APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA D.C. Civil No. 75-1803
Before Gibbons, Hunter and Garth, Circuit Judges.
This case involves the production and sale of major league baseball trading cards in alleged violation of sections 1 and 2 of the Sherman Act. 15 U.S.C. §§ 1 & 2 (1976). Appellee, Fleer, commenced suit in 1975 against appellants, Topps, and the Major League Baseball Players Association (MLBPA), claiming that appellants excluded effective competition in the sale of baseball trading cards through a series of interlocking exclusive licensing contracts. The contracts at issue were Topps' individual licensing agreements with each player in the major and minor leagues; the commercial authorization contract between the MLBPA and the individual major league players; and a 1968 agreement between Topps and the MLBPA which constituted a renegotiation of players' earlier contracts with Topps. The district court found these interlocking agreements to foreclose competition in all but a small portion of the relevant market. Nominal damages were awarded against Topps, but the district court granted injunctive relief that required Topps to assign its exclusive publicity rights to the MLBPA. In turn, the Association was to grant at least one non-exclusive license for the production of baseball cards before January 1, 1981. Because we hold that the three agreements in question were neither unreasonable restraints of trade under section 1 of the Sherman Act, nor monopolization of the relevant market under section 2, we will reverse the judgment of the district court.
Appellee, Fleer Corporation, manufactures and sells bubble gum and other confections. In the late 1950's and early 1960's Fleer sold baseball trading cards in combination with gum as well as other non-sport trading cards.*fn1 Prior to 1966, Fleer had individual licensing agreements with several major league baseball players that authorized the production and sale of baseball trading cards. Fleer sold all of these contract rights to Topps in 1966.
Appellant, Topps Corporation, also manufactures and sells bubble gum, candy, and novelties.*fn2 In 1956, Topps acquired the exclusive license to a large number of baseball players' photographs and statistics through an agreement with Bowman Gum Company. Topps is presently the only seller of baseball cards sold in combination with bubble gum in the United States.
The MLBPA is a labor organization whose primary responsibilities are to negotiate, administer, and enforce collective bargaining agreements between the players and the team owners. The Association is also the players' exclusive marketing agent for publicity rights when these rights are sold as part of a group series.
The products at issue are baseball trading cards: the familiar 2 1/2 by 3 1/2 cards with the name and picture of one player, in team uniform, on the front, and his career statistics and personal information on the back.*fn3 Baseball trading cards were first sold in conjunction with chewing tobacco and cigarettes at the end of the nineteenth century and were included later as a treat with chewing gum and other confections. Since first introduced, baseball trading cards have developed quite a following among baseball fans. As the district court noted:
For decades, they (baseball cards) have been an important and distinctive part of many childhoods ... Cardboard, wallet-size pictures of active major league players have existed for generations. Even if the product was merely a casual idea of a long-forgotten promoter in the 1880's, and even if there are hundreds of variations and substitutes which logically might exist, the concept is now so embedded that baseball cards literally define themselves.
Topps began to market baseball cards with bubble gum in 1949. At that time, Bowman Gum Corporation had a predominate position in the baseball card market by virtue of its numerous publicity contracts with major league players.*fn4 These contracts gave Bowman the exclusive right to use a player's photograph in connection with the sale of gum. In 1953, when Topps introduced trading cards depicting players under exclusive contract to Bowman, the latter, through its parent corporation, commenced suit for infringement. The Second Circuit, in Haelan Laboratories, Inc. v. Topps Chewing Gum, Inc., 202 F.2d 866 (2d Cir.), cert. denied, 346 U.S. 816, 74 S. Ct. 26, 98 L. Ed. 343 (1953), held that Topps' publication both infringed on Bowman's contractual rights and violated the players' exclusive right to control their own publicity. Topps was forced to withdraw the infringing cards.
Three years after this decision Topps purchased all of Bowman's player contract rights, and Bowman left the trading card market altogether. In addition, during this period, Topps began a vigorous program of signing individual standard form contracts with thousands of both major and minor league baseball players. Under these agreements, each player granted Topps an exclusive right to publish his name, picture, signature and biographical sketch "to be sold either alone or in combination with chewing gum, candy and confection or any of them." As consideration, Topps guaranteed the player a lump-sum payment of $125 for each season in which either his picture was used or the player was an active member of a major league club. These contracts ran until Topps had made five years of payments to the individual player.
In 1965, the Federal Trade Commission filed an administrative complaint against Topps claiming that its aggregation of individual exclusive contracts violated section 5 of the FTC Act. 15 U.S.C. § 45 (1976); Topps Chewing Gum, Inc., 67 FTC 744 (1965). After a hearing, an examiner ruled against Topps, but on appeal the Commission reversed. It held that Topps' exclusive license to publish players' photographs and statistics on trading cards was limited in scope and hence lawful. The Commission stressed that Topps' limited exclusive licenses did not prohibit the sale of trading cards with other low cost products such as marbles, cookies, or powdered soft drinks. Therefore, competition for baseball trading cards existed when the cards were sold in conjunction with products other than gum. Id. at 859.
Until the FTC's decision, Fleer competed with Topps by obtaining a similar aggregation of player publicity licensing agreements. Indeed, in the early 1960's Fleer sold two sets of trading cards known as "Baseball Greats." After the FTC's 1965 ruling, however, Fleer abandoned the baseball market and focused on other sports and editorial cards. In 1966, it sold all its player publicity licenses to Topps for $395,000.
Since 1966, Topps has accumulated the vast majority of exclusive licensing agreements with the players. By virtue of these contracts, Topps is the sole manufacturer of baseball trading cards sold in conjunction with bubble gum. Since 1966, however, baseball trading cards have accompanied a variety of other non-confectionary products. This was due, in large measure, to the development of the MLBPA.
C. Development of the MLBPA and Group Licenses
When the MLBPA hired its first executive director, Marvin Miller, in 1966, the Association suffered from an acute lack of funds. In order to raise operating capital, Miller developed the idea of a group licensing program whereby all of the players would authorize the Association to market their pictures and signatures when they were distributed as part of a group series. The first such group license was granted to Coca-Cola. It called for a series of 500 player pictures to be placed on the underside of bottlecaps. The royalties from this project funded the operating expenses of the Association and solved the immediate fiscal crisis. Although Miller planned to terminate the program, the players liked the extra income and persuaded Miller to retain the system even after the Coca-Cola agreement had expired.
Under this group licensing program, which became known as the commercial authorization contract, each player remained free to market the personal rights to his name, likeness, and signature when used individually, but only the MLBPA could contract for the players as a group. The players were not required to sign the commercial authorization contract, but most did.*fn5 From 1966 to 1975, the MLBPA entered into group licensing contracts with Kellogg, Sports Promotions, Milk Duds, and ITT Continental Baking among others. The number of players included in the licensing agreement has varied. Some contracts (Coca-Cola and Kellogg) covered all major league players; others extended to "not less than 72, and not more than 300."
Topps' trading cards, along with various bat and glove manufacturers, were not subject to the group licensing restrictions of the commercial authorization contract. This exemption existed because under the terms of the commercial authorization program, the MLBPA group licensing agreement extended only to publicity rights that had not already been conveyed.*fn6 Since all players were under exclusive contract to Topps by the time they reached the majors, the Association could not license publicity rights for baseball cards sold alone, or in combination with gum, candy or other confection.
After the Coca-Cola project resolved the Association's immediate funding crisis, the MLBPA initiated membership dues to finance operating expenses.*fn7 Thereafter, all commercial authorization royalties were distributed directly to the players. The Association, for administrative purposes, did receive the licensing income, but merely as a conduit that distributed all of the licensing revenue to the players. These royalties were never used to cover MLBPA expenses.
In 1966, when Marvin Miller first learned of the Topps' individual player licensing agreements, he met with Joel Shorin, president of Topps, and attempted to increase the players' compensation under these agreements. Topps rebuffed Miller's attempts to renegotiate, stating that since Fleer had sold its rights in 1966, Topps had all major league players under contract and in short, Shorin told Miller: "I don't see your muscle." In an attempt to gain some bargaining leverage, Miller persuaded the ...