predictable, and workable test. This Article proposes a model for streamlining and improving Rule of Reason. The proposed model will aid courts in applying the Rule of Reason and allow for a more appropriate balance between federal antitrust and labor policy. This Article proceeds as follows: Part I provides an overview of the conflict between antitrust and labor law, and examines the statutory and judicial exemptions created to reconcile the inherent tension between these areas of law. Part II explores the unique aspects of collective bargaining in professional sports and analyzes the evolution of the nonstatutory labor exemption through sports antitrust cases. Part III discusses the issues raised in Brady and Anthony, and analyzes the Leagues’ argument that the nonstatutory labor exemption shields team owners from antitrust scrutiny after the players have dissolved their union. Part IV explains that the Leagues’ interpretation of the exemption frustrates both antitrust and labor policy. Moreover, the Leagues’ interpretation relies on the faulty premise that the Rule of Reason in section 1 should not apply to labor restraints in professional sports. This Part also explores other contexts in which sports leagues have unsuccessfully argued that their conduct should be immune from antitrust law. Part V discusses the evolution of the Rule of Reason and the confusion surrounding the application of the test in addition to providing a model for creating a more coherent and streamlined Rule of Reason analysis. This Part explains that this new model will aid 20 See Radovich v. NFL, 352 U.S. 445, 449-52 (1957); N. Am. Soccer League v. NFL, 670 F.2d 1249, 1257 (2d. Cir. 1982); Smith v. Pro-Football, Inc., 593 F.2d 1173, 1177-82 (D.C. Cir. 1978). 21 See, e.g., Neeld v. NHL, 594 F.2d 1297, 1298-1300 (9th Cir. 1979) (holding legal under the Rule of Reason a rule that barred partially blind players). 22 See, e.g., Richard Posner, The Next Step in the Antitrust Treatment of Restricted Distribution: Per Se Legality, 48 U. CHI. L. REV. 6, 15 (1981) (commenting that the Rule of Reason is “[a] standard so poorly articulated and particularized, applied by tribunals so poorly equipped to understand and apply it”). 2012] Antitrust Versus Labor Law in Professional Sports 1227 courts in applying the Rule of Reason and clarify the issues raised when antitrust conflicts with labor law. I. THE ORIGIN AND EVOLUTION OF THE LABOR EXEMPTIONS TO ANTITRUST LAW Brady and Anthony present the latest conflict between antitrust and labor law. Both cases raise complex and novel issues that could dramatically shift the balance between antitrust and labor law, as well as the balance of power between players and owners in collective bargaining. Before delving into Brady and Anthony, it is necessary to understand the nature of the conflict between federal antitrust and labor policy, and how Congress and the courts have reconciled this conflict over the last several decades. The starting point of the analysis is the recognition of the inherent tension between federal antitrust and labor law. Antitrust law promotes competition and condemns cooperation among competitors. Section 1 of the Sherman Act explicitly prohibits “[e]very contract . . . or conspiracy, in restraint of trade or commerce among the several States.”23 Federal labor law, by contrast, encourages cooperation among competitors in employment.24 One of the fundamental principles of federal labor policy is that employees may eliminate competition among themselves through the formation of a union to serve as their exclusive bargaining representative.25 The impact of this 23 15 U.S.C. § 1 (2006). Antitrust law is a powerful weapon in that it provides private plaintiffs with “treble” damages. See, e.g., Sean W.L. Alford, Dusting Off the AK- 47: An Examination of NFL Players’ Most Powerful Weapon in an Antitrust Lawsuit Against the NFL, 88 N.C. L. REV. 212, 213 (2009) (referring to antitrust litigation as “the collective bargaining equivalent of an AK-47”). 24 See id. at 666. 25 See United Mine Workers of Am. v. Pennington, 381 U.S. 657, 666 (1965) (“This Court has recognized that a legitimate aim of any national labor organization is to obtain uniformity of labor standards and that a consequence of such union activity may be to eliminate competition based on differences in such standards.” (citation omitted)). Section 9(a) of the National Labor Relations Act provides that “[r]epresentatives designated or selected . . . by the majority of the employees in a unit . . . shall be the exclusive representatives of all the employees in such unit for the purposes of collective bargaining.” 29 U.S.C. § 159(a) (2006). Labor law thus permits employees to seek the best deal for the greatest number by exercising collective rather than individual bargaining power. Once an exclusive representative has been selected, the individual employee is forbidden by federal law — unless specifically permitted by the collective bargaining representative — from negotiating directly with the employer absent the representative’s consent. See, e.g., NLRB v. Allis-Chalmers Mfg. Co., 388 U.S. 175, 180 (1967) (finding that an individual employee’s bargaining rights are 1228 University of California, Davis [Vol. 45:1221 conflict is notable. For more than twenty years after the passage of the Sherman Act, courts routinely held that unions do not illegally restrain trade in violation of antitrust law.26 To alleviate this inherent conflict (and in response to court rulings), the Norris-LaGuardia Act27 and sections 6 and 20 of the Clayton Act28 created what has become known as the “statutory labor exemption” to antitrust claims. Section 6 of the Clayton Act declares that “the labor of a human being is not a commodity or article of commerce” and provides that the antitrust laws do not prohibit labor organizations.29 The Norris–LaGuardia Act and Section 20 of the Clayton Act limit the ability of federal courts to enjoin certain labor-related activities.30 The Supreme Court has interpreted these provisions to protect unilateral union conduct from antitrust challenge.31 In United States v. Hutcheson, the Supreme Court affirmed that the Norris-LaGuardia Act immunizes labor unions from the Sherman Act.32 Hutcheson allows labor unions to assert economic pressure on employers “[s]o long as a union acts in its self-interest and does not combine with non-labor groups.”33 The case also ensures the right of unionized employees to engage in concerted activity — such as pickets and boycotts — in attempts to achieve more favorable terms and condition of employment without fear of antitrust scrutiny.34 Thus, the statutory exemption makes clear that “labor unions are not “extinguished” where a collective bargaining unit represents the employee’s interests). This prohibition exists even if that employee may actually receive lower compensation under the collective agreement than he or she would have through individual negotiations. See, e.g., J.I. Case Co. v. NLRB, 321 U.S. 332, 338 (1944) (reasoning that the fact that such situations do not serve as “ground for holding generally that individual contracts may survive or surmount collective ones”). Labor law also permits other concerted activity among employees, including the right to strike, boycott, and picket. 26 See, e.g., United States v. Hutcheson, 312 U.S. 219, 237-39 (1941) (Stone, J., concurring) (noting the application of antitrust law to unions). 27 29 U.S.C. §§ 101-115 (2006). 28 15 U.S.C. § 17 (2006); 29 U.S.C. § 52 (2006). 29 15 U.S.C. § 17 (2006). See Brown v. Pro Football, Inc., 50 F.3d 1041, 1048 (D.C. Cir. 1995). 30 See Brown, 50 F.3d at 1048. 31 See id. (citing H.A. Artists & Assocs., Inc. v. Actors’ Equity Ass’n, 451 U.S. 704, 714-15 (1981) and Hutcheson, 312 U.S. at 232). 32 Hutcheson, 312 U.S. at 235-36. 33 Id. at 232. 34 See Michael C. Harper, Multiemployer Bargaining, Antitrust Law, and Team Sports: The Contingent Choice of A Broad Exemption, 38 WM. & MARY L. REV. 1663, 1669-70 (1997). 2012] Antitrust Versus Labor Law in Professional Sports 1229 combinations or conspiracies in restraint of trade, and exempt specific union activities . . . from the operation of the antitrust laws.”35 As the labor movement matured, the emphasis of labor policy shifted from employee organization to collective bargaining and the relationship between employee and employer.36 The National Labor Relations Act (“NLRA”) and the Labor-Management Relations Act (“LMRA”)37 established collective bargaining as the regime to govern the relationship between employers and unionized employees. Labor laws require employers and employees to negotiate in good faith with respect to wages, hours, and other terms and conditions of employment.38 Congress designed the collective bargaining process to encourage the parties to reach voluntary agreement regarding these economic terms.39 The statutory exemption, however, did not immunize the collective bargaining process or collective bargaining agreements themselves from potential antitrust liability.40 Rather, the statutory exemption only protected a labor organization’s unilateral actions and not “agreements between unions and nonlabor parties.”41 Recognizing the need for a proper accommodation between labor law (and collective bargaining) and antitrust law (and free competition), the Supreme Court created what is commonly known as the “nonstatutory labor exemption.”42 As the Supreme Court stated: 35 Connell Constr. Co. v. Plumbers & Steamfitters Local Union No. 100, 421 U.S. 616, 621-22 (1975). 36 See John C. Weistart, Judicial Review of Labor Agreements: Lessons from the Sports Industry, 44 LAW & CONTEMP. PROBS. 109, 114 (1981) (noting the shift in focus from unionization to collective bargaining). 37 29 U.S.C. §§ 141-197 (2006). The NLRA is commonly referred to as the Wagner Act. The LMRA is commonly referred to as the Taft-Hartley Act. 38 See, e.g., NLRB v. Am. Nat. Ins. Co., 343 U.S. 395, 401-03 (1952). 39 Id. 40 See Connell, 421 U.S. at 622. 41 Id. 42 See, e.g., id. (stating that the nonstatutory labor exemption represents a “proper accommodation between the congressional policy favoring collective bargaining under the NLRA and the congressional policy favoring free competition in business markets” (emphasis added)); see also, e.g., Harper, supra note 34, at 1673-74 (“The nonstatutory exemption has its source in the strong labor policy favoring the association of employees to eliminate competition over wages and working conditions. Union success in organizing workers and standardizing wages ultimately will affect price competition among employers, but the goals of federal labor law never could be achieved if this effect on business competition were held a violation of the antitrust laws . . . . Under this view, the purpose of the nonstatutory exemption, like that of the statutory exemption, is to accommodate the antitrust laws to a central purpose of the labor laws, allowing workers to organize and freely take concerted action in attempts 1230 University of California, Davis [Vol. 45:1221 [a]s a matter of logic, it would be difficult, if not impossible, to require groups of employers and employees to bargain together, but at the same time to forbid them to make among themselves or with each other any of the competition- restricting agreements potentially necessary to make the process work or its results mutually acceptable.43 The Court thus held that “some restraints on competition imposed through the bargaining process must be shielded from antitrust sanctions . . . to give effect to federal labor laws and policies and to allow meaningful collective bargaining to take place.”44 Put simply, the nonstatutory labor exemption acts as a limited, implied repeal of the antitrust laws so that the “statutorily authorized collective-bargaining process [can] work.”45 The exemption also recognizes a preference for resolving collective bargaining disputes through voluntary agreement and labor remedies rather than judicial intervention.46 Furthermore, the exemption “has its source in the strong labor policy favoring the association of employees to eliminate competition over wages and working conditions.”47 In the landmark case that developed the nonstatutory labor exemption, Local Union No. 189, Amalgamated Meat Cutters & Butcher Workmen of North America v. Jewel Tea Co. (Jewel Tea), the Court applied the nonstatutory labor exemption to immunize terms of a to raise wages and other terms of employment to levels higher than could be achieved by individual, noncollective bargaining in a free labor market.”); Ethan Lock, The Scope of the Labor Exemption in Professional Sports, 1989 DUKE L.J. 339, 395 (1989) (“To foster collective bargaining, the courts have willingly subordinated antitrust policies and immunized otherwise unlawful restraints contained in bona-fide arm’s- length agreements. . . . In this context, the proper accommodation of the antitrust and labor laws requires that the labor laws control.”). 43 Brown v. NFL, 518 U.S. 231, 237; see also Connell, 421 U.S. at 622 (noting that the goals of federal labor law could not be achieved if the anticompetitive effects of collective bargaining were held to violate the antitrust laws); Local Union No. 189, Amalgamated Meat Cutters & Butcher Workmen of N. Am. v. Jewel Tea Co. 381 U.S. 676, 711 (1965) (explaining that federal labor policy would be “virtually destroyed” by subjecting collective bargaining to antitrust scrutiny). 44 Brown, 518 U.S. at 237. 45 Id.; see, e.g., Harper, supra note 34, at 1674 (“Jewel Tea’s nonstatutory exemption recognized that such concerted action ultimately cannot be meaningful if collective agreements securing higher wages and other benefits are themselves subject to antitrust attack.”). 46 See Brown, 518 U.S. at 237. See also Weistart, supra note 36, at 131 (“Federal labor policy accepts that the prevailing principle should be freedom of contract: the parties can agree to whatever terms they wish, and courts will not inquire into the wisdom or reasonableness of the bargain struck.”). 47 Connell, 421 U.S. at 622.