Global Competition Review
July 28, 2023
The Sixth Circuit in 2022
• 17 Antitrust cases filed
• 70 Active antitrust cases filed
• 39 antitrust cases concluded
• 23.9 average length (in months) of concluded cases
Labor union and collective bargaining exemptions alive and well
The Sixth Circuit affirmed a decision from the US District Court for the Northern District of Ohio dismissing a lawyer’s antitrust suit against the National Basketball Association (NBA) and the National Basketball Players Association (NBPA). The lawyer, Rosel C Hurley III, alleged that the NBA and the NBPA violated Sections 1 and 2 of the Sherman Act by refusing to allow Hurley to take an exam that, if he passed, would have qualified him as an agent for NBA players. The Sixth Circuit rejected Hurley’s claims under ‘[b]asic principles’ of antitrust law exemption.
As detailed in the Sixth Circuit’s opinion, the NBPA’s player agents are the ‘exclusive representatives’ for NBA players, and an individual cannot become an NBA agent without passing the NBPA’s player agent exam and receiving certification from the NBPA. Hurley applied to take the player agent exam and was initially approved to take the test. As part of his application, Hurley disclosed that his law license was suspended by the Ohio Supreme Court, and he answered follow-up questions from the NBPA relating to that disclosure. Two days before the exam, the NBPA informed Hurley that he would not be allowed to take the test. Hurley claimed that the NBPA’s justification for the denial, his disciplinary history, was pretextual; instead, he believed that the NBA and the NBPA did not want him to become an agent for reasons they would not disclose.
In response, Hurley filed a complaint alleging that the NBA and the NBPA violated Sections 1 and 2 of the Sherman Act because their actions ‘would cause a reasonable person to believe that the [NBPA was] acting in concert with and at the behest of a non-labor member or group, [the NBA,] in order to ensure [Hurley’s] exclusion from the marketplace’ of NBA player agents that the NBA and the NBPA ‘completely control.’ The district court granted the NBA’s and the NBPA’s motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure (FRCP) because it determined the defendants’ actions were exempt from the Sherman Act under the labor union exemption.
On appeal, the Sixth Circuit addressed a single issue: whether Hurley ‘proffered viable Sherman Act claims’ when he alleged that the NBA player agent market was an unlawful monopoly and by claiming that the NBA and the NBPA worked in tandem to exclude him from the NBA player agent market. The Sixth Circuit started its analysis with Hurley’s monopolization claim against the NBPA. With respect to the monopolization claim, the court acknowledged that the Sherman Act generally ‘prohibits monopolizing or unreasonably restraining trade and commerce[,]’ but noted that it does not ‘cover all actors.’ In particular, Congress has broadly exempted labor unions from the antitrust laws. Citing out-of-circuit precedent holding that the NBPA is a labor union and therefore specifically exempt from the Sherman Act, the court held that there was ‘no basis for imposing antitrust liability against the NBPA.’
The Sixth Circuit then addressed Hurley’s claim alleging a conspiracy between the NBA and the NBPA to exclude Hurley from the NBA player agent market. Hurley alleged that the two entities acted together to boycott him from the market by refusing to allow him to take the player agent exam. Like his monopolization claim, the court also rejected Hurley’s conspiracy claim based on the NBPA’s status as a labor union and the related exemptions under the antitrust laws. In particular, it relied on the Supreme Court’s recognition of a non-statutory ‘spirit of the union exemption’ for any anticompetitive effect of a properly bargained collective bargaining agreement. The court determined that the exemption applied to the ‘NBPA’s [collective bargaining] agreement with the NBA[,]’ which was ‘standard fare, done for the purpose of protecting players from unscrupulous agent behavior.’ As such, there was no basis for Sherman Act liability without more plausible allegations that the collective bargaining between the NBA and the NBPA was not conducted in the self-interest of the two parties.
While the Sixth Circuit acknowledged that Hurley was correct in asserting that the ‘spirit of the union exemption’ has not been extended to situations where unions aid non-labor groups to create monopolies and to control markets, the court ultimately held that Hurley provided nothing more than a conclusory statement that such conduct occurred in this case. In particular, it found that Hurley’s assertion that the NBPA’s sudden change in stance on his application meant that the NBA and the NBPA must have conspired to restrain trade by denying him access to the player agent market was not a sufficiently plausible allegation to block application of the exemption. To find that the limitation applied based on such a bold statement, the court reasoned, would swallow the exemption itself.
As a result of finding that the labor union and spirit of the union exemptions applied, the Sixth Circuit affirmed the district court’s dismissal of Hurley’s antitrust claims. The case serves as a reminder for antitrust counsel of one of antitrust law’s most notable exemptions.
Speculative allegations insufficient to state Sherman Act Section 1 claim
In Hobart-Mayfield, Inc v National Operating Committee on Standards for Athletic Equipment, the plaintiff, Hobart-Mayfield, Inc (HMI), which makes football helmet add-on accessories intended to absorb the shock from collisions, brought Sherman Act claims against several helmet manufacturers (the helmet manufacturing defendants) and the National Operating Committee on Standards for Athletic Equipment (NOCSAE), a non-profit that develops and promotes safety standards for athletic equipment. HMI specifically alleged that NOCSAE and the helmet manufacturing defendants unlawfully conspired to restrain trade in the football helmet market under Section 1 of the Sherman Act. The US District Court for the Eastern District of Michigan dismissed HMI’s claims under Rule 12(b)(6) of the FRCP, and the Sixth Circuit affirmed owing to insufficient allegations of an agreement between the defendants.
HMI’s claims centered on NOCSAE’s helmet standards, which have been adopted as mandatory by ‘virtually all’ football leagues, including the National Football League (NFL) and the youth football leagues. As such, helmets worn in these leagues must be NOCSAE certified. If a football helmet meets NOCSAE’s standards, it can also be sold and marketed with a safety certification and stamped with NOCSAE’s trademarked logo under licensing agreements with NOCSAE.
In 2013, NOCSAE issued a press release outlining its safety policy for helmets that had add-on products installed. The 2013 policy permitted either the helmet’s manufacturer or helmet add-on companies like HMI to independently seek NOCSAE certification for helmet and add-on pairings. In 2018, NOCSAE issued another press release to update its policy to permit only a helmet’s manufacturer to seek NOCSAE certification for a helmet paired with an aftermarket add-on product. Both the 2013 and 2018 policies permitted a helmet manufacturer to ‘decertify’ NOCSAE certification (i.e., void the warranty for their helmets when the helmets were combined with an aftermarket add-on). As such, HMI claimed that helmet manufacturers ‘use[d] their discretion under the 2018 NOCSAE press release to void or threaten to void NOCSAE certifications whenever an [a]dd-on is used.’
Based on the above, HMI first alleged that NOCSAE’s 2013 and 2018 press releases constituted direct evidence of a conspiracy to exclude add-on products from the football helmet market. The Sixth Circuit disagreed and held that HMI failed to plead ‘sufficient facts suggesting that NOCSAE collaborated’ with the helmet manufacturing defendants when NOCSAE issued the press releases. According to the court, it was unclear if the helmet manufacturing defendants even ‘agreed with the policy changes put forth by NOCSAE in the 2018 press release.’
HMI next alleged the same conspiracy to exclude add-on products from the football helmet market based on supposed circumstantial evidence. In an attempt to allege parallel conduct, HMI claimed that the helmet manufacturing defendants, who it alleged control the market for NOCSAE-certified helmets and accessories for those helmets, each used their discretion under the 2018 NOCSAE policy to void certification whenever add-on products were used on helmets. HMI claimed this amounted to a ‘boycott of [a]dd-on customers’ as they would not be able to use a helmet with an add-on product in leagues requiring NOCSAE certification. The Sixth Circuit rejected HMI’s allegations of parallel conduct on grounds that they did not raise ‘a plausible suggestion of conspiracy.’ It stated:
At best, [HMI] points to concern among Helmet Manufacturers that some Add-on products may not be safe and should be rejected without strong assurance that they can be used safely in an activity known for its risk of serious head injury. This context does not ‘invest either the action or inaction alleged with a plausible suggestion of conspiracy.’
HMI’s claim similarly failed with respect to ‘plus factors.’ HMI alleged, among other things, that: (1) the helmet manufacturing defendants controlled NOCSAE’s board; (2) the defendants controlled 100 percent of the football helmet market; (3) the defendants attended the same industry events and were members of the same industry groups; and (4) the defendants had strong incentives to exclude add-on products from the market.
The Sixth Circuit found HMI’s alleged plus factors to be inadequate, holding that in ‘each circumstance [HMI] draws the Court’s attention to a scenario, theory, or occurrence and asks the Court to make sweeping conclusions about the motives and actions of Defendants’ while offering only conclusory statements and ‘speculation’ as support. In sum, the court found that HMI had not sufficiently alleged circumstantial evidence of an agreement and affirmed dismissal of HMI’s claim accordingly.
Predatory bidding theory rejected for failing to explain potential for monopoly pricing
The Sixth Circuit affirmed the dismissal of a case brought by a class of Kentucky farmers challenging the purchase of a local grain elevator based in part on allegations that the acquiring company had engaged in predatory bidding. The plaintiff farmers sued Nucor Corporation and its subsidiary, Greenland Acquisition Company, which had purchased the land on which the grain elevator at issue sat for $20 million to destroy it and build a steel mill in its place. The operator of the grain elevator, Consolidated Grain & Barge Co, allegedly agreed to the sale because it stood to make more by accepting Nucor’s offer than by continuing to resell local grain. The farmers asserted two claims under Kentucky law: intentional interference with prospective economic expectancy and civil conspiracy.
In alleging the former, the farmers argued that Nucor’s offer amounted to predatory bidding; in other words, because the $20 million offer ‘exceeded the economic benefit’ of operating a grain elevator, the farmers claimed that Nucor had coerced Consolidated into selling the land. The Sixth Circuit disagreed, finding that the sale was the product of competition:
Although they produced different goods (grain and steel), the farmers and Nucor were competitors in the sense that both wanted the economic benefit of the Riverport land. The farmers wanted Consolidated to keep operating at the Riverport site; their ‘bid’ amounted to the profits Consolidated could expect from reselling the farmers’ grain. (They could have upped their ‘bid’ by lowering prices, for example.) Nucor wanted Consolidated to vacate the Riverport site, so that Nucor could move in, and its bid was $20 million. The complaint says that Nucor’s bid was higher, so Consolidated accepted it. That’s the kind of economic competition that American law not only tolerates, but actively encourages.
Rejecting the farmers’ argument that Nucor’s offer amounted to predatory bidding, the Sixth Circuit cited the Supreme Court’s 2007 decision in Weyerhaeuser Co v Ross-Simmons Hardwood Lumber Co. As described by the Supreme Court:
Predatory bidding (predatory pricing on the buy side of the market) occurs when a buyer temporarily offers a price for inputs that exceeds its expected return, with the goal of driving out competitors and charging monopolistic prices in the long run. Because of its anticompetitive effects, predatory bidding violates the antitrust laws  and accordingly could be deemed improper interference with contractual relations[.]’
However, in the present case, the Sixth Circuit found that the farmers had failed to allege that the $20 million offer exceeded Nucor’s expected return from running a steel mill. That it allegedly exceeded Consolidated’s expected profit from running a grain elevator was not relevant to the analysis. Furthermore, the farmers never explained how Nucor’s purchase of the land might enhance its monopoly power. According to the court, ‘the farmers’ theory misunderstands the reason for the ban on predatory bidding. High bids are not themselves a problem; it’s the potential for later monopolistic pricing that the law polices.’
Antitrust claims dismissed for lack of antitrust injury
The Sixth Circuit rejected a Tennessee attorney’s claim that actions by a state disciplinary panel made up of other attorneys in Tennessee violated the antitrust laws. The state disciplinary panel had filed a petition against attorney Connie Reguli alleging six ethical violations. In a case on appeal from the US District Court for the Middle District of Tennessee, Reguli alleged that the panel members’ ‘arbitrary and prejudicial’ actions (e.g., setting unattainable deadlines and arbitrarily limiting evidence), coupled with their ‘inten[t] to restrict the marketplace,’ violated the Sherman Act.
The Sixth Circuit affirmed the district court’s dismissal of Reguli’s complaint for failure to allege an antitrust injury, citing its 2005 decision in Care Heating & Cooling, Inc v American Standard, Inc. In pertinent part, the Sixth Circuit reiterated that ‘[t]o allege an antitrust injury, a plaintiff must claim “market-wide injury,” not mere individual injury.’ The court distinguished Reguli’s claims from North Carolina State Board of Dental Examiners v. FTC, which Reguli had cited, because ‘there was a market-wide injury in that case: the state dental ethics board stopped all non-dentists across the state from offering teeth-whitening services.’ It found that Reguli had alleged a fundamentally unfair investigation, but without any market-wide effect; therefore, she had not adequately pleaded an antitrust claim, and her case was rightly dismissed.
District court decisions
Dismissal of antitrust claims for lack of antitrust injury
In an update to a case described in the previous year’s version of this publication, the US District Court for the Eastern District of Michigan dismissed counterclaims alleging that the plaintiff, Anesthesia Associates of Ann Arbor (A4), functioned as a cartel through the use of exclusive agreements, in violation of the Sherman Act. In pertinent part, the court ruled that the defendant, Blue Cross Blue Shield of Michigan (BCBS-MI), failed to state a cognizable antitrust injury because it had not adequately alleged a causal connection between the exclusive agreements at issue and its alleged injury (i.e., overpaying millions of dollars for anesthesiology services).
The case was originally brought by A4, one of the largest physician-owned anesthesiology groups in Michigan, against BCBS-MI, which allegedly controlled at least 67 percent of the commercial health insurance market in Michigan. A4 alleged that BCBS-MI used its dominant market position as a healthcare services purchaser to pay A4’s anesthesiologists artificially depressed reimbursement rates and to coerce Michigan hospitals into refusing to deal with anesthesiologists who left the BCBS-MI network. The court previously dismissed these claims for lack of antitrust injury, concluding that, with regard to the claim of artificially low rates, the antitrust laws were designed to protect consumers against prices that are too high, not too low. With regard to A4’s claim that it was injured by a conspiracy resulting in local hospitals refusing to deal with it, the court found that there was no antitrust injury absent an agreement between BCBS-MI and its hospital affiliates to fix prices.
In its counter-complaint, BCBS-MI alleged that A4 had established a cartel with anesthesiologists and hospitals through its use of exclusive agreements, specifically non-compete agreements and ‘no-poach’ agreements. Under these supposed agreements, the anesthesiologists were precluded from joining one of A4’s competitors, or from competing independently, for one year within 15 miles of any health care facility where the anesthesiologist provided services during their employment with A4. The hospitals where A4 anesthesiologists worked were also forbidden from directly hiring A4’s affiliated anesthesiologists. Through these agreements, BCBS-MI alleged that A4 restrained competition among independent and hospital-employed anesthesiologists, resulting in insurers paying higher fees than they otherwise would have. According to BCBS-MI, the threat of A4 leaving its network forced it to increase prices.
In response, A4 argued that BCBS-MI could not plausibly plead an antitrust injury because BCBS-MI voluntarily raised its reimbursement rates after A4, which had threatened to leave the BCBS-MI network, decided to stay in the network. The court agreed and further found that the mere existence of the alleged ‘cartel’ and the possibility that A4 could again threaten to leave the BCBS-MI network was not enough to infer causation, especially in light of the fact that BCBS-MI is the state’s dominant health insurer.
The court also noted that even if the alleged non-compete and no-poach agreements could be said to have an anticompetitive effect in the health care market, the parties who would likely have standing would be either the anesthesiologists or the hospitals, not BCBS-MI. BCBS-MI’s antitrust counterclaims were dismissed accordingly.