Kingray, Inc. v. Nba, Inc.
| Decision Date | 01 February 2002 |
| Docket Number | No. CIV. 00CV1545-L.,CIV. 00CV1545-L. |
| Citation | 188 F.Supp.2d 1177 |
| Parties | KINGRAY, INC. d/b/a the Beer Hunter, a California corporation, et al., Plaintiffs, v. NATIONAL BASKETBALL ASSOCIATION, INC. et al., Defendants. |
| Court | U.S. District Court — Southern District of California |
Daral B. Mazzarella, John F. McGuire, Jr., Karen R. Frostrom, Thorsnes Bartolotta and McGuire, San Diego, CA, Jefferson H. Read, Oldenettel and Associates, Mark A. Hovenkamp, Grayson and Hovenkamp, Houston, TX, Jonathan S. Massey, Law Offices of Jonathan S. Massey, Washington, DC, Jeffrey R. Vaughan, Law Offices of Jeffrey R. Vaughn, Houston, TX, Stephen F. Ross, Champaign, IL, for Plaintiffs.
Douglas B. Adler, Daniel E. Sobelsohn, Skadden Arps Slate Meagher and Flom, Los Angeles, CA, Jeffrey A. Mishkin, Charles Scott Lent, Skadden Arps Slate Meagher and Flom, New York City, Richard W. Buchanan, National Basketball Association, New York City, Robert Andrew Sacks, Sullivan and Cromwell, Los Angeles, CA, Richard E. Constable, III, Sullivan and Cromwell, New York City, Gerald L. McMahon, Seltzer Caplan McMahon Vitek, San Diego, CA, Dale H. Oliver, Quinn Emanuel Urquhart Oliver and Hedges, Los Angeles, CA, for Defendants.
This matter comes before the Court on Defendants' motions to dismiss the First Amended Complaint. The Court finds these motions suitable for determination without oral argument pursuant to Civil Local Rule 7.1(d)(1).
Plaintiffs, individuals and commercial establishments, have filed this lawsuit on behalf of commercial and residential purchasers of the "NBA League Pass," the broadcast of a bundled package of NBA basketball games. (First Amended Complaint ("FAC") ¶¶ 1, 55.) Plaintiffs purchased this subscription through DirecTV, a provider of satellite television programming. (FAC ¶¶ 21, 33.) Plaintiffs allege the NBA League Pass violates federal and state antitrust laws and California's Unfair Competition Act. Defendants are the National Basketball Association, Inc. ("NBA"), NBA Properties, Inc. ("NBA Properties"), DirecTV, and several professional basketball organizations. (FAC ¶¶ 8-17.) These basketball organizations are: Chicago Professional Sports Limited Partnership d/b/a Chicago Bulls; LAC Basketball Club, Inc. d/b/a Los Angeles Clippers; Royal Kings Limited Partnership, d/b/a Sacramento Kings; the Los Angeles Lakers, Inc., d/b/a Los Angeles Lakers; Madison Square Garden, L.P. d/b/a New York Knicks; Jazz Basketball Investors, Inc., d/b/a the Utah Jazz; and Trail Blazers, Inc., d/b/a Portland Trail-blazers (collectively referred to as the "NBA Teams"). (FAC ¶¶ 10-16.) NBA, NBA Properties, and NBA Teams are hereinafter collectively referred to as "NBA Defendants."
Prior to the enactment of the Sports Broadcasting Act ("SBA"), collective agreements between professional sports leagues and broadcast television providers were found to be horizontal agreements in violation of the Sherman Antitrust Act ("Sherman Act"). (FAC ¶ 42.) Following the Eastern District of Pennsylvania's decision in United States v. National Football League, 196 F.Supp. 445 (E.D.Pa. 1961), professional sports leagues successfully lobbied for the SBA, which carves out an exemption for a clearly delineated class of such agreements. Id. Under the SBA, the antitrust laws "shall not apply to any joint agreement [concerning] organized professional team sports of football, baseball, basketball, or hockey ... in the sponsored telecasting of the games of football, baseball, basketball, or hockey." (FAC ¶ 43 (quoting 15 U.S.C. § 1291) (emphasis in original).) "Sponsored telecasting" under the SBA pertains only to network broadcast television and does not apply to non-exempt channels of distribution such as cable television, pay-per-view, and satellite television networks. Id.
The NBA is currently comprised of 29 independently owned and operated professional basketball teams that have joined the NBA to compete in its professional basketball league. (FAC ¶ 48.) Each of the 29 NBA Teams is franchised by the NBA and is an independent business entity.1 (FAC ¶¶ 49-50.) Each NBA team competes with one another for, inter alia, the acquisition of players, coaches, and management personnel. (FAC ¶ 50.) Each NBA team derives separate revenues from local television and radio, parking, concessions, and box seating. Id. The NBA Teams do not share their expenses, profits, or losses. Id.
The NBA Teams have authorized the NBA, through its Board of Governors and Commissioner, and/or NBA Properties, to contract on their behalf for the live video telecasting of certain regular season and post-season games. (FAC ¶ 51.) Each NBA team has agreed with the other NBA teams and/or with the NBA not to compete in the sale of rights for the live video telecasting of regular season games. (FAC ¶ 52.) The NBA Teams have, pursuant to the SBA, jointly agreed to sell the rights to selected regular season games to the NBA to sell to television networks for over-the-air sponsored (free) broadcasting. (FAC ¶ 53.) The NBA Teams have also jointly agreed to sell rights to other selected regular season games to the TNT or TBS stations for non-sponsored (pay) national cable broadcasting. Id. By agreement, each of these regular season games can be broadcast only within each team's protected geographical territory ("in-market games"). (FAC ¶ 54.) With few specified exceptions, the agreement(s) among the NBA and the NBA Teams forbid the broadcast of any NBA game in any geographic market except those licensed by the NBA Team in that geographic market ("out-of-market games"). Id.
Beginning in the 1994-95 NBA season, the NBA Defendants agreed to sell jointly their broadcast rights at what Plaintiffs contend is artificially inflated prices. (FAC ¶ 53.) Plaintiffs allege the NBA Defendants conspired with DirecTV for the broadcast of a bundled package of NBA out-of-market basketball games, agreeing to restrict output of those games according to geographical market, price, and quantity. (FAC ¶ 55.) Pursuant to this combination, conspiracy, and/or contract, the Defendants made available for purchase at a fixed price, a package to residential and commercial satellite dish owners, using a DirecTV-compatible C-band or Kuband DSS satellite dish antenna broadcasts, of up to 40 out-of-market regular season NBA games per week and more than 1000 regular season games per year. (FAC ¶ 56.) This package is called the "NBA League Pass." Id. Such satellite users may not opt to purchase these out-of-market games individually, but are required to buy the entire package. Id.
The Defendants have agreed that the NBA League Pass is the exclusive means by which out-of-market games may be licensed for satellite viewing by individual consumers and/or commercial establishments. (FAC ¶ 57.) The Defendants have further agreed that these games will not be distributed via sponsored telecasts. Id.
Defendants have agreed to "black out" the re-broadcast of certain NBA games to maintain "protected territories" of certain NBA Teams. (FAC ¶ 58.) Specifically as to the NBA League Pass, the Defendants have also agreed to black out games publicly advertised as included in the NBA League Pass even when those games are outside of the "protected territories." Id. Plaintiffs allege these black-outs have resulted in reducing the output of NBA professional basketball games. Id.
As of 1998, satellite users must purchase the NBA League Pass through DirecTV. (FAC ¶ 61.) No other satellite provider is authorized to provide the NBA League Pass games. Id. On April 22, 1998, DirecTV and the NBA executed a renewal contract for the distribution of the NBA League Pass. (FAC ¶ 62.) That contract stated that DirecTV's rights were "non-exclusive." Id. It further provided that only two distribution licenses would be issued, one to DirecTV and one to PrimeStar, and that if DirecTV "became aware" of the termination of PrimeStar's license, it would have the right to become the exclusive distributor of the NBA League Pass. Id. Less than one week later, DirecTV acquired PrimeStar and exercised its contractual option to become the exclusive distributor of the NBA League Pass. Id. On August 4, 1999, DirecTV and the NBA executed an amended distribution contract confirming that DirecTV was the exclusive distributor of the NBA League Pass. (FAC ¶ 63.) According to Plaintiffs, one DirecTV competitor, Echostar, offers high power direct broadcast satellite service but is barred from distributing the NBA League Pass. (FAC ¶ 64.)
Beginning in 2000, the NBA contracted with iN Demand to provide the NBA League Pass to residential cable subscribers on a pay-per-view basis.2 (FAC ¶ 66.) "Pay-per-view" programming allows cable subscribers to watch certain events on television for a cost additional to their existing cable rates. Id. iN Demand provides "pay-per-view" programming to cable companies and their subscribers nationwide. Id. Cable subscribers must order the NBA League Pass through iN Demand although their payments may be processed through the local cable providers and their service is routed through their local cable companies. Id.
Plaintiffs allege the agreement to restrain the sale of rights to any NBA game outside of the team's assigned geographic territory except through the "NBA League Pass" is not reasonably necessary to achieve any legitimate business objective. (FAC ¶ 59.) According to Plaintiffs, the system of exclusive geographic territories is not necessary to preserve the viability of any individual NBA Team in attracting fans to live games, but only serves to artificially increase prices and reduce output. Id. Plaintiffs further contend that the system of exclusive territories is not necessary to preserve the quality and attractiveness...
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