Antitrust Lawyer Blog Commentary on Current Developments

Supreme Court Sacks the NFL: No Antitrust Exemption for the League

On May 24, 2010, the much-anticipated sports antitrust case American Needle, Inc. v. NFL was decided by the Supreme Court. The Court reversed the Seventh Circuit Court of Appeals and held that the National Football League Properties’ (NFLP) exclusive licensing agreement with Reebok to produce headwear constitutes concerted action, and thus falls within the scope of § 1 of the Sherman Act, which outlaws any “contract, combination . . . or conspiracy, in restraint of trade.” The case was remanded to be tried under the Rule of Reason.

In 1963, the NFL teams formed the NFLP as a separate corporate entity to control the teams’ licensing agreements. Since then, the NFLP has provided licenses to apparel companies and video game companies to use the teams’ intellectual property. For decades, Illinois-based American Needle enjoyed a non-exclusive license to produce NFL headwear. When the NFLP did not renew the license and granted Reebok an exclusive 10-year license in 2000, American Needle sued the parties for antitrust violations under §§ 1 and 2 of the Sherman Act.

The Seventh Circuit Court of Appeals affirmed the district court’s summary judgment decision for the defendants and held that although the 32 teams could have competing interests regarding the use of their intellectual property, those competing interests do not prevent the teams from functioning as a single entity. The Seventh Circuit acknowledged that sports leagues should be viewed as a single entity in some instances, and as separate and distinct in others. In its limited review of Reebok’s exclusive license, the court determined that the teams’ economic interests were aligned enough with regard to the use of their intellectual property to function as a single entity.

The Supreme Court disagreed, reversing 9-0, deciding that the suit survives summary judgment and that the NFL’s actions are subject to a Rule of Reason inquiry. The Court said that the teams, in licensing their intellectual property, “remain separately controlled, potential competitors with economic interests that are distinct from NFLP’s financial well-being” since they compete for fans, players, and managerial personnel. To a firm making hats, for example, the Colts and the Saints are two competing suppliers of valuable trademarks. By selling their merchandise, the Colts and Saints are not pursuing the “common interests of the whole league” but the interests of their team. The Court cited United States v. Sealy, Inc. for the proposition that even members of a legal single entity can violate § 1 when the entity is controlled by competitors to serve merely as a vehicle for ongoing concerted activity. 388 U.S. 350 (1967). To hold otherwise, Justice Stevens—writing for the Court—said, would mean cartels could simply get around antitrust liability by setting up a joint venture.

The Court ruled narrowly on the ability of teams to collectively license to apparel companies while still recognizing that many decisions by the NFL teams need to be made collectively. Going forward, any time a sports league acts on behalf of its member teams the collective decision will be scrutinized as to whether the act joins actors with separate economic interests such that it deprives the marketplace of “independent centers of decisionmaking.” Put differently, every collective decision by a sports league, it seems, is subject to Rule of Reason analysis. The Court recognized in oral arguments that this may be burdensome, but that many decisions—like the number of games played and rule-creation—would require minimal scrutiny.

In the run-up to American Needle, many sports and legal observers attached tremendous significance to the Court’s ruling. Famed antitrust expert and Super Bowl-winning quarterback Drew Brees stated, for example, in a January Washington Post op-ed that affirming the Seventh Circuit would imperil players’ rights to free agency and fair wages. Sensing a landmark decision for league-union relations, the MLB, NBA, and NHL lined up to write amicus briefs for the defendants, and the major players’ associations wrote a joint amicus brief for American Needle.

In light of the Court’s narrow ruling, the significance attached to the American Needle decision was probably overstated. The ruling only covers the NFLP’s agreement with Reebok, and does not cover any other collective decision by the NFL. Further, Stevens’s opinion did not deviate from the legal precedent on the subject, namely the Court’s decision in Copperweld Corp. v. Independence Tube Corp., and much of the opinion was a reiteration of prior cases.

If there is any significance, it is that the NFL—and probably the other major professional sports leagues—will not be enjoying an MLB-like antitrust exemption from courts like it had apparently hoped. When the NFL discovered that American Needle petitioned its case for certiorari, the League eagerly joined in anticipation that the Supreme Court would expand upon the Seventh Circuit’s ruling, effectively granting the NFL even greater antitrust protection. In light of the unanimous reversal, that hope proved ill-founded.

Brent Skorup

(202) 589-1834
bskorup@dbmlawgroup.com