Gilder v. PGA Tour, Inc.

The PGA Tour, Inc. (PGA) (defendant) administered golf tournaments in the United States. The PGA was governed by Maryland law and was overseen by a board of directors comprised of four player representatives, three PGA officers, and three independent directors. In February 1989, the PGA banned the use of golf clubs on which the cross section of the grooves on the club face was in the shape of a U (U-shaped clubs). The PGA’s bylaws at the time required rule changes to be approved by both a majority of directors present and at least three player representatives. However, only the three independent directors approved the ban; the other seven directors recused themselves due to financial conflicts. The ban was based on a concern that U-shaped clubs imparted more spin on golf balls than traditional clubs with grooves in the shape of a V, allowing players to hit balls more accurately and reducing the skill needed to play well. Karsten Manufacturing Corporation (Karsten) (plaintiff) manufactured and sold Ping Eye 2 (Ping) clubs, which were among the most popular clubs with professional and amateur golfers. Ping clubs featured a U-shaped face. After the PGA issued the ban, Karsten sought to persuade the PGA that U-shaped clubs did not confer an unfair advantage. When that effort failed, Karsten, along with professional golfer Bob Gilder and seven other professional golfers who were PGA members (players), sued the PGA and the PGA’s directors (defendants), alleging that the ban violated antitrust law. The players further claimed that the directors breached their fiduciary duties by approving the ban with the approval of only the three independent directors in contravention of the PGA’s bylaws. Several days later, the PGA board unanimously changed its bylaws to permit disinterested directors to take action if a board majority was recused, after which the three independent directors reapproved the ban. The district court granted a preliminary injunction against the ban, ruling, among other things, that the players’ fiduciary-duty claim raised a serious question on the merits. The PGA appealed.