1972 U.S. Supreme Court decision on baseball antitrust exemption
1972 United States Supreme Court case
Flood v. Kuhn, 407 U.S. 258 (1972), was a decision by the Supreme Court of the United States that preserved the reserve clause in Major League Baseball (MLB) players' contracts. By a 5–3 margin, the Court reaffirmed the antitrust exemption that had been granted to professional baseball in 1922 under "Federal Baseball Club v. National League", and previously affirmed by "Toolson v. New York Yankees, Inc." in 1953. While the majority believed that baseball's antitrust exemption was anomalous compared to other professional sports, it held that any changes to the exemption should be made through Congress and not the courts.
The National League had instituted the reserve clause in 1879 as a means of limiting salaries by keeping players under team control. Under that system, a baseball team reserved players under contract for a year after the contract expired, preventing them from being taken by other teams in bidding wars. MLB team owners argued that the clause was necessary to ensure a competitive balance among teams, as otherwise wealthier clubs would outbid teams in smaller markets for star players. The reserve clause was not addressed in "Federal Baseball", where Ned Hanlon, owner of the rival Federal League's (FL) Baltimore Terrapins, had argued that MLB had violated the Sherman Antitrust Act through anticompetitive practices meant to force the FL out of business. The Supreme Court ruled that baseball did not qualify as interstate commerce for the purposes of the Sherman Act, a ruling that remained even after it denied boxing and American football the same exemption.
In 1969, Curt Flood, a center fielder for the St. Louis Cardinals, was traded to the Philadelphia Phillies. Flood was unhappy with the trade, as the Phillies were not known to treat players well, but the reserve clause required him to play for Philadelphia. He retained attorney Arthur Goldberg, a former Supreme Court justice, through Marvin Miller and the Major League Baseball Players Association (MLBPA) and took the case to court, arguing that the reserve clause was a collusive measure that reduced competition and thus an antitrust violation. The reserve system was upheld by all three courts under the principle of "stare decisis" and the precedents set by "Federal Baseball" and "Toolson".
Legal scholars have criticized the Court's decision in "Flood" both for its rigid application of "stare decisis" as well as Section I of Harry Blackmun's majority opinion, an "ode to baseball" that contains little legal matter. The reserve clause was settled outside the Supreme Court three years later through the arbitration system created by the collective bargaining agreement between MLB and the MLBPA. Peter Seitz ruled in favor of Andy Messersmith and Dave McNally that their contracts could only be renewed without their permission for one season, after which they became free agents. Free agency in MLB was codified the following year after the 1976 Major League Baseball lockout, while the Curt Flood Act of 1998, signed by Bill Clinton, ended baseball's antitrust exemption as it related to interactions between players and owners, but preserved it in other areas such as franchise relocation. Courts have continued to differ over the extent of the exemption; a 2021 suit filed over that year's minor league reorganization asks that it be rescinded entirely.
Background.
Reserve clause.
William Hulbert, then the president of the National League (NL), instituted the first reserve clause in professional baseball in 1879. Under Hulbert's system, each NL team could "reserve" five players for its roster, and owners from opposing clubs could not offer contracts to reserved players. This provision extended to 11 players per team in 1883, 12 per team in 1885, 14 per team in 1887, and by 1890, all players under active contract with an NL team were subject to the reserve clause. Any player who signed with an NL team was placed under that team's control until they retired, were traded to another club, or were released outright. This latter qualification also made it easier for teams to discipline players by voiding their contracts, and it was sometimes referred to as the "reserve "and" release" clause. In 1883, the American Association entered into the first national agreement with the NL, extending the reserve system to the Association as well. In 1903, the American League (AL) signed its own national agreement, forming the two-league system known as Major League Baseball (MLB). The reserve clause extended cross-league, with reserved NL players prevented from joining AL teams and vice versa.
The primary rationale for instituting the reserve clause was to limit player salaries for the struggling NL by keeping players under team control. Many of the players that the owners reserved for the 1880 season had been, at the time, the best-paid in the league, such as Cap Anson, Paul Hines, and Tommy Bond, and these players saw their salaries drop once they remained bound to their respective teams. Once the reserve system was extended to all players, those players were categorized into five categories under the Brush Classification System, with each group receiving a salary that ranged between $1,500 and $2,500 annually. While the league owners supported the reserve system as a cost-cutting measure, they also defended its use as a way to ensure a competitive balance in baseball. Without a reserve clause, the wealthiest teams could stockpile star players simply by outbidding smaller teams. This sentiment was echoed by federal district court judge William P. Wallace in 1890, who quoted Albert Spalding in arguing that the rule "takes a manager by the throat and compels him to keep his hands off his neighbor's enterprise". The owners also argued that the reserve clause justified a team's investment in its players, who were drafted with little experience and required years of development to reach the major leagues.
One of the first players to challenge the reserve clause was Sam Wise, who in 1882 left the Cincinnati Red Stockings of the American Association for the NL's Boston Red Caps. The Massachusetts General Court denied Cincinnati's request for an injunction, and Wise spent the remainder of the season with Boston. The reserve clause's most vocal opponent, however, was John Montgomery Ward, known as Monte Ward, who compared the system to slavery in 1885. In 1890, he helped to found the Players' League (PL), which promised a three-year contract to all players and no pay cuts after the first year. Players' salaries were the same as what the NL had paid them in either 1888 or 1889, whichever was higher. Players who had joined the PL, like Jim O'Rourke, were able to convince their colleagues that the reserve clause only prevented players from joining teams in those leagues that had it, and that they were legally free to join teams in new leagues.
When Ward left the New York Giants to join the PL, the team took him to New York Supreme Court to prevent him from playing with his new club. While Justice Morgan J. O'Brien disagreed with Ward and O'Rourke's assessment that the reserve clause did not apply to the Players' League, the court was most concerned about the vague phrasing of the clause: Ward was technically under contract with the Giants for the 1890 season, but the perpetual reserve clause meant that major aspects of his contract, including his salary, were not addressed, and the court decided that the reserve clause was "too indefinite" to be properly enforced. The decision in "Metropolitan Exhibition Co. v. Ward" also criticized the uneven system by which a team could hold a player theoretically indefinitely but terminate them with only 10 days' notice. This legal victory was not enough to sustain the Players' League, as many of its financial backers pulled out after suffering considerable losses during that premiere season.
Hall of Famer Nap Lajoie was taken to court in 1901 by the Philadelphia Phillies, an NL team, after he joined their crosstown AL rival, the Philadelphia Athletics, who were not yet bound by the reserve clause. The Supreme Court of Pennsylvania ruled the next year in "Philadelphia Ball Club, Ltd. v. Lajoie" that he possessed a unique skill set, much like Johanna Wagner, the defendant in the seminal 1852 English contract law decision "Lumley v Wagner". This skill set meant that, while the Phillies could not require Lajoie to play for them, they "could" prevent him from playing for other teams.
Baseball's antitrust exemption.
The United States Congress had enacted the Sherman Antitrust Act which prohibited the type of anticompetitive collusion under which the reserve clause has been argued to fall, in 1890. This policy was extended even further by the Clayton Antitrust Act of 1914, which allowed private parties to sue for damages caused by anticompetitive conduct. The same year that the Clayton Act became law, the Federal League (FL) was created as a challenger to MLB. Despite the new league prohibiting players from signing if they were under contract with a major league team and MLB threatening to blacklist players who defected, players such as Joe Tinker nonetheless left MLB to join the FL, and many of these defections led to litigation. While the lower courts typically ruled in favor of players who joined the Federal League during the offseason, when they were under reserve but not an active contract, the owners did win some cases where players had abandoned their MLB team midseason.
Dave Fultz, the president of the FL, was primarily focused on improving the working conditions of minor league players and improving player safety. He was not radically against the reserve system, and he feared that eliminating it from his league would incur retribution from MLB. Instead, he proposed that FL players remained under reserve for five years, after which owners and players could mutually agree to extend the reserve option.
"Federal Baseball Club of Baltimore v. National League".
In January 1915, the Federal League owners sued the major leagues and three members of the National Commission for antitrust violations, hoping that noted trustbuster Kenesaw Mountain Landis would rule in their favor. Landis, however, announced that "any blows at the thing called baseball would be regarded by this court as a blow to a national institution", and he took the case under advisement for a year to stall any action. Meanwhile, the FL incurred great financial losses that season, and came to a settlement with MLB at the end of the year.
Most FL owners were bought out by MLB teams or allowed to buy interests in existing major league clubs. The one exception was Ned Hanlon of the Baltimore Terrapins. Hanlon and his partners brought an antitrust lawsuit in D.C. District Court, alleging that MLB had colluded to "wreck and destroy" the FL by purchasing and dissolving its teams. Judge Wendell Phillips Stafford ruled in Hanlon's favor, agreeing that baseball games constituted interstate trade and commerce under the Sherman Act and that MLB had engaged in impermissibly monopolistic behavior. Hanlon was awarded $80,000 in damages, which was increased to $240,000 ($ in modern dollars) under the treble-damages provision of the Clayton Act.
On appeal, Judge George W. Pepper of the D.C. Circuit held that sports like baseball, "a spontaneous product of human activity", were "not in [their] nature commerce", and thus not subject to antitrust legislation. The circuit's chief judge, Constantine Joseph Smyth, wrote in his opinion that "sport" such as professional baseball fell outside the realm of business and thus monopoly. Hanlon then brought his claim to the Supreme Court, where former US president and baseball fan William Howard Taft was Chief Justice.
In May 1922, the Court unanimously affirmed the appellate decision in "Federal Baseball Club v. National League". The Sherman Act required that businesses be engaged in interstate commerce to incur government intervention, and Justice Oliver Wendell Holmes Jr. interpreted commerce to include only physical goods. Because baseball exhibitions did not fall under this definition, the sport consisted of "purely state affairs".
The next term the Court considered "Hart v. B.F. Keith Vaudeville Exchange", a Clayton Act suit brought by a talent agent alleging the defendants had conspired to exclude the plaintiffs' clients from the many theaters they controlled in order to extract large payments to them, arguing that since their productions depended on the interstate transport of sets and costumes, the vaudeville circuit was interestate commerce. It had been filed before "Federal Baseball"; afterwards, the defendants had argued that