IP Litigation

Litigation Victory for CBC and the $1.5 Billion Fantasy Sports Industry

Challenge

The fantasy sports industry grew from a grass roots following of 500,000 consumers in the 1980s, to a $1.5 billion dollar a year industry with 15,000,000 participants by 2005. It was then that Major League Baseball Advanced Media (MLBAM) and Major League Baseball Players Association (MLBPA) attempted to monopolize the entire industry. By 2005, there were a couple hundred fantasy providers. Our client, C.B.C. Distribution and Marketing, Inc. (CBC), introduced the first dominant software product in the early 1990s, which played a major role in making fantasy sports more user friendly and causing its growth to proliferate to the large following in 2005.

In 2005, MLBAM, through rights granted by MLBPA, sent cease-and-desist letters to the several hundred fantasy operators, including our client, CBC, demanding that they discontinue operations with no material compensation for their business. They took the position that the use of player names and statistics in fantasy sports violated player rights of publicity.

MLBAM then proceeded to offer fantasy baseball games on its website at MLB.com and through ESPN, CBS Sportsline and Yahoo.

As a result, CBC immediately brought suit against MLBAM seeking declaratory relief that it had the right to use, without license, the names and information of Major League Baseball (MLB) players. MLBAM then counter-sued CBC, alleging its fantasy products were in violation of the players’ rights of publicity. The MLBPA joined the suit and also brought “breach of contract” claims against CBC relating to licensing issues.

For CBC, this litigation was literally a matter of “life or death.” CBC knew that it needed the best possible representation against MLBAM’s claim of exclusive rights to fantasy baseball. In addition, a loss for CBC would put the entire $1.5 billion fantasy sports industry — over 150 companies and more than 15 million customers — out of business. After a thorough search for litigation counsel, Harness Dickey was selected to represent CBC. This high-stakes litigation would last several years, and end with a Supreme Court denial of petition for a rehearing and for certiorari in favor of CBC.

Solution

Harness Dickey’s team analyzed CBC’s position from all angles. From a pure legal standpoint, the issue was whether the use of player statistics to play fantasy sports violated player rights of publicity and, even if it did, whether the First Amendment trumped any such rights of publicity.

A deeper dive into the facts revealed a much more compelling story for the fantasy industry and against MLB than that signaled by the pure legal issue. As it turns out, MLB played no part in thinking of or developing fantasy sports; an editor for the New York Times thought of it. In the 1980s, devoted fans created and managed their own statistical games with an estimation of about 500,000 fans playing annually. In the 1990s and moving forward, software companies like our client, CBC, developed state of the art software to manage the statistic interface and to create many forms of interesting fantasy games. The software made it far easier for the average fan to play and track the games, dramatically increasing the popularity of fantasy sports.

By 2005, at the time of suit, it was estimated that about 15 million fans played fantasy sports annually. As a result, we brought in many witnesses to explain in detail how fantasy sports had actually made MLB far more money by causing devoted fans to watch many more games than just those of their home town team, and encouraging them to buy more merchandise, satellite television packages and fantasy sports media, to name just some of the benefits. Indeed, the fantasy industry had helped MLB and its players… not damaging them in the least. Based on our development of this much more compelling story that transcended the mere legal issues, the Harness Dickey team prevailed on behalf of CBC.

The District Court granted summary judgment in favor of CBC, and held that CBC did not violate player rights of publicity and further agreed that the First Amendment would trump any state law to the contrary. The District Court also addressed the issue of the previous and expired license agreement between CBC and MLBPA, which contained a provision that prohibited the company from using players’ names and records after it expired. The agreement also contained a “no-challenge” clause that prohibited CBC from challenging the players’ rights. The District Court rejected the MLBPA’s reliance on the contract noting that the “no-challenge” provision was unenforceable for public policy reasons, challenging issues to be sure. Finally, the District Court ordered MLBPA and MLBAM not to interfere with CBC fantasy baseball games.

MLBAM and MLBPA appealed the decision and received support from the NFL, NBA, USGA, NHL and NASCAR, in the form of amicus briefs. Following oral arguments, the 8th Circuit also sided with CBC, fully agreeing with the District Court’s ruling. MLBAM and MLBPA then petitioned for a rehearing and for certiorari with the U.S. Supreme Court. In 2008, the Supreme Court denied the petition, thereby ending the dispute in favor of CBC.

Rudy Telscher, Harness Dickey Partner and Lead Counsel for CBC noted, “While I love major league baseball and hold professional players in high regard, the players union, MLBPA, acted far too aggressively in trying to take over an industry that it did not create. It was a privilege to represent CBC and, indeed, the entire fantasy sports industry to turn back MLB’s entities’ effort to monopolize this industry to the detriment of the companies that built it, and all the fans that enjoy the benefits of a competitive market.”

C.B.C Distrib. & Mktg. Inc. v. Major League Baseball Advanced Media, 443 F.Supp.2d 1077 (E.D. Mo 2006), aff’d.505 F.3d 818 (8th Cir. 2007)