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Deutscher Tennis Bund v. ATP Tour

June 25, 2010

DEUTSCHER TENNIS BUND, GERMAN TENNIS FEDERATION; ROTHENBAUM SPORTS GMBH; QATAR TENNIS FEDERATION, APPELLANTS
v.
ATP TOUR, INC.; ETIENNE DE VILLIERS; CHARLES PASARELL; GRAHAM PEARCE; JACCO ELTINGH; PERRY ROGERS; IGGY JOVANOVIC; JOHN DOE 7; JOHN DOE 8; JOHN DOE 9



On Appeal from the United States District Court for the District of Delaware D.C. Civil Action No. 07-cv-00178 (Honorable Gregory M. Sleet).

The opinion of the court was delivered by: Scirica, Circuit Judge

PRECEDENTIAL

Argued November 2, 2009

Before: SCIRICA, JORDAN and GREENBERG, Circuit Judges.

OPINION OF THE COURT

Men's professional tennis is a worldwide enterprise and every year, professional tennis players compete in various tournaments around the world. The principal men's professional tennis events are the four Grand Slams, the Davis Cup, and the ATP Tour, a worldwide professional tennis circuit organized by the Association of Tennis Professionals ("ATP"). This lawsuit arises out of the reorganization of the ATP Tour-known as the Brave New World plan-designed to revitalize its popularity, enabling it to better compete with other sports and entertainment events. The redesigned format channeled more top-tier players to the top-tier ATP tournaments and also redesignated the tier categories of some tournaments. The changes included a downgrade of the Hamburg, Germany tournament from the first tier to second tier status.

Dissatisfied with the downgrade, Hamburg tournament owners, the German and Qatar Tennis Federations (the "Federations"), sued ATP and certain of its officers and directors. The suit alleged that the Brave New World plan violated §§ 1 and 2 of the Sherman Act and that ATP's Directors breached fiduciary duties owed to the Federations. At trial, the District Court granted ATP's motions for judgment as a matter of law, dismissing the personal liability claims against the Directors for alleged antitrust violations and breach of fiduciary duty. The antitrust claims against ATP were submitted to a jury, which returned a verdict for ATP. The jury found the Federations failed to prove ATP entered into a contract, combination, or conspiracy with any separate entity under § 1 of the Sherman Act, and did not establish a relevant product market under § 2.

The Federations appeal the jury verdict on § 1 of the Sherman Act, asserting the District Court erred in instructing the jury on a "single entity or enterprise defense," and in failing to instruct on the "quick look" mode of analysis. The Federations also appeal the judgment as a matter of law dismissing the antitrust claims against the Directors and the breach of duty of loyalty claim against Director Charles Pasarell. We will affirm the jury verdict on the Sherman Act § 1 claim based on the Federations' failure to prove the relevant market. Consequently, the question of personal director liability for antitrust claims is moot. We also will affirm the judgment as a matter of law dismissing the breach of duty of loyalty claim against Director Pasarell because neither he individually nor the ATP Board of Directors as a whole were materially self-interested when they voted in favor of the Brave New World plan.

I.

A.

Initially an association of the world's top men's professional tennis players, ATP evolved into a non-profit corporation consisting of a membership of men's professional tennis players and organizers of men's professional tennis tournaments. ATP operates a worldwide tennis tour composed of the member tournaments, culminating in ATP's end-of-season championship tournament, the Tennis Masters Cup.*fn1 Tennis players earn prize money and ATP ranking points through playing in ATP tournaments.

ATP ranking points determine each player's world ranking. The player rankings are important because they govern entry into and seeding in the Grand Slams*fn2 as well as ATP top-tier tournaments-the most important professional tennis tournaments. In turn, these tournaments award the most prize money and ranking points.

ATP tournament members are divided into three categories: (1) Tier I (formerly "Masters Series"); (2) Tier II (formerly "International Series Gold"); (3) Tier III (formerly "International Series"). The categories of tournaments are distinguished by different levels of minimum prize money and different amounts of ranking points awarded on the basis of performance.

ATP is governed by a seven-member Board of Directors-three elected by tournament members (representing different geographic regions), three elected by player members, and a Chairman/President. ATP's Bylaws give the ATP Board discretion over the Tour's format.

In 2007, the Board voted to adopt several changes to the ATP Tour. According to ATP, this restructuring was necessitated by market changes and conditions: ATP was losing ground in the sports and entertainment markets. ATP's market research revealed that tennis fans wanted to see the top tennis players play against each other more often. ATP perceived that a growing decline in player participation in its top-tier events undermined its prestige and also the profile of the sport, leading to a decline in ticket sales and weakening the member tournaments' ability to secure television coverage and sponsorships. By strengthening its top-tier events and simplifying its tournament structure, ATP believed it could better compete with other sports events and other forms of entertainment, and also award more prize money to the players.

The Brave New World plan's objective was to increase the value and appeal of top-tier tournaments by channeling top players to compete in them. It also aimed to make the progression of the Tour easier for fans to follow by clearly communicating each tournament's tier and differentiating between the different tiers. To achieve these goals, the Brave New World plan altered the number of ranking points awarded to winning players in different tiers of tournaments. Tier I tournaments would award 1000 points instead of 500; Tier II tournaments would award 500 points instead of a range between 250 and 300; Tier III tournaments would award 250 points instead of a range between 175 and 250. Additionally, the Brave New World plan renamed the tournament tiers to correspond to the new ranking points system: Tier I became the "ATP World Tour Masters 1000"; Tier II became the "ATP World Tour 500"; and Tier III became the "ATP World Tour 250." The new ranking point distribution was designed in part as an incentive for the top tennis players to play the ATP top-tier events.

The Brave New World plan also reconfigured the Tour calendar to create geographic "swings" or "seasons" around the Grand Slams because of their size, prestige, history, and popularity, and their significantly greater amount of prize money. Thus, the Brave New World plan scheduled the top-tier ATP tournaments in the weeks before the Grand Slams with corresponding court surfaces-e.g., the Tier I tournament in Madrid, Spain on a clay surface was scheduled in the weeks before the French Open, a Grand Slam tournament also on clay. According to ATP, scheduling their tournaments in this way attracts the top tennis players because of their desire to play on the same surface as the upcoming Grand Slam tournaments.

Notably, the Brave New World plan also amended ATP rules so that qualifying players were required, under threat of sanctions-suspension, loss of ranking, and loss of ability to earn ranking points-to play all Tier I events, at least four Tier II events, and at least two Tier III events. Further, all qualifying players were also required to play in the year-end Tennis Masters Cup championship. In addition, the Brave New World plan imposed a "Special Events" rule on the top 50 players, prohibiting them from participating in any non-ATP, non-Grand Slam events during the weeks of and surrounding ATP events. As noted, these changes were prompted by the decline in top player participation in ATP tournaments. In turn, ATP increased the tournaments' minimum prize money levels to benefit the players.

The Brave New World plan also spurred significant capital investments in facilities on the part of the tournaments-the Tier I and Tier II tournaments committed to approximately $864 million in capital investments. ATP undertook to create a more unified branding approach for the Tour and increased spending on promotion and marketing. It projected a $9 million marketing amount for 2009; previous budgets provided for only $800,000 in 2005 and 2006, and $5 million in 2007 and 2008. It also enhanced pooling for existing broadcast and digital media rights.

In sum, ATP designed the Brave New World plan as a comprehensive plan to address the perceived decline of ATP in the sports and entertainment markets. Concluding that fans desired a better structured Tour, featuring the best players playing against each other more often, ATP decided to simplify the Tour's format and to introduce regulations ensuring top player participation in ATP top-tier tournaments. Both ATP and the member tournaments committed to make investments to improve the quality of the Tour and promote it more effectively. The tournament members agreed to increase the prize money levels to compensate the players for agreeing to play in more top-tier events.

B.

Plaintiff German Tennis Federation promotes tennis in Germany and claims to be the world's largest national tennis federation, with approximately 1.7 million members. It stages an annual clay-court tournament in Hamburg, Germany. From 1990 to 2009, Hamburg tournament was a Tier I ATP tournament. Under the Brave New World plan, the Hamburg tournament was demoted to Tier II. The overall number of Tier I events remained at nine, with the addition of Shanghai, China.*fn3 In Tier II, the number of events was increased from nine to eleven. Plaintiff Qatar Tennis ...


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