593 F.2d 1173 (D.C. Cir. 1978), 76-2135, Smith v. Pro Football, Inc.

Docket Nº:76-2135, 76-2136.
Citation:593 F.2d 1173
Party Name:1978-2 Trade Cases 62,375 James McCoy (Yazoo) SMITH v. PRO FOOTBALL, INC., a Maryland Corporation, a/k/a Washington Redskins and the National Football League, Appellants (two cases).
Case Date:November 09, 1978
Court:United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit
 
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593 F.2d 1173 (D.C. Cir. 1978)

1978-2 Trade Cases 62,375

James McCoy (Yazoo) SMITH

v.

PRO FOOTBALL, INC., a Maryland Corporation, a/k/a Washington

Redskins and the National Football League,

Appellants (two cases).

Nos. 76-2135, 76-2136.

United States Court of Appeals, District of Columbia Circuit

November 9, 1978

As Amended Nov. 22, 1978.

As Amended Jan. 31, 1979.

Rehearing Denied Feb. 1, 1979.

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James C. McKay, Paul J. Tagliabue, and C. Michael Buxton, Washington, D. C., on the brief for the National Football League.

Bernard I. Nordlinger and Robert B. Frank, Washington, D. C., were on the brief for Pro-Football, Inc.

Stuart H. Johnson, Jr., Washington, D. C., with whom R. Kenneth Mundy and Mozart G. Ratner, Washington, D. C., were on the brief, for James M. (Yazoo) Smith.

Before McGOWAN, MacKINNON and WILKEY, Circuit Judges.

Opinion for the Court filed by WILKEY, Circuit Judge.

Opinion filed by MacKINNON, Circuit Judge, concurring in part and dissenting in part.

WILKEY, Circuit Judge:

This private antitrust action challenges the legality of the National Football League (NFL) player selection system, commonly called the "draft." The plaintiff is James McCoy (Yazoo) Smith, a former professional football player who played one season for the Washington Redskins after being drafted by them in 1968. The defendants are Pro-Football, Inc., which operates the Redskins, and the NFL. Smith contends that the draft as it existed in 1968 was an unreasonable restraint of trade in violation of §§ 1 and 3 of the Sherman Act, 1 and that, but for the draft, he would have

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negotiated a far more lucrative contract when he signed as a player in that year. Smith alleges that he has been injured in his business or property 2 in the amount of the difference between the compensation he actually received and the compensation he would have received had there existed a "free market" for his services.

After a trial to the court, District Judge Bryant held that the NFL draft as it existed in 1968 constituted a "group boycott" and was thus a Per se violation of the Sherman Act. 3 Alternatively, he held that the draft, tested under the rule of reason, was an unreasonable restraint because it was "significantly more restrictive than necessary" to accomplish whatever legitimate goals the NFL had. 4 Judge Bryant awarded Smith treble damages totaling $276,000. The Redskins and the NFL have appealed the finding of antitrust liability; both sides have appealed the damage award. Relying on the rule of reason, we affirm the finding of antitrust liability and remand for recomputation of damages.

I. BACKGROUND

The NFL draft, which has been in effect since 1935, is a procedure under which negotiating rights to graduating college football players are allocated each year among the NFL clubs in inverse order of the clubs' standing. Under the draft procedures generally followed, the team with the poorest playing-field record during the preceding season has the first opportunity, as among the NFL teams, to select a college player of its choice; the team with the next poorest record has the next choice, and so on until the team with the best record (the winner of the previous year's "Super Bowl") has picked last. At this point, the first "round" of the draft is completed. In 1968 there were 16 succeeding rounds in the yearly draft, the same order of selection being followed in each round. Teams had one choice per round unless they had traded their choice in that round to another team (a fairly common practice). When Smith was selected by the Redskins there were 26 teams choosing in the draft.

The NFL draft, like similar procedures in other professional sports, is designed to promote "competitive balance." By dispersing newly arriving player talent equally among all NFL teams, with preferences to the weaker clubs, the draft aims to produce

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teams that are as evenly-matched on the playing field as possible. Evenly-matched teams make for closer games, tighter pennant races, and better player morale, thus maximizing fan interest, broadcast revenues, and overall health of the sport.

The draft is effectuated through the NFL's "no-tampering" rule. 5 Under this rule as it existed in 1968, no team was permitted to negotiate prior to the draft with any player eligible to be drafted, and no team could negotiate with (or sign) any player selected by another team in the draft. The net result of these restrictions was that the right to negotiate with any given player was exclusively held by one team at any given time. If a college player could not reach a satisfactory agreement with the team holding the rights to his services he could not play in the NFL. 6

Plaintiff Smith became subject to the draft when he graduated as an All-American football player from the University of Oregon in 1968. The Redskins, choosing twelfth, picked Smith as their first-round draft choice. After several months of negotiations, in which he was represented by an agent, Smith and the Redskins signed a one-year contract a version of the Standard Player Contract that the NFL requires all players to sign. 7 The contract awarded Smith a $23,000 "bonus" for signing, an additional $5,000 if he made the team, and a salary of $22,000, for a total first-year compensation of $50,000.

Smith made the team and performed at a high level of play as a defensive back until he suffered a serious neck injury in the final game of the 1968 season. His doctors advised him not to continue his football career. After his injury the Redskins paid

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Smith an additional $19,800, representing the amount he would ordinarily have received had he played out the second ("option") year of his contract. 8

Two years after his injury Smith filed suit in the District Court. After finding that the draft violated the antitrust laws, Judge Bryant awarded Smith damages equal to the difference between his actual compensation and the compensation he could have received in a free market. To compute the latter amount, Judge Bryant assumed that plaintiff in a free market would have been able to negotiate a three-year contract with an "injury protection clause," I. e., a clause guaranteeing payment for the full term of a player's contract even if he should be incapacitated. Judge Bryant estimated Smith's annual "free market salary" by taking the annual salary ($54,000) of another defensive back (Pat Fischer) who signed as a "free agent" 9 with the Redskins in 1968. The resulting calculation yielded $162,000 as the contractual value of Smith's services in a free market. From this sum Judge Bryant subtracted the $69,800 that Smith in fact received, netting actual damages in the amount of $92,200. This figure was trebled to $276,600 in accordance with the antitrust laws. 10

II. ANALYSIS

The legality of the NFL player draft under the antitrust laws 11 is essentially a question of first impression. 12 This case requires us to consider (1) whether the legality of the draft is governed by a Per se rule or by the rule of reason; (2) whether the draft, if tested by the rule of reason, is a reasonable restraint; and (3) whether, if the draft violates the antitrust laws, the measure of damages adopted by the District Judge was proper. We discuss these issues in turn.

  1. Per Se Illegality

    The traditional framework of analysis under § 1 of the Sherman Act is familiar and does not require extended discussion. Section 1 prohibits "(e) very contract, combination . . . or conspiracy, in restraint of trade or commerce." While this language is broad enough to render illegal nearly all commercial understandings, the

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    Supreme Court in Standard Oil 13 established a judicial gloss on the statute which made the "rule of reason" the prevailing mode of analysis. Under this rule, the fact-finder weighs all the circumstances of a case in deciding whether a restrictive practice should be prohibited as imposing an Unreasonable restraint on competition. The inquiry mandated by the rule of reason, however, is often laborious, and as the courts gained experience with antitrust problems they identified certain types of agreements which were so consistently unreasonable that they could be deemed illegal Per se, without elaborate inquiry into their purported justifications. Among the practices that have been deemed so pernicious as to be unreasonable Per se are certain "group boycotts." 14

    Plaintiff argues that the NFL draft constitutes a "group boycott" because the NFL clubs concertedly refuse to deal with any player before he has been drafted or after he has been drafted by another team, and that the draft is in consequence a Per se violation of § 1. The District Court accepted this argument. We reject it. We hold that the NFL player draft is not properly characterized as a "group boycott" at least not the type of boycott that traditionally has been held illegal Per se and that the draft, regardless of how it is characterized, should more appropriately be tested under the rule of reason.

    The classic "group boycott" is a concerted attempt by a group of competitors at one level to protect themselves from competition from non-group members who seek to compete at that level. 15 Typically, the boycotting group combines to deprive would-be competitors of a trade relationship which they need in order to enter (or survive in) the level wherein the group operates. The group may accomplish its exclusionary purpose by inducing suppliers not to sell to potential competitors, by inducing customers not to buy from them, or, in some cases, by refusing to deal with would-be competitors themselves. 16 In each instance, however, the hallmark of the "group boycott" is the effort of competitors to "barricade themselves from competition at their own level." 17 It is this purpose to exclude competition that has characterized the Supreme Court's...

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