John MacKey v. National Football League

This is an appeal by the National Football League (NFL), twenty-six of its member clubs, and its Commissioner, Alvin Ray “Pete” Rozelle, from a district court judgment holding the “Rozelle Rule” 1 to be violative of § 1 of the Sherman Act, and enjoining its enforcement.

This action was initiated by a group of present and former NFL players, 2 appellees herein, pursuant to §§ 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15 and 26, and § 1 of the Sherman Act, 15 U.S.C. § 1. Their complaint alleged that the defendants’ enforcement of the Rozelle Rule constituted an illegal combination and conspiracy in restraint of trade denying professional football players the right to freely contract for their services. Plaintiffs sought injunctive relief and treble damages.

The district court, the Honorable Earl R. Larson presiding, conducted a plenary trial which consumed 55 days and produced a transcript in excess of 11,000 pages. At the conclusion of trial, the court entered extensive findings of fact and conclusions of law. 3 The court granted the injunctive relief sought by the players and entered judgment in their favor on the issue of liability. 4 This appeal followed.

The district court held that the defendants’ enforcement of the Rozelle Rule constituted a concerted refusal to deal and a group boycott, and was therefore a per se violation of the Sherman Act. Alternatively, finding that the evidence offered in support of the clubs’ contention that the Rozelle Rule is necessary to the successful operation of the NFL insufficient to justify the restrictive effects of the Rule, the court concluded that the Rozelle Rule was invalid under the Rule of Reason standard. Finally, the court rejected the clubs’ argument that the Rozelle Rule was immune from attack under the Sherman Act because it had been the subject of a collective bargaining agreement between the club owners and the National Football League Players Association (NFLPA).

The defendants raise two basic issues on this appeal: (1) whether the so-called labor exemption to the antitrust laws immunizes the NFL’s enforcement of the Rozelle Rule from antitrust liability; and (2) if not, whether the Rozelle Rule and the manner in which it has been enforced violate the anti *610 trust laws. Ancillary to these contentions, appellants attack a number of the district court’s findings of fact and raise several subsidiary issues.

HISTORY.

We first turn to a brief examination of the pertinent history and operating principles of the National Football League.

The NFL, which began operating in 1920, is an unincorporated association comprised of member clubs which own and operate professional football teams. It presently enjoys a monopoly over major league professional football in the United States. The League performs various administrative functions, including organizing and scheduling games, and promulgating rules. A constitution and bylaws govern its activities and those of its members. Pete Rozelle, Commissioner of the NFL since 1960, is an employee of the League and its chief executive officer. His powers and duties are defined by the NFL Constitution and Bylaws.

Throughout most of its history, the NFL’s operations have been unilaterally controlled by the club owners. In 1968, however, the NLRB recognized the NFLPA as a labor organization, within the meaning of 29 U.S.C. § 152(5), and as the exclusive bargaining representative of all NFL players, within the meaning of 29 U.S.C. § 159(a). Since that time, the NFLPA and the clubs have engaged in collective bargaining over various terms and conditions of employment. Two formal agreements have resulted. The first, concluded in 1968, was in effect from July 15, 1968 to February 1, 1970. The second, entered into on June 17,1971, was made retroactive to February 1, 1970, and expired on January 30, 1974. Since 1974, the parties have been negotiating; however, they have not concluded a new agreement.

For a number of years, the NFL has operated under a reserve system whereby every player who signs a contract with an NFL club is bound to play for that club, and no other, for the term of the contract plus one additional year at the option of the club. The cornerstones of this system are § 15.1 of the NFL Constitution and Bylaws, which requires that all club-player contracts be as prescribed in the Standard Player Contract adopted by the League, and the option clause embodied in the Standard Player Contract. 5 Once a player signs a Standard Player Contract, he is bound to his team for at least two years. He may, however, become a free agent at the end of the option year by playing that season under a renewed contract rather than signing a new one. A player “playing out his option” is subject to a 10% salary cut during the option year.

Prior to 1963, a team which signed a free agent who had previously been under contract to another club was not obligated to compensate the player’s former club. In 1963, after R. C. Owens played out his option with the San Francisco 49ers and signed a contract with the Baltimore Colts, the member clubs of the NFL unilaterally adopted the following provision, now known as the Rozelle Rule, as an amendment to the League’s Constitution and Bylaws:

Any player, whose contract with a League club has expired, shall thereupon become a free agent and shall no longer be considered a member of the team of that club following the expiration date of such contract. Whenever a player, be *611 coming a free agent in such manner, thereafter signed a contract with a different club in the League, then, unless mutually satisfactory arrangements have been concluded between the two League clubs, the Commissioner may name and then award to the former club one or more players, from the Active, Reserve, or Selection List (including future selection choices) of the acquiring club as the Commissioner in his sole discretion deems fair and equitable; any such decision by the Commissioner shall be final and conclusive.

This provision, unchanged in form, is currently embodied in § 12.1(H) of the NFL Constitution. The ostensible purposes of the rule are to maintain competitive balance among the NFL teams and protect the clubs’ investment in scouting, selecting and developing players. 6

During the period from 1963 through 1974, 176 players played out their options. 7 Of that number, 34 signed with other teams. In three of those cases, the former club waived compensation. In 27 cases, the clubs involved mutually agreed upon compensation. Commissioner Rozelle awarded compensation in the four remaining cases. 8

We turn now to the contentions of the parties.

THE LABOR EXEMPTION ISSUE.

We review first the claim that the labor exemption immunizes the Commissioner and the clubs from liability under the antitrust laws. Analysis of this contention requires a basic understanding of the legal principles surrounding the labor exemption and consideration of the factual record developed at trial.

History.

The concept of a labor exemption from the antitrust laws finds its basic source in §§ 6 and 20 of the Clayton Act, 15 U.S.C. § 17 and 29 U.S.C. § 52, and the Norris-LaGuardia Act, 29 U.S.C. §§ 104, 105 and 113. Those provisions declare that labor unions are not combinations or conspiracies in restraint of trade, and specifically exempt certain union activities such as secondary picketing and group boycotts from the coverage of the antitrust laws. See Connell Co. v. Plumbers & Steamfitters, 421 U.S. 616, 621-22, 95 S.Ct. 1830, 44 L.Ed.2d 418 (1975). The statutory exemption was created to insulate legitimate collective activity by employees, which is inherently anticompetitive but is favored by federal labor policy, from the proscriptions of the antitrust laws. See Apex Hosiery Co. v. Leader, 310 U.S. 469, 60 S.Ct. 982, 84 L.Ed. 1311 (1940).

The statutory exemption extends to legitimate labor activities unilaterally undertaken by a union in furtherance of its own interests. See United States v. Hutcheson, 312 U.S. 219, 61 S.Ct. 463, 85 L.Ed. 788 (1941). It does not extend to concerted action or agreements between unions and non-labor groups. The Supreme Court has held, however, that in order to properly accommodate the congressional policy favoring free competition in business markets with the congressional policy favoring collective bargaining under the National Labor Relations Act, 29 U.S.C. § 151 et seq., certain union-employer agreements *612 must be accorded a limited nonstatutory exemption from antitrust sanctions. See Connell Co. v. Plumbers & Steamfitters, supra; Meat Cutters v. Jewel Tea, 381 U.S. 676, 85 S.Ct. 1596, 14 L.Ed.2d 640 (1965). See generally Morris, The Developing Labor Law 807-16 (1971). 9

The players assert that only employee groups are entitled to the labor exemption and that it cannot be asserted by the defendants, an employer group. We must disagree. Since the basis of the nonstatutory exemption is the national policy favoring collective bargaining, and since the exemption extends to agreements, the benefits of the exemption logically extend to both parties to the agreement. Accordingly, under appropriate circumstances, we find that a non-labor group may avail itself of the labor exemption. See Meat Cutters v. Jewel Tea, supra, 381 U.S. at 729-30, 85 S.Ct. 1596 (opinion of Justice Goldberg); Scooper Dooper, Inc. v. Kraftco Corp., 494 F.2d 840, 847 n. 14 (3rd Cir. 1974); National Ass’n of Broadcast Employees & Technicians v. International Alliance of Theatrical Stage Employees, 488 F.2d 124 (9th Cir. 1973); Intercontinental Container Transp. Corp. v. N.Y. Shipping Ass’n, 426 F.2d 884 (2nd Cir. 1970); Cordova v. Bache & Co., 321 F.Supp. 600 (S.D.N.Y.1970). 10

The clubs and the Commissioner claim the benefit of the nonstatutory labor exemption here, arguing that the Rozelle Rule was the subject of an agreement with the players union and that the proper accommodation of federal labor and antitrust policies requires that the agreement be deemed immune from antitrust liability. The plaintiffs assert that the Rozelle Rule was the product of unilateral action by the clubs and that the defendants cannot assert a colorable claim of exemption.

To determine the applicability of the non-statutory exemption we must first decide whether there has been any agreement between the parties concerning the Rozelle Rule.

The Collective Bargaining Agreements.

The district court found that neither the 1968 nor the 1970 collective bargaining agreement embodied an agreement on the Rozelle Rule, and that the union has never otherwise agreed to the Rule. Ordinarily, we review findings of fact under the clearly erroneous standard. F.R.C.P. 52(a). We note, however, that to the extent that these findings turn upon a construction of the parties’ collective bargaining agreements, which are before this court, we are not required to defer to the interpretation given them by the district court. See Frito-Lay, Inc. v. So Good Potato Chip Co., 540 F.2d 927 (8th Cir. 1976). We look, then, to the parties’ collective bargaining history.

The 1968 Agreement.

At the outset of the negotiations preceding the 1968 agreement, the players did not seek elimination of the Rozelle Rule but felt that it should be modified. During the course of the negotiations, however, the players apparently presented no concrete proposals in that regard and there was little discussion concerning the Rozelle Rule. At trial, Daniel Shulman, a bargaining representative of the players, attributed their failure to pursue any modifications to the fact that the negotiations had bogged down on other issues and the union was not strong enough to persist.

*613 The 1968 agreement incorporated by reference the NFL Constitution and Bylaws, of which the Rozelle Rule is a part. Furthermore, it expressly provided that free agent rules shall not be amended during the life of the agreement.

The 1970 Agreement.

At the start of the negotiations leading up to the 1970 agreement, it appears that the players again decided not to make an issue of the Rozelle Rule. The only reference to the Rule in the union’s formal proposals presented at the outset of the negotiations was the following:

The NFLPA is disturbed over reports from players who, after playing out their options, are unable to deal with other clubs because of the Rozelle Rule. A method should be found whereby a free agent is assured the opportunity to discuss contract with all NFL teams.

There was little discussion of the Rozelle Rule during the 1970 negotiations.

Although the 1970 agreement failed to make any express reference to the Rozelle Rule, it did contain a “zipper clause”:

[T]his Agreement represents a complete and final understanding on all bargainable subjects of negotiation among the parties during the term of this Agreement * * *.

While the agreement did not expressly incorporate by reference the terms of the NFL Constitution and Bylaws, it did require all players to sign the Standard Player Contract, and provided that the Standard Contract shall govern the relationship between the clubs and the players. The Standard Player Contract, in turn, provided that the player agreed at all times to comply with and be bound by the NFL Constitution and Bylaws. At trial, Tex Schramm, a bargaining representative of the club owners, and Alan Miller, a bargaining representative of the players, testified that it was their understanding that the Rozelle Rule would remain in effect during the term of the 1970 agreement.

Since the beginning of the 1974 negotiations, the players have consistently sought the elimination of the Rozelle Rule. The NFLPA and the clubs have engaged in substantial bargaining over that issue but have not reached an accord. Nor have they concluded a collective bargaining agreement to replace the 1970 agreement which expired in 1974.

Based on the fact that the 1968 agreement incorporated by reference the Rozelle Rule and provided that free agent rules would not be changed, we conclude that the 1968 agreement required that the Rozelle Rule govern when a player played out his option and signed with another team. Assuming, without deciding, that the 1970 agreement embodied a similar understanding, we proceed to a consideration of whether the agreements fall within the scope of the nonstatutory labor exemption.

Governing Principles.

Under the general principles surrounding the labor exemption, the availability of the nonstatutory exemption for a particular agreement turns upon whether the relevant federal labor policy is deserving of pre-eminence over federal antitrust policy under the circumstances of the particular case. See Connell Co. v. Plumbers & Steamfitters, supra; Meat Cutters v. Jewel Tea, supra; Mine Workers v. Pennington, 381 U.S. 657, 85 S.Ct. 1585, 14 L.Ed.2d 626 (1965).

Although the cases giving rise to the nonstatutory exemption 11 are factually dis *614 similar from the present case, 12 certain principles can be deduced from those decisions governing the proper accommodation of the competing labor and antitrust interests involved here.

We find the proper accommodation to be: First, the labor policy favoring collective bargaining may potentially be given pre-eminence over the antitrust laws where the restraint on trade primarily affects only the parties to the collective bargaining relationship. See Connell Co. v. Plumbers & Steamfitters, supra; Meat Cutters v. Jewel Tea, supra; Mine Workers v. Pennington, supra. 13 Second, federal labor policy is implicated sufficiently to prevail only where the agreement sought to be exempted concerns a mandatory subject of collective bargaining. See Meat Cutters v. Jewel Tea, supra; Mine Workers v. Pennington, supra. 14 Finally, the policy favoring collective bargaining is furthered to the degree necessary to override the antitrust laws only where the agreement sought to be exempted is the product of bona fide arm’s-length bargaining. See Meat Cutters v. Jewel Tea, supra. See also Smith v. Pro-Football, 542 F.Supp. 462 (D.D.C.1976); Philadelphia World Hockey Club v. Philadelphia Hockey Club, 351 F.Supp. 462, 496-500 (E.D.Pa.1972); Boston Professional Hockey Ass’n, Inc. v. Cheevers, 348 F.Supp. *615 261, 267 (D.Mass.), remanded on other grounds, 472 F.2d 127 (1st Cir. 1972).

Application.

Applying these principles to the facts presented here, we think it clear that the alleged restraint on trade effected by the Rozelle Rule affects only the parties to the agreements sought to be exempted. Accordingly, we must inquire as to the other two principles: whether the Rozelle Rule is a mandatory subject of collective bargaining, and whether the agreements thereon were the product of bona fide arm’s-length negotiation. 15

Mandatory Subject of Bargaining. 16

Under § 8(d) of the National Labor Relations Act, 29 U.S.C. § 158(d), mandatory subjects of bargaining pertain to “wages, hours, and other terms and conditions of employment. . . . ” See NLRB v. Borg-Warner Corp., 356 U.S. 342, 78 S.Ct. 718, 2 L.Ed.2d 823 (1958). Whether an agreement concerns a mandatory subject depends not on its form but on its practical effect. See Federation of Musicians v. Carroll, 391 U.S. 99, 88 S.Ct. 1562, 20 L.Ed.2d 460 (1968). Thus, in Meat Cutters v. Jewel Tea, supra, the Court held that an agreement limiting retail marketing hours concerned a mandatory subject because it affected the particular hours of the day which the employees would be required to work. In Teamsters Union v. Oliver, 358 U.S. 283, 79 S.Ct. 297, 3 L.Ed.2d 312 (1959), an agreement fixing minimum equipment rental rates paid to truck owner-drivers was held to concern a mandatory bargaining subject because it directly affected the driver wage scale.

In this case the district court held that, in view of the illegality of the Rozelle Rule under the Sherman Act, it was “a nonmandatory, illegal subject of bargaining.” We disagree. The labor exemption presupposes a violation of the antitrust laws. To hold that a subject relating to wages, hours and working conditions becomes nonmandatory by virtue of its illegality under the antitrust laws obviates the labor exemption. We conclude that whether the agreements here in question relate to a mandatory subject of collective bargaining should be determined solely under federal labor law. Cf. Meat Cutters v. Jewel Tea, supra.

On its face, the Rozelle Rule does not deal with “wages, hours and other terms or conditions of employment” but with inter-team compensation when a player’s contractual obligation to one team expires and he is signed by another. Viewed as such, it would not constitute a mandatory subject of collective bargaining. The district court found, however, that the Rule operates to restrict a player’s ability to move from one team to another and depresses player salaries. There is substantial evidence in the record to support these findings. Accordingly, we hold that the Rozelle Rule constitutes a mandatory bargaining subject within the meaning of the National Labor Relations Act.

Bona Fide Bargaining.

The district court found that the parties’ collective bargaining history reflected nothing which could be legitimately characterized as bargaining over the Rozelle Rule; that, in part due to its recent formation and inadequate finances, the NFLPA, at least prior to 1974, stood in a relatively weak bargaining position vis-a-vis *616 the clubs; and that “the Rozelle Rule was unilaterally imposed by the NFL and member club defendants upon the players in 1963 and has been imposed on the players from 1963 through the present date.”

On the basis of our independent review of the record, including the parties’ bargaining history as set forth above, we find substantial evidence to support the finding that there was no bona fide arm’s-length bargaining over the Rozelle Rule preceding the execution of the 1968 and 1970 agreements. The Rule imposes significant restrictions on players, and its form has remained unchanged since it was unilaterally promulgated by the clubs in 1963. The provisions of the collective bargaining agreements which operated to continue the Rozelle Rule do not in and of themselves inure to the benefit of the players or their union. Defendants contend that the players derive indirect benefit from the Rozelle Rule, claiming that the union’s agreement to the Rozelle Rule was a quid pro quo for increased pension benefits and the right of players to individually negotiate their salaries. The district court found, however, that there was no such quid pro quo, and we cannot say, on the basis of our review of the record, that this finding is clearly erroneous. 17

In view of the foregoing, we hold that the agreements between the clubs and the players embodying the Rozelle Rule do not qualify for the labor exemption. The union’s acceptance of the status quo by the continuance of the Rozelle Rule in the initial collective bargaining agreements under the circumstances of this case cannot serve to immunize the Rozelle Rule from the scrutiny of the Sherman Act. 18

ANTITRUST ISSUES.

We turn, then, to the question of whether the Rozelle Rule, as implemented, violates § 1 of the Sherman Act, which declares illegal “every contract, combination * * * or conspiracy, in restraint of trade or commerce among the several States.” 15 U.S.C. § 1. The district court found the Rozelle Rule to be a per se violation of the Act. Alternatively, the court held the Rule to be violative of the Rule of Reason standard. 19

Players' Services as a Product Market.

The clubs and the Commissioner first urge that the only product market arguably affected by the Rozelle Rule is the market for players’ services, and that the restriction of competition for players’ services is not a type of restraint proscribed by the Sherman Act. In support of this contention, defendants rely on § 6 of the Clayton Act, 15 U.S.C. § 17, and on language construing that statute in Apex Hosiery Co. *617 v. Leader, supra. Section 6 of the Clayton Act provides:

The labor of a human being is not a commodity or article of commerce. Nothing contained in the antitrust laws shall be construed to forbid the existence and operation of labor, agricultural, or horticultural organizations, instituted for the purposes of mutual help, and not having capital stock or conducted for profit, or to forbid or restrain individual members of such organizations from lawfully carrying out the legitimate objects thereof; nor shall such organizations, or the members thereof, be held or construed to be illegal combinations or conspiracies in restraint of trade, under the antitrust laws.

Based on this section, the Supreme Court, in Apex, observed:

[I]t would seem plain that restraints on the sale of the employee’s services to the employer, however much they curtail the competition among employees, are not in themselves combinations or conspiracies in restraint of trade or commerce under the Sherman Act.

310 U.S. at 503, 60 S.Ct. at 997.

On the surface, the language relied on by defendants lends merit to the defense. However, we cannot overlook the context in which the language arose. Section 6 of the Clayton Act was enacted for the benefit of unions to exempt certain of their activities from the antitrust laws after-courts had applied the Sherman Act to legitimate labor activities. 20 See Meat Cutters v. Jewel Tea, supra, 381 U.S. at 697, 85 S.Ct. 1596 (opinion of Justice Goldberg); Siegel, Connolly & Walker, The Antitrust Exemption for Labor —Magna Carta or Carte Blanche?, 13 Duquesne L.Rev. 411 (1975). In Apex, the Court condoned restrictions on competition for employee services imposed by the employees themselves, not by employers. 21

In other cases concerning professional sports, courts have not hesitated to apply the Sherman Act to club owner imposed restraints on competition for players’ services. See Kapp v. National Football League, 390 F.Supp. 73 (N.D.Cal.1974); Robertson v. National Basketball Ass’n, 389 F.Supp. 867 (S.D.N.Y.1975). See also Radovich v. National Football League, supra; Smith v. Pro-Football, supra; Boston Professional Hockey Ass’n, Inc. v. Cheevers, supra; Denver Rockets v. All-Pro Management, Inc., 325 F.Supp. 1049 (C.D.Cal.1971), stay vacated, 401 U.S. 1204, 91 S.Ct. 672, 28 L.Ed.2d 206 (1971) (Justice Douglas, Opinion in Chambers). In other contexts, courts have subjected similar employer imposed restraints to the scrutiny of the antitrust laws. See Anderson v. Shipowners Ass’n, 272 U.S. 359, 47 S.Ct. 125, 71 L.Ed. 298 (1926); Nichols v. Spencer International Press, Inc., 371 F.2d 332 (7th Cir. 1967); Cordova v. Bache & Co., supra. 22 See also Mandeville Farms v. Sugar Co., 334 U.S. 219, 68 S.Ct. 996, 92 L.Ed. 1328 (1948), in which the Court held that businessman may not act in concert to eliminate competition *618 in the procurement of commodities essential to the operation of their businesses. 23

We hold that restraints on competition within the market for players’ services fall within the ambit of the Sherman Act.

Per Se Violation.

We review next the district court’s holding that the Rozelle Rule is per se violative of the Sherman Act.

The express language of the Sherman Act is broad enough to render illegal nearly every type of agreement between businessmen. The Supreme Court has held, however, that only those agreements which “unreasonably” restrain trade come within the proscription of the Act. See Northern Pac. R. Co. v. United States, 356 U.S. 1, 78 S.Ct. 514, 2 L.Ed.2d 545 (1958); Chicago Board of Trade v. United States, 246 U.S. 231, 38 S.Ct. 242, 62 L.Ed. 683 (1918); Standard Oil Co. v. United States, 221 U.S. 1, 31 S.Ct. 502, 55 L.Ed. 619 (1911). The “Rule of Reason” emerged from these cases.

As the courts gained experience with antitrust problems arising under the Sherman Act, they identified certain types of agreements as being so consistently unreasonable that they may be deemed to be illegal per se, without inquiry into their purported justifications. As the Supreme Court stated in Northern Pac. R. Co. v. United States, supra, 356 U.S. at 5, 78 S.Ct. at 518:

[T]here are certain agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use.

See generally, Worthen Bank & Trust Co. v. National BankAmericard Inc., 485 F.2d 119 (8th Cir. 1973), cert. denied, 415 U.S. 918, 94 S.Ct. 1417, 39 L.Ed.2d 473 (1974); Kalinowski, The Per Se Doctrine —Am Emerging Philosophy of Antitrust Law, 11 U.C.L.A.L. Rev. 569 (1964).

Among the practices which have been deemed to be so pernicious as to be illegal per se are group boycotts and concerted refusals to deal. See e. g., Klor’s v. Broadway-Hale Stores, 359 U.S. 207, 79 S.Ct. 705, 3 L.Ed.2d 741 (1959); Fashion Originators’ Guild of America v. FTC, 312 U.S. 457, 61 S.Ct. 703, 85 L.Ed. 949 (1941). See generally Worthen Bank & Trust Co. v. National BankAmericard I