Times have changed, and so should MLB’s antitrust exemption

Baseball is the first game to be given an exemption under federal law that applies to other businesses. But that may be about to change.

In late December, Nostalgic Partners, LLC, sued Major League Baseball in federal district court (1:21-cv-10876 SDNY). The plaintiffs, three minor league teams, claim the MLB is violating federal antitrust law by orchestrating a horizontal collusive agreement to eliminate 40 minor league baseball teams by stripping them of their major league club affiliations.

The federal Sherman Antitrust Act, enacted by Congress in 1880, provides that "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states" is illegal. If a business is not engaged in interstate commerce, or trade or commerce, the law does not apply.

The plaintiffs allege that the Sherman Act requires "free market forces to determine which MiLB teams will survive and prosper with big league affiliations, and which will not." According to the complaint, MLB has, among other things, artificially reduced the number of MiLB team affiliations to cut expenses by reducing the cost of paying and competing for minor league players.

In 1922, the application of the Sherman Act to baseball was decided by the Supreme Court in Federal Baseball Club of Baltimore v. National League, 259 U.S. 200 (1922). MLB dissolved the Federal League over the objection of Baltimore, which reasonably argued that MLB was engaged in interstate commerce because the "business of baseball" traveled across state lines.

Justice Oliver Wendell Holmes, Jr. saw it differently. He reasoned that the "business of baseball" is giving exhibitions, which are purely state affairs, even though teams crossed state lines. In addition, giving exhibitions for profit was not "trade or commerce in the commonly accepted use of those words" because "personal effort, not related to production, is not a subject of commerce." Thus, the Court effectively created a "get-out-of-jail-free" antitrust card for MLB baseball.

It is easy to criticize Holmes' reasoning. Yet, it is worth remembering that in the early 1900s, the interstate commercialization of baseball had not yet occurred. The business side of the game had not evolved to what it is today. Nevertheless, Federal Baseball is the controlling law until the Supreme Court or Congress say otherwise.

Change is on the horizon, however. The Supreme Court has recently signaled the willingness to reconsider the application and scope of Federal Baseball. In NCAA v. Alston, 141 S. Ct. 2141 (2012), for example, a unanimous Supreme Court rejected the NCAA's claim that it was exempt from normal antitrust scrutiny in dealing with educational benefits. By limiting education-related compensation that college athletes receive from their schools, the NCAA violated the Sherman Act.

Were he alive today, Justice Holmes might not object to chucking the antitrust baseball exemption into the dustbin of historical precedent. In his classic article, "The Path of the Law," he recognized the dynamic nature of the law. He persuasively argued that "it is revolting if the grounds on which it (a rule) was laid down have vanished long since, and the rule persists from blind imitation of the past." MLB should not be able to shield itself from an anticompetitive agreement by an anachronistic exemption. Times change and so should the law to meet those changes. 