Warrior Sports, Incorporated v. NCAA

• Court: Court of Appeals for the Sixth Circuit
• Decided: August 20, 2010
• Docket: 09-1395
• Status: Unpublished

Opinion

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION File Name: 10a0532n.06

No. 09-1395 FILED Aug 20, 2010 UNITED STATES COURT OF APPEALS LEONARD GREEN, Clerk FOR THE SIXTH CIRCUIT

WARRIOR SPORTS, INCORPORATED, ) ) Plaintiff-Appellant, ) ) ATHLETE’S CONNECTION, ) ) ON APPEAL FROM THE UNITED Plaintiff, ) STATES DISTRICT COURT FOR THE ) EASTERN DISTRICT OF MICHIGAN v. ) ) NATIONAL COLLEGIATE ATHLETIC ) ASSOCIATION, ) ) Defendant-Appellee. )

Before: BATCHELDER, Chief Judge; MOORE, and COOK, Circuit Judges.

COOK, Circuit Judge. Warrior Sports filed suit claiming that, by changing the rule that

governs the size of lacrosse stick heads approved for use in NCAA-sanctioned play, the NCAA

violated the Sherman Act and tortiously interfered with Warrior’s business. After denying Warrior’s

preliminary injunction request, the district court granted judgment on the pleadings in favor of the

NCAA. Warrior appeals, and we affirm. No. 09-1395 Warrior Sports v. NCAA

I.

Defendant-Appellee the National Collegiate Athletic Association (NCAA) sets the rules that

govern intercollegiate athletic competitions involving its member schools, including the play and

equipment rules for men’s lacrosse matches. Other league governing bodies, including the National

Federation of High School Sports, adopt and follow the rules set by the NCAA, giving those rules

particularly strong influence on the market for lacrosse equipment. Plaintiff-Appellant Warrior

Sports, Inc. manufactures and distributes lacrosse sticks.

Prior to 2006, the rule governing the allowable dimensions of lacrosse stick heads (Playing

Rule 1-17) remained unchanged for thirty years, setting the width of the head at a minimum of 6.5"

at its widest point and 10" from top to bottom. Traditional heads were triangular in shape, but

because the rule did not specify a minimum width for the base (or “channel”) of the head,

manufacturers began producing heads with a more pinched shape. According to the NCAA, the

pinched design made it more difficult for a player to dislodge the ball from an opponent’s stick

during play, which prompted players to use increasing amounts of force when attempting to do so,

leading to more injuries. To address this and other issues, in 2006, the NCAA initiated its rule-

changing process. The NCAA Lacrosse Rules Committee met with equipment manufacturers

(Warrior among them) to address potential rule changes, including the addition of a minimum width

requirement for the channel, aimed at resolving the dislodgement problem. On September 7, 2006,

the Rules Committee announced proposed changes to Rule 1-17 instituting minimum width

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requirements for the channel of the stick head. The 2006 Rule Change (intended to go into effect

on January 1, 2009) would have rendered the vast majority of all men’s stick heads, including 14 of

the 15 models marketed by Warrior, illegal for NCAA play. Warrior responded by filing a lawsuit

in the Eastern District of Michigan challenging the 2006 Rule Change, but dismissed the action after

the NCAA agreed to reconsider the proposed change.

The NCAA solicited additional input from all concerned manufacturers, including Warrior,

about how to improve the new specifications. To address the dislodgement issue, Warrior suggested

incorporating a “flare” design—a design on which it held a patent, though it failed to disclose that

fact to the NCAA at the time. In September 2007, the Rules Committee adopted a new rule (the

2007 Rule Change) intended to go into effect January 1, 2010. Much like the 2006 Rule Change,

the 2007 Rule Change would have rendered the majority of stick heads on the market illegal,

including all 15 of those marketed by Warrior. Significantly, the measurements incorporated into

the 2007 Rule Change promoted a flared head design and closely tracked the design patented (but

at the time not being marketed) by Warrior. When the NCAA learned of Warrior’s patent after

adopting the change, it sent Warrior a letter asking whether and under what terms the company

would be willing to license its intellectual property rights to other lacrosse equipment manufacturers.

Viewing this correspondence as a veiled threat by the NCAA to change the rules again if Warrior

refused to negotiate licenses with its competitors, Warrior responded that it perceived the NCAA’s

letter as inappropriate and would not consider licensing its rights in the abstract because it did so

only on a case-by-case basis.

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The NCAA adopted a third rule change in February 2008 (the 2008 Rule Change) and

scheduled its effective date for January 1, 2010. Like the 2007 Rule Change, the 2008 Rule Change

rendered Warrior’s entire existing line of stick heads illegal. The specifications adopted in the 2008

Rule Change differed only slightly from those in the 2007 Rule Change—broadening the range of

permissible widths. This modification allows stick heads using either straight or flared walls to

satisfy the rule, and any head that would have satisfied the 2007 Rule Change necessarily also passes

muster under the 2008 Rule Change. Notably, the 2008 Rule Change permits the use of any stick

head designed in conformity with Warrior’s patent.

Warrior responded to the 2008 Rule Changes by filing suit against the NCAA in the Western

District of Michigan accusing the NCAA of violating the Sherman Act and tortiously interfering with

its business relationships.1 Warrior moved for a preliminary injunction and asked the district court

to consider the motion on an expedited basis. Concerned that Warrior was forum shopping,2 the

NCAA immediately opposed Warrior’s request for expedited consideration of its injunction request

and moved to transfer venue to the Eastern District. The court sided with the NCAA, refusing to

expedite the injunction request and transferring the case to the Eastern District of Michigan. The

1 Warrior’s complaint also asserted a promissory estoppel claim on which the district court granted judgment in the NCAA’s favor. Warrior does not appeal that portion of the court’s ruling. 2 Although the district court never reached the merits of the first lawsuit before Warrior voluntarily dismissed it, the NCAA successfully moved, over Warrior’s objection, to stay discovery in that action pending resolution of the NCAA’s Rule 12(b)(6) motion—suggesting a motive for Warrior’s choice of the Western District for its second filing.

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NCAA promptly filed an answer and moved for judgment on the pleadings under Rule 12(c). By

memorandum opinion dated January 30, 2009, the district court denied Warrior’s preliminary

injunction motion, Warrior Sports, Inc. v. Nat’l Collegiate Athletic Ass’n, No. 08-14812, 2009 WL

230562 (E.D. Mich. Jan. 30, 2009), and later, in a separate opinion, granted judgment on the

pleadings in the NCAA’s favor, Warrior Sports, Inc. v. Nat’l Collegiate Athletic Ass’n, No. 08-

14812, 2009 WL 646633 (E.D. Mich. Mar. 11, 2009). Warrior appeals.

II.

We review the district court’s grant of a motion for judgment on the pleadings de novo using

the same standard as for a motion to dismiss under Rule 12(b)(6). EEOC v. J.H. Routh Packing Co.,

246 F.3d 850, 851 (6th Cir. 2001). “For purposes of a motion for judgment on the pleadings, all

well-pleaded material allegations of the pleadings of the opposing party must be taken as true, and

the motion may be granted only if the moving party is nevertheless clearly entitled to judgment.”

JPMorgan Chase Bank, N.A. v. Winget, 510 F.3d 577, 581 (6th Cir. 2007) (internal citation and

quotation marks omitted).

A.

Warrior alleged that the changes to Rule 1-17—including the 2008 Rule Change, which the

NCAA “appears to have” adopted “for improper and anticompetitive reasons under the influence of

one or more of [Warrior’s] competitors”—violated § 1 of the Sherman Act, which prohibits “[e]very

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contract, combination . . . , or conspiracy, in restraint of trade or commerce.” 15 U.S.C. § 1.

Because “nearly every contract binding parties to an agreed course of conduct amounts to some sort

of ‘restraint of trade,’ the Supreme Court has limited the restrictions of section 1 to bar only

‘unreasonable restraints.’” Care Heating & Cooling, Inc. v. Am. Standard, Inc., 427 F.3d 1008, 1012

(6th Cir. 2005) (quoting Nat’l Hockey League Players’ Ass’n v. Plymouth Whalers Hockey Club, 325

F.3d 712, 718 (6th Cir. 2003)).

The district court examined all three of the changes to Rule 1-17. It concluded that the 2006

and 2007 Rule Changes were noncommercial and therefore immune from antitrust challenge.

Assessing the 2008 Rule Change, the court found that, in light of Warrior’s accusation that the

NCAA enacted it in collusion with Warrior’s competitors, the 2008 Rule Change served a

commercial purpose because Warrior’s “competitors presumably sought to enact the rule in order

to benefit commercially.” Warrior II, 2009 WL 646633, at *4. The court nevertheless rejected

Warrior’s antitrust claim, finding that the 2008 Rule Change did not restrain trade or commerce

because, when compared to the 2007 Rule Change, the 2008 rule expanded the range of stick head

designs that could meet the standards for NCAA-approved play. Id.

We agree with the district court’s ultimate conclusion, but employ a slightly different

analysis. The NCAA dropped the 2006 and 2007 Rule Changes before they ever went into effect,

and thus they cannot be challenged because they necessarily did not cause (nor do they threaten to

cause) any injury to Warrior or anyone else. See Conwood Co., L.P. v. U.S. Tobacco Co., 290 F.3d

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768, 788–89 (6th Cir. 2002) (“An antitrust plaintiff bears the burden of showing that the alleged

violation was a material cause of its injury, a substantial factor in the occurrence of damage or that

the violation was the proximate cause of the damage.”). So although the district court chose to

compare the 2008 Rule Change to the 2007 Rule Change to determine whether the 2008 rule

restrained trade or commerce, we find that comparison inapt, given that the 2007 rule never took

effect. Rather, as the sole rule change ever to take effect, only the 2008 Rule Change matters for

purposes of the antitrust analysis.

Although the district court concluded that Warrior’s allegation of collusion between the

NCAA and Warrior’s competitors transformed the otherwise noncommercial rule governing athletic

competition into a commercial one subject to antitrust scrutiny, we avoid that question by assuming

the rule to be commercial and cut to the heart of Warrior’s antitrust claim, finding the challenged rule

does not harm competition and, consequently, does not unreasonably restrain trade or commerce.

Warrior’s Sherman Act claim thus fails as a matter of law.

Two frameworks exist for analyzing Sherman Act claims: the per se rule and the rule of

reason. Care Heating & Cooling, 427 F.3d at 1012. But Warrior’s failure to challenge the rule as

per se unlawful in proceedings below leaves it with only a rule-of-reason argument.3 To state a claim

3 Although Warrior argues in its opening brief that the 2008 Rule Change is per se unlawful, the NCAA responds that Warrior never raised this argument in the district court. In its opinion, the district court explicitly noted that Warrior “does not contend that the per se rule applies.” This court “generally ‘cannot consider an issue not passed on below,’” and exercises its “discretion to rule on an issue not decided below only in ‘exceptional cases,’” St. Mary’s Foundry, Inc. v. Employers Ins.

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under the rule-of-reason test, a plaintiff must allege, inter alia, that the purportedly unlawful

contract, combination, or conspiracy “produced adverse, anticompetitive effects within relevant

product and geographic markets.” Crane & Shovel Sales Corp. v. Bucyrus-Erie Co., 854 F.2d 802,

805 (6th Cir. 1988) (internal quotation marks and citation omitted); see also Nat’l Hockey League

Players Ass’n, 419 F.3d at 473 (“a plaintiff alleging an unreasonable restraint on trade under the rule

of reason theory must show significant anti-competitive effects of the challenged restraint”). The

Sherman Act exists for “the protection of competition, not competitors,” Atlantic Richfield Co. v.

USA Petroleum Co., 495 U.S. 328, 338 (1990) (emphasis in original), and thus “the foundation of

an antitrust claim is the alleged adverse effect on the market.” Care Heating & Cooling, 427 F.3d

at 1014.

Warrior’s complaint fails to identify any anticompetitive effects on the market for lacrosse

sticks attributable to the 2008 Rule Change (or, for that matter, to any other version of Rule 1-17).

Rule 1-17, irrespective of the various versions’ specifications, applies to all manufacturers, including

Warrior, in exactly the same way.4 Any manufacturer wishing to market a lacrosse stick approved

for use in NCAA competition (or in any competition governed by the NCAA standards) must

conform the stick to the dimensions specified in the rule. To be sure, rule changes impose costs on

of Wausau, 332 F.3d 989, 995–96 (6th Cir. 2003) (citations omitted). Warrior fails to satisfy the “exceptional case” standard, so the panel bypasses analysis under the per se rule. 4 We note Warrior’s complaint may inadequately allege the relevant market. See, e.g., Worldwide Basketball & Sport Tours, Inc. v. NCAA, 388 F.3d 955, 963–64 (6th Cir. 2004).

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manufacturers: they must adapt their processes to make sticks that meet the new rule’s specs; and

their stock of non-conforming sticks becomes obsolete. But Warrior fails to allege any facts that

would support a conclusion that the rule even arguably injures competition. Indeed, by complaining

that the new rule will “neutralize Warrior’s intellectual property rights and market position . . .

opening the door and paving the way for new entrants,” Warrior concedes that the 2008 Rule Change

will increase competition, not reduce it. Because the new rule applies equally to all manufacturers,

Warrior may compete in the market on the same footing as all other participants. This includes an

ability to sell stick heads produced in conformity with its patent, which the 2008 Rule Change does

not bar. Warrior’s failure to allege an injury to competition dooms its Sherman Act claim as a matter

of law.

B.

Under Michigan law, a claim of tortious interference with business relationship requires

proof of (1) a valid business relationship or expectancy; (2) knowledge of that relationship or

expectancy on the part of the defendant; (3) an intentional interference by the defendant inducing

or causing a breach or termination of that relationship or expectancy; and (4) resulting damage to

the plaintiff. Via The Web Designs, L.L.C. v. Beauticontrol Cosmetics, Inc., 148 F. App’x 483,

487 (6th Cir. 2005) (citing Baidee v. Brighton Area Schs., 695 N.W.2d 521, 538 (Mich. App.

2005)). “The third element of [this] tort requires the plaintiff to demonstrate that the third party

was induced either to breach the contract or to break off the prospective business relationship by

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an intentional act that is either (1) wrongful per se; or (2) lawful, but done with malice and

unjustified in law.” Id. (citing CMI Int’l, Inc. v. Intermet Int’l Corp., 649 N.W.2d 808, 812

(Mich. Ct. App. 2002)).

The district court rejected Warrior’s tortious interference claim, finding that, though

Warrior alleged collusion regarding the 2008 Rule Change in a way that might suggest malice, it

ultimately failed to demonstrate “that the adoption of the 2008 Rule Change was done with a

malicious and unlawful purpose, because the only effect of the 2008 Rule Change [when

compared to the 2007 Rule Change] was to increase the number of sticks that would be allowed

under the NCAA’s rules.” Warrior II, 2009 WL 646633, at *4. We decline to adopt the court’s

analysis, but agree with its ultimate conclusion.

“To establish that a lawful act was done with malice and without justification, the

plaintiff must demonstrate, with specificity, affirmative acts by the[] defendant that corroborate

the improper motive of the interference.” Erickson’s Flooring & Supply Co. v. Tembec, Inc., 212

F. App’x 558, 566 (6th Cir. 2007) (quoting Mino v. Clio Sch. Dist., 661 N.W.2d 586, 597–98

(Mich. Ct. App. 2003)). Taking a comprehensive view of the allegations in the complaint,

Warrior fails to allege specific, affirmative actions by the NCAA that corroborate its claim of

malice. Indeed, its vague assertion that “in deciding to change the rules, [the NCAA] appears to

have acted for improper and anticompetitive reasons under the influence of one or more of the

competitors of [Warrior],” Compl. ¶ 3, lacks the specificity required by Michigan law. And

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nothing about the content or character of the 2008 Rule Change—which applies equally to all

lacrosse stick manufacturers—inherently suggests that the NCAA intended to cause Warrior

harm.5 Accordingly, we affirm the judgment in favor of the NCAA on Warrior’s tortious

interference claim.

III.

For these reasons, we affirm the judgment of the district court.

5 Nor does Warrior’s repeated insistence that the Rule Changes do not actually make it easier to dislodge the ball create such an inference. Warrior fails to cite any law suggesting that a sports rule-making body with a facially plausible concern about a competition issue must supply empirical proof that a proposed rule change actually remedies the concern before enacting the rule.

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