Today in 1922: SCOTUS exempts Major League Baseball from antitrust laws

May 29, 2015

Today in Legal HistoryThe sports world was rocked this week by the announcement Wednesday by the Justice Department bringing corruption charges against several FIFA officials.  The sport of soccer enjoys a relatively low level of popularity in the U.S., so Americans may not be as strongly affected by this announcement as individuals abroad.

A different sport, baseball, is quite a bit more popular here in the U.S. – so much so that it is referred to as the “national pastime” – has had its own legal debacles, and Major League Baseball has itself argued before the Supreme Court on three separate occasions.

The first of these occasions was Federal Baseball Club v. National League, decided 93 years ago today on May 29, 1922.

The case began as an anti-trust suit against the “National League of Professional Base Ball Clubs” and the “American League of Professional Base Ball Clubs,” alleging that these two organizations colluded to restrain trade – specifically, in the baseball market.

The facts begin in the early 1900s, when the Federal League of Baseball was organized as a rival to established baseball clubs.  The owners of the Federal League aggressively recruited some of the best players in the Major League, and were successful with a fair number of these players.

Major league baseball owners were not amused by this sudden competition, and turned the Federal League’s own tactic of aggressive financial incentives right back at it – except that this tactic was directed at the Federal League owners rather than the players.  That is, Major League Baseball arranged a buyout of the Federal League – euphemistically referred to as a “Peace Agreement.”

Unfortunately, some club owners in the Federal League were offered better deals than others – particularly those who cooperated with the takeover.  One owner who felt particularly offended by the deal was Ned Hanlon, owner of the Baltimore Terrapins.  Hanlon had a long history in the game as a player, manager, and owner, and didn’t agree with how Major League Baseball was handling the competition, so he filed an anti-trust suit against both the Major League and those Federal League owners who benefitted from the collusive “Peace Agreement.”

Hanlon prevailed at the trial court level, with a jury awarding him $80,000 (over $900,000 in 2015 dollars), which was tripled by the judge in accordance with federal law.  On appeal, however, Hanlon’s victory was reversed.  Although it was not disputed that the defendants colluded together to restrain trade, the appeals court held that “trade and commerce” require the “transfer of something,” and that since “a game of baseball is not susceptible of being transferred,” meaning that it is outside of the meaning of “trade and commerce.”  Thus, the owners were not in violation of the Sherman Anti-Trust Act.

The Supreme Court agreed to review the case, and largely agreed with the appeals court in a unanimous decision, ruling that Major League Baseball, although a business, did not affect “commerce among the States.”

The Court revisited the issue again in 1953’s Toolson v. New York Yankees, in which it held in a brief, per curiam decision that the Court was bound by the Federal Baseball decision until Congress, by some act, determines otherwise.

The Court once again addressed this issue in 1972’s Flood v. Kuhn, which once again reaffirmed Federal Baseball.  However, Justice Harry Blackmun, writing for the majority, admitted that Major League Baseball is, indeed, interstate commerce for the purposes of the Sherman Act, and that the original grounds for the exemption were wrong.  Nevertheless, because the “wrong” had persisted so long, the exemption persisted as well – an exemption that applied only to Major League Baseball because of its “unique characteristics and needs.”  Blackmun’s opinion never clarified just what these “characteristics and needs” were.

The Court has yet to revisit the matter since Flood, and it’s unclear whether the Court will change its 93 year long stance and whether such a change would threaten “the very existence of baseball,” as was argued by the defendants in Federal Baseball.  But it’s fairly certain that, even if Major League Baseball lost its antitrust exemption, baseball isn’t going anywhere.