Northern District Of Illinois Finds Hockey Club’s Shot Against Hockey League Misses The Net
On September 26, 2019, Judge Manish S. Shah of the United States District Court for the Northern District of Illinois dismissed antitrust claims by plaintiff Reapers Hockey Association, Inc., an amateur hockey club, against Amateur Hockey Association Illinois (“AHAI”), an amateur hockey league, and its four constituent clubs (the “club defendants”), finding that plaintiff failed to state a claim under Sections 1 and 2 of the Sherman Act. Reapers Hockey Association, Inc. v. Amateur Hockey Association Illinois, Inc., et al., No. 19-cv-1302 (N.D. Ill. Sept. 26, 2019). Because it decided that plaintiff’s claims failed on the merits, it also denied plaintiff’s motion for a preliminary injunction.
Defendant AHAI is the Illinois regional affiliate of USA Hockey, Inc., the United States Olympic Committee’s governing body for amateur hockey in the United States. AHAI has a rule that limits the number of clubs that can field “Tier I” teams (i.e., teams at the highest skill level) to four. The presidents of these four clubs each has a vote on AHAI’s Tier I Committee, which has the power, subject to the approval of AHAI’s board, to grant charters to operate Tier I teams and to recommend that the AHAI board modify the four-club rule. In 2018, plaintiff’s unincorporated predecessor organization applied for a charter to operate a fifth Tier I club. After the application was denied, plaintiff filed suit, alleging claims under the Sherman Act as well as state law claims and seeking an injunction forbidding AHAI from enforcing the four-club rule and requiring AHAI to grant plaintiff a charter.
With respect to the plaintiff’s Sherman Act claims, the Court first examined whether plaintiff had adequately alleged the relevant market, a threshold requirement for both its Section 1 and Section 2 claims. The complaint alleged that the relevant market “consists of competitive amateur youth hockey at the Tier I level [in Illinois].” The Court found this market definition to be too narrow. The Court stated that “Tier I” was a name used by defendants and USA Hockey to refer to the league in which the most skilled players competed and found that this term was analogous to a trademark or brand that cannot form the basis for a relevant antitrust market. The Court also observed that this market definition excluded other economic substitutes, such as the option to play Tier I amateur hockey in other states or to play hockey in other leagues that are similarly challenging and satisfying.
The Court then found that, even assuming the complaint alleged a relevant product market, it nonetheless failed to allege an unreasonable restraint on trade. Although plaintiff argued that the Court should analyze the four-club rule as an anticompetitive horizontal restraint, the Court rejected this argument, finding that a rule limiting the number of teams did not decrease output in the sense considered by the antitrust laws and that the economic impact of the four-club rule was not obvious enough to warrant per se treatment. The Court proceeded to analyze plaintiff’s claims under the Rule of Reason, finding that they seek to foster a specific type of competition that is in the public’s interest, namely a hockey league that trains amateur hockey players to compete at the Olympic level. The four-club rule, the Court found, was a reasonable restriction designed to maintain competitive balance among teams in the league and to define the eligibility of players and the scope of competition.
The Court also found that plaintiff’s Section 1 claim against the club defendants failed for the additional reason that it failed to allege a plausible inference of a conspiracy among the Tier I clubs to vote to deny plaintiff a charter. The Court found that plaintiff had not alleged any facts to defeat the inference that the club defendants were engaging in lawful parallel conduct, such as allegations that they communicated with each other about their votes. The court further noted that even if plaintiff had alleged a conspiracy, its claims would still fail because the club defendants, acting through the Tier I Committee, only had the authority to make recommendations to the AHAI Board of Directors about whether to abolish the four-club rule; only the Board itself had the power to actually abolish that rule. As to plaintiff’s Section 2 claim against AHAI, the Court found that it failed because AHAI had no duty to deal with plaintiff and its decision not to deal was neither anticompetitive nor irrational.
Although this was a comparatively low-stakes case involving a small regional youth athletic league, the Court’s decision is an important illustration of the principle that sports leagues and others who rely on cooperation among rivals to provide a product based on competition among those rivals will be granted substantial leeway in setting the terms of competition, including limiting the number of competitors who are allowed to participate when necessary to define the terms of competition. Similarly, the Court’s rejection of an alleged relevant market limited to the specific league from which plaintiff was excluded is consistent with courts’ longstanding aversion to “single-brand markets” that do not adequately account for potential substitutes.