After the Civil War, a number of businesses began expanding and forming large conglomerates also known as trusts. They grew so large and powerful that many believed they prevented any competition along with controlling prices on various items similar to what Sony did in the 1980s with their cameras and video equipment.
Some southern states passed laws to prevent large trusts from monopolizing any business and controlling prices. Large trusts responded by moving to states like Delaware and New Jersey that didn’t have anti-trust laws.
Consequently, Sen. John Sherman (R-OH), authored a federal anti-trust bill that soon bore his name. The Sherman Antitrust Act became law on July 2, 1890. The first two sections stated:
Section 1- Trusts, etc., in restraint of trade illegal; penalty
Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.
Section 2- Monopolizing trade a felony; penalty
Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.
Prior to the passage of the Sherman Antitrust Act, the National League of Professional Baseball Clubs was formed in 1876. A second league started playing baseball and in 1901, formed the American League and the two leagues became rivals in the sport. The first World Series between the National and American Leagues was played in 1903, with the Boston Americans defeating the Pittsburgh Pirates 5 games to 3.
In 1912, two additional baseball leagues tried to form and compete with the National and American leagues, neither of which were accepted or endorsed by the National League of Professional Baseball Clubs, which eventually became known as Major League Baseball. One league was the United States League, consisting of 8 teams from eastern cities, but after only a month the USL folded. The other was the Columbian League, consisting of cities in the Midwest. This league never saw a baseball field professionally.
In 1913, attempts were again made to form competing leagues. The United States League managed to play games before leaving the field for good. The Columbian League was re-named the Federal League and consisted of six teams: Chicago, Cleveland, Covington, Indianapolis, Pittsburgh, and St. Louis. They successfully played a full 120 game season.
Part way through the season, the Covington club was moved to Kansas City due to a lack of attendance in Covington. This now placed 4 of the six Federal League teams based in cities that already had MLB teams.
In January 1914, James Gilmore, president of the Federal League, announced that they would respect the MLB franchises, but that players on reserve lists with the MLB teams would be fair game to sign contract with the Federal League teams. Joe Tinker of the Cincinnati Red Stockings was the first pro player to switch leagues and signed with the Chicago Feds. Following Tinker, other major league players including Otto Knabe, Three Finger Brown, Hal Chase, and Russ Ford, also signed contracts with Federal League teams.
The feud between the two baseball leagues came to a head in January, 1914. Bill Killifer had been the catcher of the Philadelphia Nationals since 1911. In January, he hadn’t signed a new contract with Philly yet so the Chicago Whales of the Federal League approached him and got him to sign a contract to play ball for them. A week later Killifer changed his mind and signed a contract with his first team Philadelphia.
Now both teams claimed ownership of Killifer. Chicago said that he signed their contract first that he had to play for them. Attorneys for Philadelphia countered saying that Chicago had seduced their employee and therefore should not have any legal claim to him.
On March 18, 1914, Chicago filed a lawsuit in the US District Court of Western Michigan. They sought to prevent Killifer from being able to play for any other team since he signed with them first.
On April 10, 1914, the court ruled both contracts were valid and that Chicago could not prevent Killifer from playing with any other team. Both leagues claimed victory on different grounds.
Following the decision, Gilmore told all of the Federal League teams to go after any player they want, regardless if they were under contact with an MLB team or not. This ignited a war between the Federal League and MLB.
Over the next two years, the Federal League worked hard to use players with major league or big league experience in order to define themselves as a major baseball league able to compete with the National and American Leagues. The MLB leagues responded by basically ending the careers of many players who jumped to the Federal League.
The MLB leagues began filing a series of lawsuits against the Federal League in hopes that it would eventually drive the new league into oblivion and off the baseball diamond. The Federal League countered and filed a lawsuit in the Northern District of Illinois, claiming that the National and American Leagues were guilty of violating the Sherman Antitrust Act of 1890.
The case ended before Judge Kenesaw Mountain Landis. The Federal League was encouraged because Landis was known for his 1907 antitrust ruling against Standard Oil. The MLB leagues were encouraged because Landis was an avid baseball fan. Incidentally, Landis was the first Commissioner of Baseball, serving from 1920 until his death in 1944.
Landis delayed his ruling and by the end of the 1915 season, at which time the Federal League had failed to turn a profit, the owners of the Federal League teams decided to settle the lawsuit. Two of them were allowed to buy existing MLB teams – the Chicago Cubs and the St. Louis Browns. Five the remaining six owners accepted buyout offers.
The ownership group that owned the Baltimore Terrapins of the Federal League refused to accept the buyout and instead filed their own antitrust lawsuit against the National and American Leagues. They claimed that the two leagues had collaborated to create a baseball monopoly with their deliberate intent on destroying the Federal League.
In district court, Baltimore won their case. The National and American Leagues appealed the decision and won in the court of appeals who ruled that baseball was not subject to the Sherman Antitrust Act as they didn’t qualify as an interstate business. The ownership group of the Baltimore Terrapins appealed that decision to the US Supreme Court.
On this day, May 29, 1922, Supreme Court Chief Justice Earl Warren handed down a unanimous decision stating that major league baseball is a sport, not a business and as such there was no interstate commerce of which would be a violation of the Sherman Antitrust Act of 1890. The ruling has impacted professional sports ever since.
Sources for the above includes: Sherman Antitrust Act; Federal Baseball Club v. National League; Federal Baseball Club v. National League; Supreme Court rules in favor of Major League Baseball; Supreme Court on Deck in MLB Antitrust Battle?; Baseball’s antitrust exemption: Q & A; Antitrust Exemption Holds Baseball Back a Century; Antitrust Labor Law Issues in Sports; Sherman Anti-Trust Act of 1890; Sherman Antitrust Act; National League of Baseball is Founded; Was the Federal League a Major League?