SAN FRANCISCO (CN) – A case pending in the 9th Circuit is likely to have repercussions on current antitrust litigation between the NFL and its top players, as Chief Judge Alex Kozinski challenged both sides in an en banc hearing Tuesday over tactics used by four supermarket chains to break a highly publicized strike in Southern California.
In an argument where past litigation involving the NFL was brought up repeatedly, Kozinski alternately said that he could not see a “material difference” between profit-sharing and lockouts, and that the difference existed at a “gut level.”
Safeway, Albertson’s, Ralphs Grocery, and Food 4 Less agreed to share 15 percent of the revenues that any of the four companies earned, if such revenue exceeded its historical share of the group’s combined revenues.
The grocers’ attorney, Craig Stewart of Jones Day, said that the agreement is a “valid economic defensive tactic” that is supposed to last for the duration of a strike in an effort to counter union “whipsaw” tactics. Stewart elaborated that unions use selective picketing to try to divide and conquer employers in a multiemployer bargaining agreement.
California Deputy Attorney General Jonathan Eisenberg countered that the agreement violates antitrust law and that labor law does not contemplate the use of profit-sharing in labor disputes.
But Chief Judge Alex Kozinski questioned whether such arrangements fall under the nonstatutory labor exemption to the Sherman Act.
“For me, it fits right in there,” Kozinski said, adding that that the agreement is designed to counter labor tactics and is limited in time to the period of the strike.
This gives the grocers exemption from antitrust enforcement, the judge said.
“Lockouts are fine, right?” Kozinski asked. “I don’t see a material difference between lockouts and this.” He also argued that profit-sharing only happens in a strike, so the agreement is a function of labor activity.
As the NFL has argued in defense of its lockout, employers can intervene when a union makes a tactical decision that amounts to unfair labor practices.
Eisenberg, California’s attorney in the supermarket dispute, countered that lockouts had been “blessed by Congress,” while “profit-pooling is a core antitrust violation.”
As Stewart defended the grocers’ tactics, Kozinski appeared to change course, saying the difference exists at a “gut level.” In lockouts, employers act only in relation to their own employees, but revenue-sharing agreement allow companies to shift money around among competitors.
Stewart responded that the difference is not relevant to the test for the non-tatutory labor exemption, adding that the agreement deals with selective picketing in a way that lockouts cannot.
Judge M. Margaret McKeown asked Stewart to describe how economic efficiencies that come from revenue-sharing don’t violate the Sherman Act. Stewart emphasized that any tactic used under the agreement would have to be geared toward whipsaw tactics, and that price fixing would simply not work as a tactic to counter the strikes, while multiemployer bargaining is only made effective during targeted strikes when the grocers use revenue-sharing.
McKeown asked if other industries with multiemployer bargaining use similar revenue-sharing agreements. Stewart responded that his analysis would not necessarily apply to other industries because of the unique nature of the grocery business and customer-shopping patterns.
Kozinski was not satisfied. “I don’t think you are answering the question,” he said. “What will the spillover effects of this case be? What will we have to deal with in the future?”
“You don’t have to answer, OK, but it will hurt you,” he added.
When Kozinski described a hypothetical situation involving several large hardware chains facing a strike, Stewart said that the exemption would apply. The grocers seek a ruling that the agreement “can’t be condemned without analyzing it,” as opposed to the simple conclusion that it conforms to antitrust laws.
A three-judge panel of the 9th Circuit ruled in August 2010 that the agreement violated antitrust law. But the Central District of California entered final judgment after California agreed not to pursue judgment under a full rule of reason analysis, and the defendants withdrew all affirmative defenses except for the claim that the profit-sharing agreement was protected from antitrust review by the nonstatutory labor exemption. The 9th Circuit accepted the grocer’s petition for an en banc rehearing under the rule for situations that are “capable of repetition, yet evading review.”