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From Antitrust Law Daily, July 27, 2018

Golf caddies may get another shot at defining market in antitrust suit against PGA

By Jeffrey May, J.D.

Professional golf caddies failed to plead a plausible product market to support their antitrust claims arising out of the PGA Tour’s requirement that they wear bibs containing advertisements at sanctioned events, the U.S. Court of Appeals in San Francisco has ruled. However, the appellate court remanded the case back to the district court to reconsider whether the caddies should be granted leave to amend their federal antitrust and California unfair competition claims. The appellate court also upheld the lower court’s dismissal with prejudice of the caddies’ contract, quasi-contract, California publicity, Lanham Act false endorsement, and economic duress claims (Hicks v. PGA Tour, Inc., July 27, 2018, Thomas, S.).

The caddies filed suit against the operator of the PGA Tour over a requirement that they wear bibs bearing sponsors’ logos at events. The Tour and local hosts of the events received the entirety of the revenue from the sponsors for this advertising. The caddies received none. Consequently, the caddies contended that the requirement that they wear the bibs inhibited their endorsement rights. Based on these allegations, the caddies asserted contract, equitable quasi-contract, economic duress, publicity, and unfair competition claims under California law, as well as a false endorsement claim under the Lanham Act.

At the outset, the appellate court upheld dismissal of these claims with prejudice. The caddies’ consent to wearing the bids was fatal to their state claims for breach of contract and quasi-contract relief. Further, their consent was not secured through economic duress. California state law publicity claims and a Lanham Act false endorsement claim also were properly dismissed because the caddies consented to wearing the bibs and assigned to the Tour their "individual television, radio, motion picture, photographic, electronic, . . . and all other similar or related media rights with respect to [their] participation in the Tournament[s]."

Antitrust claims. The caddies also alleged that the Tour and local event hosts violated Section 1 of the Sherman Act by agreeing to require the caddies to wear the bibs and that the Tour violated Section 2 of the Sherman Act by engaging in monopolization or attempted monopolization through the use of coercive and threatening conduct.

For their antitrust claims, the caddies alleged two relevant product markets: the Endorsement Market and the Live Action Advertising Market. They defined the Endorsement Market as "the national market for the endorsement of products and services by participants in professional golf tournaments." The Live Action Advertising Market was defined as "the national . . . market for inplay or in-action commercial advertising at professional golf events between commercial breaks." This second market included not only the endorsements from the caddies and golfers, but also advertising space on and around the golf course that live tournament, television broadcast, and webcast audiences can see during in-play tournament action.

Like the district court, the appellate court rejected these proposed "submarkets" or "sub-submarkets," because they omitted many economic substitutes. The court concluded that the caddies’ four arguments in support of the product markets did not withstand modest scrutiny: (1) advertising during the live-action of golf tournaments cannot be avoided as can television commercials; (2) endorsements made by the endorser during competition provided a more effective opportunity to improve brand recognition and validity when compared to endorsements made in print or in television commercials; (3) advertising during live golf tournament action provided an element of price flexibility because the vast majority of companies purchasing live action advertisements are smaller companies who cannot or do not want to pay for advertising via television commercials; and (4) econometric studies would demonstrate that purchasers in the proposed markets would not switch to products outside of those markets in response to a small but significant and non-transitory price increase. The appellate court also noted that many courts had rejected antitrust claims reliant on proposed advertising markets limited to a single form of advertising.

Leave to amend. Noting that a simple denial of leave to amend without any explanation by the district court is subject to reversal, the appellate court vacated dismissal of the antitrust and unfair competition law claims with prejudice. The lower court did not provide adequate explanation for its decision, it was noted.

The case is No. 16-15370.

Attorneys: Arthur R. Miller (The Lanier Law Firm PC) for Williams Michael Hicks. Jeffrey A. Mishkin (Skadden Arps Slate Meagher & Flom LLP) for PGA Tour, Inc.

Companies: PGA Tour, Inc.

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