Gilder v. PGA Tour, Inc.

• Decision Date: 12 June 1991
• Docket Number: No. 89-16725,89-16725
• Parties: , 1991-1 Trade Cases 69,461 Bob GILDER, Ken Green, John Inman, Rafe Botts, et al., Plaintiffs-Appellees, v. PGA TOUR, INC., a Maryland Nonprofit Corporation, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 417

936 F.2d 417

60 USLW 2030, 1991-1 Trade Cases 69,461

Bob GILDER, Ken Green, John Inman, Rafe Botts, et al., Plaintiffs-Appellees, v. PGA TOUR, INC., a Maryland Nonprofit Corporation, Defendant-Appellant.

No. 89-16725.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted April 1, 1991.

Decided June 12, 1991.

Leonard Decof, Decof & Grimm, Providence, R.I., Daniel Cracchiolo, Jack D. Klausner, Marigene Dessaint, Burch & Cracchiolo, Harry J. Cavanagh, O'Connor, Cavanagh, Anderson, Westover, Killingsworth & Beshears, P.A., Phoenix, Ariz., for plaintiffs-appellees.

Thomas J. McDermott, Jr., Rogers & Wells Roger A. Clark, Jerry W. Markham, Geoffrey C. Jarvis, Rita McCloy Stephanz, Washington, D.C., Rogers & Wells, Charles R. Hartman, III, Los Angeles, Cal., Case & Bennett, William F. Bennett, Scottsdale, Ariz. (Edward L. Moorhouse General Counsel Ponte Vedra Beach, Fla., of counsel), for defendant-appellant.

Before TANG, FARRIS and D.W. NELSON, Circuit Judges.

TANG, Circuit Judge:

Karsten Manufacturing Corporation and eight professional golf players challenge the implementation of a new rule by the PGA Tour (PGA) banning clubs with U-shaped grooves. Karsten and the professional player plaintiffs challenge the actions of the PGA on antitrust and state law grounds. After a three day hearing, the district court granted a preliminary injunction enjoining the PGA from implementing the rule. 727 F.Supp. 1333. The PGA appeals. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

This action concerns a rule change implemented by the PGA that bans all clubs on which the cross-section of the grooves on the face of the club is in the shape of a square or "U" as opposed to a "V":

NOTE: OPINION CONTAINS TABLE OR OTHER DATA THAT IS NOT VIEWABLE

NOTE: OPINION CONTAINS TABLE OR OTHER DATA THAT IS NOT VIEWABLE

Karsten Manufacturing Corporation (Karsten) designs, manufactures, and sells a variety of golf equipment including: putters, woods, golf bags and "Ping Eye 2" golf clubs. All of Karsten's Ping Eye 2 golf clubs have U-shaped grooves. Karsten's Ping Eye 2 golf clubs are top selling clubs in the United States for both professional and amateur players. Karsten's marketing strategy is that it supplies the same equipment to the amateur as to the professional. Karsten maintains that the U-groove rule will harm its reputation if it is forced to make what the company feels is an inferior product with V-grooves.

Bob Gilder and the seven other plaintiffs in this action are eight professional golfers who are members of the PGA. Each of the eight professionals players uses Karsten's Ping Eye 2 clubs on the Tour. Karsten is paying the attorney's fees for these players.

The defendants in this action are the PGA; Dean A. Beman, the Commissioner and Chief Executive Officer of the PGA; and E. Mandell deWindt, Roger E. Birk, and Hugh E. Culverhouse, members of the PGA Tour Tournament Policy Board. The PGA is the organization which administers professional golf tournaments for the regular Tour and the Senior Tour.

The PGA Policy Board is composed of ten directors. Four of the directors are players elected from the membership of the PGA. The board also includes three officers of the PGA of America and three independent directors with no ties to golf. The independent directors volunteer their time.

In 1984, the United States Golf Association (USGA) changed the rules of golf to allow grooves in the shape of a U. Karsten developed its U-groove club. In 1985, players on the Tour began to complain that the U-groove golf clubs were detracting In January 1987, the USGA conducted tests and concluded that the U-grooves impart more spin on the ball than V-grooves. However, in June 1987, the USGA concluded that there was not enough information to bar clubs with the U-grooves. ²

from the skill level of the game. These players complained that the U-grooves imparted more spin on the golf ball and thus provided greater control for shots from grassy lies of the rough. This characteristic offsets the advantage of players with the skill necessary to keep the golf shot in the fairways. ¹

On August 10, 1987, the PGA released the results of an equipment survey. One hundred seventy-one of the two hundred golfers on the tour had responded. Of those, seventy-three percent responded that they used U-groove clubs. When asked the advantages of the club, seventy-four percent indicated that the grooves provide for greater control from the wet grass and rough. When asked if the PGA should ban the U-groove, sixty percent responded in the affirmative.

In September 1987, Commissioner Beman wrote to all the golf club manufacturers advising them that the PGA had engaged two technical experts to study the issue of the U-groove. The letter asked the manufacturers to provide pertinent information and relevant data. Karsten did not respond to this request.

In November of 1987, the independent testing expert conducted elaborate field tests trying to localize the effect of the groove. The PGA gave the resulting data to two separate consulting groups, one at the University of Texas and one at the University of Delaware. Each of the Universities devised its own methodology to interpret the data. Both studies concluded that the U-grooves impart more spin to the golf ball than the V-grooves. Commissioner Beman testified that in the lesser lofted clubs, ³ the spin of the golf ball was affected to a much lesser extent, if at all.

On May 12, 1988, Commissioner Beman recommended to the board that a proposed rule change banning U-grooves be circulated for public comment. On May 24, 1988, the board accepted Beman's recommendation. The PGA received comments from some manufacturers and the PGA made some changes in the rule.

On August 16, 1988, the PGA deferred action on the proposed rule until the USGA conducted further player study. The USGA tests confirmed that balls hit from the rough with U-grooves have a different spin rate than those hit with V-grooves. The USGA determined, however, that the tests did not show a significant enough difference to ban the clubs with U-grooves.

Beman recommended that the PGA Policy Board adopt the U-groove ban. The PGA's bylaws at that time required a majority of the directors present and three of the player directors to vote on any rule change. At its February 28, 1989 meeting, the four player directors and the PGA officer directors abstained from voting because of conflicts of interest. Each of the abstaining directors had ties to golf club manufacturers. The three independent directors unanimously voted for the rule. The effective date of the rule was January 1, 1990.

Karsten contacted the PGA on June 23, 1989. Karsten met with the PGA to express its concerns on August 14, 1989. At that meeting, Karsten argued, based on its own testing, that the U-grooves do not affect the spin of the ball.

On August 11, 1989, Karsten sued the USGA challenging its June 1987 decision relating to the groove-to-land ratio which On December 5, 1989, all ten members of the PGA board met in a special session. At that meeting, all ten directors voted to change the by laws of the PGA so that the disinterested members could take binding action on behalf of the PGA policy board when the majority of the directors could not vote because of a conflict. The three disinterested directors then unanimously voted to readopt the groove rule.

                had effectively banned Karsten's U-groove clubs.  The USGA rule applied to USGA tournaments effective in 1990 and in all amateur tournaments in 1996.  Karsten and the USGA have settled this law suit.  Karsten filed the instant lawsuit against the PGA on December 1, 1989.  The complaint sought injunctive relief and alleged that the actions of the PGA and its directors (1) violated sections 1 and 2 of the Sherman Anti-Trust Act, 15 U.S.C. Secs. 1, 2;  (2) violated the Arizona antitrust laws, Ariz.Rev.Stat. 44-1401 et seq.;    and (3) interfered with the Karsten's and the professionals' business relationships.  The complaint also charged the PGA directors with breaching their fiduciary duties and sought to hold them liable for their allegedly tortious conduct
                

Karsten's suit came on for an evidentiary hearing on December 15, 19, and 20, 1989. At the hearing, John Solheim, Karsten's Vice-President, testified that he believes that the U-grooves do not improve player performance.

At the hearing, Karsten presented an economist from Arizona State University, Dr. Richard Smith, who testified that the grooves have not had a negative effect on the PGA. Smith testified that the percentage of prize money that Ping Eye 2 players won is less than the percentage of players who used the Ping Eye 2 clubs. Thus, the Ping Eye 2 clubs do not give the players who use them an advantage. Smith also concluded that the Ping golf clubs do not help the players get their ball to the greens in less than regulation. ⁴ The expert testified that there is a correlation between a consumer's choice of golf clubs and the professional's choice of clubs. ⁵ Smith testified that Karsten had experienced a drop in its market share in its sales of golf clubs and other products because of the PGA ban of U-groove clubs. The PGA's expert challenged these last two assertions in his declaration. Smith testified that Karsten would experience harm to its reputation if forced to manufacture a club conforming to the PGA rule. Smith testified that the professional players would lose endorsements to the extent that the change in clubs adversely affects their performance on the Tour.

Two of the plaintiff players testified at the hearing. Bob Gilder testified that switching clubs would hurt his game, which in turn would affect his endorsement income. Gilder has been using Ping clubs since 1970. He likes the design and dynamics of the club. He cannot identify a difference in the club based on the shape of the grooves. He had switched to the Ping Eye 2 clubs in...