itself and the teams and superstations and the networks, has "little moral standing to demand proof of power or effect when the most [it] can say for [itself] is that [it] tried to harm the public but [was] mistaken in [its] ability to do so." 7 P. Areeda, Antitrust Law P. 1509, 411 (1986).
Second, the Supreme Court has plainly stated, that "as a matter of law, the absence of proof of market power does not justify a naked restriction on price or output . . . and requires some competitive justification even in the absence of a detailed market analysis." NCAA, 468 U.S. at 109-110, repeated in Indiana Dentists, 476 U.S. at 460. "We have never," the Court said in NCAA, "required proof of market power in such a case." 468 U.S. at 110.
Concededly, the 5-game reduction is not a classic "naked restraint." It is not a restriction on output strictly for its own sake, condemnable per se. In other words, it is not entirely "naked" on a first examination. The NBA has dressed it up slightly, arguing that it is ancillary to a plausible and legitimate objective -- improving the league's product and making it more competitive against competing products in the television market. But the restraints in NCAA and Indiana Dentists, were not classically naked in that sense either, as the Court conceded.
In Indiana Dentists, the dentists had dressed their concerted refusal to cooperate with the insurance companies behind a garb of improving patient care. But that did not keep the Court, having rejected the dentists' "patient care" defense, from treating their conspiracy as naked and condemning it, even without "specific findings . . . concerning the definition of the market" or the dentists' "power . . . in that market." Indiana Dentists, 476 U.S. at 460. See also NCAA, 468 U.S. 85, 82 L. Ed. 2d 70, 104 S. Ct. 2948. (At least some "horizontal restraints on competition" were "essential" if the NCAA's "product [was] to be available at all," 468 U.S. at 101, but the NCAA's television plan was not one of them. It was neither "necessary to market the product . . [nor] to enable the NCAA to penetrate the market through an attractive package sale," id. at 114-115, and was therefore still "naked," id. at 110, and could be condemned without "a detailed market analysis," id., or proof of market power.)
The NBA's 5-game reduction falls in the same category as the restraints in Indiana Dentists and NCAA. Its adverse anticompetitive effects have been established, and the justifications that have been offered in its defense are inadequate, at least on the present record. There is no evidence that it serves any legitimate objective. It stands, therefore, as a naked restraint, subject to condemnation even without proof of market power. See P. Areeda, Rule of Reason -- A Catechism on Competition, 55 Antitrust Law Journal, 571, 577-78 (1986).
Defining a precise market and requiring proof of market power would, moreover, add nothing to the antitrust analysis in this case. "Since the purpose of the inquiry into market definition and market power is to determine whether an arrangement has the potential for genuine adverse effects on competition, 'proof of actual detrimental effects, such as the reduction of output,' can obviate the need for inquiry into market power, which is but a 'surrogate for detrimental effects.'" Indiana Dentists, 476 U.S. at 460-461, quoting 7 P. Areeda, Antitrust Law para. 1511, 429 (1986).
The purpose of defining a market is to help estimate market shares, and the purpose of estimating market shares is to estimate the potential for adverse effects. But in this case, adverse effects are directly observable. Surrogates for those effects are not needed. The 5-game reduction demonstrably reduces the number of games available to viewers nationwide and the options open to advertisers for reaching those viewers, as well as the competition between teams and the league, and superstations and the networks in the national television market, and without evidence of any commensurate gains. Under the circumstances, market power is not a prerequisite to condemnation under the Rule of Reason.
"The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition." Chicago Board of Trade, supra, 246 U.S. at 238. On the present evidence, the restraint imposed by the 5-game reduction suppresses competition without promoting it. It is therefore unlawful.
It is apparent from the foregoing discussion that the Sports Broadcasting Act, enacted in 1961, and the 1976 amendments to the Copyright Act, which added Section 111 and the concept of a compulsory license, are products of an earlier day in television and particularly sports broadcasting. The SBA's distinction between sponsored or free TV and pay TV is meaningless today, since virtually all over-the-air and cable TV broadcasts carry advertising from commercial sponsors. And Section 111 predates microwave transmission of superstation signals to a cable common carrier such as United Video. Superstations now have the ability to cover over some of their transmissions and do so with respect to commercials and programs subject to Syndex. As a result, it is not clear whether, if the superstation "covers over" portions of its programming, for instance Bulls games, by replacing them with substitute programming on the microwave, the common carrier must seek to intercept and transmit the covered over programming from the superstation's over-the-air signal or whether it can transmit the substitute programming being sent by the superstation on the microwave, as it does for Syndex, and not lose its common carrier status.
Although we have no problem deciding this case on the basis of the statutes as they now stand, it has become apparent to us that some modernizing of the those statutes might well be desirable.
A final word. The NBA, we were informed, has commissioned a study, which will be completed this year, into the various aspects of its TV broadcast policy. That study or future contract negotiations may provide some reliable data, rather than intuition, as to the effect, if any, superstations have on competition and national distribution of NBA games. On the present record, it is clear that the NBA has made great strides and signed very favorable four-year contracts even with each superstation entitled to transmit 25 of its local team's games. The NBA's decision to reduce that number to 20, clearly a significant restraint of trade, has not been shown, on the evidence presented to us, to achieve or contribute to any legitimate objective by increasing availability of the NBA product to more consumers or increasing competition in the broadcast of NBA games or between NBA games and other forms of TV programming. On the contrary, the 5-game reduction will reduce availability and competition in the hope of raising the price of the product in the future. Such a restraint is unreasonable and therefore unlawful. It should be restrained. An appropriate judgment and injunction will be entered.