The Ninth Circuit Lets Caddies Take a Mulligan on Antitrust and Unfair Competition Claims in Golf Caddy Case

For most viewers watching the PGA Tour, the clothing on golfers and their caddies is unlikely to make an impact.  Yet the advertising value—if not fashion statements—of that clothing can mean a big score for sports brands trying to reach a particular demographic. In Hicks v. PGA Tour, the Ninth Circuit explored the concept of market definition in the peculiar—if not altogether “green”—context of the ad value of caddies’ bibs.

The Tour hosts three tournaments a year, working with a local host of each.  One source of sponsorship funding is the bibs, which are visible to millions of viewers as the caddies follow golfers from hole to hole. The Tour and hosts require that each golfer be accompanied by a caddy and that all caddies wear bibs. Advertising space on the bibs is valued at $50 million a year, with revenues going to the Tour and hosts, not to the caddies.

The caddies brought claims against the Tour in the Northern District of California for alleged violations of sections 1 and 2 of the Sherman Act, false endorsement under the Lanham Act, breach of contract, equitable quasi-contract, economic duress, right of publicity, and unfair competition.  The court dismissed the breach of contract claim with prejudice, finding that by signing the Caddie Registration and Regulations Form, the caddies had agreed to the Tour’s requirement to wear bibs. The false endorsement, quasi-contract, and publicity claims were also dismissed on the consent issue.  The district court also dismissed the economic duress claim with prejudice, reasoning that the caddies chose to enter a profession in which bibs have traditionally been required.

As for the Sherman Act claims, the caddies argued that the bib requirement unreasonably restrained trade under Section 1 since it reduced product supply in the relevant markets. The caddies also argued that the bib requirement (and surrounding Tour and Host conduct) amounted to a monopoly, or attempted monopoly, on the relevant markets in violation of Section 2. The caddies’ tying claim alleged that the Tour exploits its monopoly power to coerce caddies into selling their endorsement services in exchange for the chance to work the Tour.  The caddies’ antitrust claims rested on allegations of two relevant markets: the Endorsement Market and the Live Action Advertising Market.

The caddies defined the Endorsement Market as “the national market for the endorsement of products and services by participants in professional golf services,” which would have included both golfers and caddies as sellers, but for the Tour’s bib requirement.  That market involved a certain amount of price-flexibility particular to these golfers and caddies based on skill level.  It also involved a distinct advertising market based on a unique, if not stereotyped, demographic of golf fans (as opposed to fans of other sports). According to the caddies, the Endorsement Market is also highly effective because buyers of bib space are guaranteed a captive audience: fans viewing in-action golf can’t ignore bib advertisements, whereas fans can avoid advertisements on a page of a magazine or on commercial breaks.

The  Live Action Advertising Market was defined as “the national . . . market for in-play or in-action commercial advertising at professional golf events between commercial breaks,” including advertising space on and around the host golf course that is visible while golfers (and caddies) are in action.  The Caddies argued this Live Action Advertising Market is a plausible market for the same reasons as the Endorsement Market.

The district court dismissed these three claims with prejudice for failure to plead a plausible product market.  The court found that the advertising markets—whether in-action or in a magazine—were interchangeable, and that the caddies, in their market definitions, failed to include viable substitutes. The district court also dismissed the tag-along unfair competition claim.

While the Ninth Circuit agreed with the lower court’s ruling on market definition, it found that the district court improperly denied leave to amend.  The Ninth Circuit found that in-action advertising had many substitutes. While the appellate court conceded that some fans may avoid advertising where possible, the Court still found that the various forms were interchangeable because it was unlikely that a fan would only watch in-action matches (and not consume other forms of golf advertising).

The Ninth Circuit also deemed it implausible that a fan would consume all forms of advertising but not be influenced by any form other than the in-action form.  The Court found that even if such a scenario were plausible, the caddies failed to allege how this group of fans would be distinct from other golf fans vis-à-vis advertising.  Nor was the Court swayed by the caddies’ price-flexibility argument, as it considered this variance in price (in which little-known players and caddies offer cheaper bib real estate) equivalent to a decision to pay less to advertise in another forum (such as radio) altogether.  Lastly, the Ninth Circuit noted that other courts did not buy antitrust arguments based on alleged advertising markets confined to a single form of advertising. Since it rejected the argument that such in-action advertising was a unique product submarket, the Ninth Circuit did not need to decide whether advertisements to golf fans constituted a unique product market and found that dismissal of the unfair competition claim was proper.

Despite its insistence that the product market was not plausible as alleged, the Ninth Circuit must have seen promise in the allegations.  The panel found that the district court had abused its discretion by denying leave to amend the antitrust and unfair competition claims without sufficiently explaining the basis for the denial.  Specifically, the Ninth Circuit noted that the district court had only dismissed the complaint once, the Tour failed to identify the prejudice it would suffer, and that the Court could not deem amendment futile.  The court remanded regarding those claims—acknowledging, at least implicitly, that the caddies could allege a plausible product market.

Perhaps plaintiffs can take solace in the Ninth Circuit’s opinion that amendment would not be futile on these facts.  Yet given the Court’s restrictive view of market definition pleading requirements, the bigger lesson for plaintiffs may be to stress arguments in the alternative. In pleading as in golf, you drive for show but putt for dough; details matter.

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