Adidas America v. National Collegiate Athl. Ass'n

• Decision Date: 26 August 1999
• Docket Number: No. Civ.A. 98-2510-GTV.,Civ.A. 98-2510-GTV.
• Parties: ADIDAS AMERICA, INC., Plaintiff, v. NATIONAL COLLEGIATE ATHLETIC ASSOCIATION, Defendant.
• Court: U.S. District Court — District of Kansas

64 F.Supp.2d 1097

ADIDAS AMERICA, INC., Plaintiff, v. NATIONAL COLLEGIATE ATHLETIC ASSOCIATION, Defendant.

No. Civ.A. 98-2510-GTV.

United States District Court, D. Kansas.

August 26, 1999.

COPYRIGHT MATERIAL OMITTED

Lori R. Schultz, W. Dennis Cross, Morrison & Hecker L.L.P., Kansas City, MO, A. Bradley Bodamer, Morrison & Hecker L.L.P., Overland Park, KS, David T. Alexander, Jesse W. Markham, Jr., Tracy M. Preston, Orrick, Herrington & Sutcliffe, San Francisco, CA, Bruce Keplinger, Timothy S. Davidson, Norris & Keplinger, L.L.C., Overland Park, KS, Eric S. Walters, Jackson, Tufts, Cole & Black, L.L.P., San Jose, CA, Susheela Jayapal, David M. Howitt, adidas America, Inc., Beaverton, OR, for Adidas America Inc., plaintiff.

Heather Suzanne Woodson, Stinson, Mag & Fizzell, P.C., Leawood, KS, Michael J. Davis, David E. Everson, Jr., Thomas P. Schult, Stinson, Mag & Fizzell, P.C., Kansas City, MO, Gregory L. Curtner, Miller, Canfield, Paddock & Stone, P.C., Ann Arbor, MI, for National Collegiate Athletic Association, defendant.

MEMORANDUM AND ORDER

VANBEBBER, Chief Judge.

Adidas America, Inc. ("Adidas")¹ filed this action for damages and injunctive relief against defendant National Collegiate Athletic Association ("the NCAA") alleging violations of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2, and state law claims of tortious interference with contractual relations, tortious interference with prospective economic advantage, breach of contract, and violations of public policy and NCAA bylaws and rules. The case is before the court on the NCAA's motion for judgment on the pleadings pursuant to Fed.R.Civ.P. 12(c). For the reasons set forth in this memorandum and order, the NCAA's 12(c) motion (Doc. 87) is granted.

I. FACTUAL BACKGROUND

When considering a motion to dismiss, the court assumes the truth of all well-pleaded factual allegations and makes all possible reasonable inferences in favor of the plaintiff. Thus, for purposes of the NCAA's motion to dismiss, the court takes the following allegations of facts from Adidas' Complaint.

The NCAA is a voluntary, unincorporated association of approximately 1,100 fouryear colleges and universities, conferences, affiliated associations and other educational institutions. Adidas is a Delaware Corporation with its principal place of business in Beaverton, Oregon. Adidas is one of the United States' leading suppliers of athletic footwear, apparel, and accessories.

Adidas currently contracts with NCAA member institutions and their coaches to advertise and promote its products. Pursuant to these contracts, known as sponsorship agreements, Adidas provides cash, free or discounted athletic shoes and apparel, and other goods and services to a particular school's teams, coaches, or entire athletic program. In exchange, Adidas obtains various promotional rights, the most significant of which is the team's or coach's agreement to wear Adidas' trademarked apparel and footwear bearing Adidas' advertising logos in intercollegiate competition, practice, and other athletic activities. These sponsorship agreements and, therefore, the promotional rights offered by NCAA member institutions are important components of Adidas' marketing strategy and that of its competitors. The association of a sporting apparel manufacturer's brand with particular teams, athletes, or coaches "authenticates" the brand as a high quality brand that serves the high performance needs of college athletics. According to Adidas, the NCAA and its member institutions have agreed to illegally restrict the sales of the above-mention promotional rights through its enforcement of Bylaw 12.5.5, which limits the amount of advertising that may appear on a student-athlete's uniform and equipment used during intercollegiate competition.²

According to Adidas, the NCAA and its member institutions, acting as a cartel, are using Bylaw 12.5.5 to illegally restrict the sale of NCAA promotional rights. This intentional restriction of promotional rights artificially limits the price and quality options available to apparel manufacturers as consumers of promotional space, forces manufacturers to pay additional amounts for billboard space or other advertising, decreases the selection of apparel offered to the end consumer, increases the price of the apparel for end consumers, and financially benefits the NCAA and its member institutions. The complaint further alleges that the NCAA benefits from its enforcement of Bylaw 12.5.5 as follows. The NCAA competes directly with Adidas and other manufacturers for promotional space on NCAA member institutions' uniforms. This competition is the result of the NCAA's commercialization of its own "NCAA" logo. The NCAA, in partnership with the Collegiate Licencing Company, is actively licencing use of the NCAA logo to apparel manufacturers at exorbitant royalty rates. Furthermore, the NCAA has asked that all member institutions place the NCAA logo on their student-athlete's uniforms and equipment for the purpose of enhancing the commercial value of the logo. Once member institutions place the NCAA logo on its uniforms, manufacturers such as Adidas will be forced to pay royalties to the NCAA in order to include the NCAA logo on replica uniforms sold to end consumers.³

II. LEGAL STANDARDS

A Rule 12(c) motion for judgment on the pleadings is governed by the same standards as a Rule 12(b)(6) motion to dismiss. Mock v. T. G. & Y., 971 F.2d 522, 528 (10th Cir.1992); Bushnell Corp. v. ITT Corp., 973 F.Supp. 1276, 1280 (D.Kan. 1997). In reviewing a defendant's Rule 12(c) motion, the court assumes the veracity of the "well-pleaded factual allegations" in the complaint and draws all reasonable inferences in the plaintiff's favor. Shaw v. Valdez, 819 F.2d 965, 968 (10th Cir.1987); see Zinermon v. Burch, 494 U.S. 113, 118, 110 S.Ct. 975, 108 L.Ed.2d 100 (1990). The issue is not whether the plaintiff ultimately will prevail, but whether the plaintiff is entitled to offer evidence to support its claims. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974), overruled on other grounds, Davis v. Scherer, 468 U.S. 183, 104 S.Ct. 3012, 82 L.Ed.2d 139 (1984). The court may dismiss a case for failure to state a claim only if it appears beyond a doubt that the plaintiff can prove no set of facts in support of its theory of recovery that would entitle it to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957).

III. DISCUSSION

A. Antitrust Claims

Adidas claims that the NCAA has unreasonably restrained trade and engaged in a group boycott in violation of § 1 of the Sherman Act, and has attempted to monopolize in violation of § 2 of the Sherman Act. To prevail under § 1 of the Sherman Act, a plaintiff must prove that the defendant (1) participated in an agreement that (2) unreasonably restrained trade in the relevant market. See Reazin v. Blue Cross & Blue Shield of Kan., Inc., 899 F.2d 951, 959 (10th Cir.1990). To prevail on a section 2 claim, a plaintiff must establish the following elements: (1) "the possession of monopoly power in the relevant market," and (2) "the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident." United States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 16 L.Ed.2d 778 (1966). The NCAA assets that Adidas has failed to state a claim under either § 1 or § 2 of Sherman Act, and that some or all of Adidas' antitrust claims should be dismissed on seven different grounds: (1) the enforcement of Bylaw 12.5.5 is not a commercial activity; (2) Adidas has not alleged that it suffered an "antitrust injury;" (3) Adidas has not alleged a plausible or legally cognizable relevant market; (4) Adidas has not alleged concerted action; (5) Bylaw 12.5.5 is reasonable as a matter of law; (6) Adidas has failed to show that the NCAA has monopoly power; and (7) Adidas has failed to allege facts showing that the NCAA acted with the requisite intent to monopolize. The court agrees that Adidas has failed to allege a plausible or legally cognizable relevant market; therefore, the court will not address the NCAA's six alternative grounds for dismissal.

The first step in an antitrust analysis is defining the relevant market or markets. See Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 268 (2d Cir.1979); Gough v. Rossmoor Corp., 585 F.2d 381, 389 (9th Cir.1978). "Market definition is `essential' to claims under § 1 and § 2 [of the Sherman Act] in which the rule of reason is applied." Joplin Enters. v. Allen, 795 F.Supp. 349, 352 (W.D.Wash.1992) (citing Gough, 585 F.2d at 389). Without defined relevant markets, there is no way for a court to determine whether a defendant has restrained trade in violation of § 1 or to measure a defendant's ability to lessen or destroy competition in violation § 2. See Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 177, 86 S.Ct. 347, 15 L.Ed.2d 247 (1965); Joplin Enters., 795 F.Supp. at 352 (citing Gough, 585 F.2d at 389).

In this case, it is Adidas' burden to properly plead the boundaries of the alleged relevant market or markets. See Nifty Foods Corp. v. Great Atl. & Pac. Tea Co., 614 F.2d 832, 840 (2d Cir.1980). However, an antitrust plaintiff may not "define a market so as to cover only the practice complained of, this would be circular or at least result-oriented reasoning." Redmond v. Missouri W. State College, No. 84-6139-CV-SJ-6, 1988 WL 142119, at *2 (W.D.Mo. Nov.2, 1988). Rather, a relevant market must be defined by "the interchangeability of use or the cross-elasticity of demand between the product [in question] and substitutes for it." Brown Shoe Co. v. United States, 370 U.S. 294, 325, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962). "In considering what is the relevant market for determining the control of price and competition, no more definite rule can be...