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American Needle v. NFL: Supreme Court Holds that the NFL and Its 32 Member Teams are not a “Single Entity”

May 24, 2010

 

On May 24, 2010, the United States Supreme Court issued its decision in American Needle, Inc. v. National Football League, et al.[1] The dispute involved a single question: whether the National Football League (“NFL”) and its 32 separately owned and operated teams act as a single entity when licensing team trademarks and logos. The Court’s decision unanimously answers that question “no,” but it leaves unanswered the larger question of what conduct, arising in the context of a lawful joint venture, violates Section One of the Sherman Act.

The dispute arises from a licensing decision by NFL Properties, an agent of the NFL and its member teams responsible for licensing both the league and the teams’ trademarks and logos. In December 2000, the NFL and its member teams voted to authorize NFL Properties to grant an exclusive intellectual property license. NFL Properties thereafter granted Reebok a ten-year exclusive license for “all club marks and logos, for uniforms, sideline apparel, headwear and fitness equipment.”[2] The Reebok license prevented American Needle from manufacturing and selling headwear bearing NFL team logos, a business it had been engaged in since the late 1950s.[3]

American Needle brought an action against the NFL, its 32 member teams, NFL Properties and Reebok challenging the exclusive license under Section One of the Sherman Act. The District Court granted the NFL defendants’ summary judgment on the ground that the NFL and its member teams acted as a “single entity” in promoting NFL football, which included the licensing of their intellectual property. As a single entity, the NFL defendants were immune from Section One liability.

The Seventh Circuit affirmed the District Court’s decision. The court reasoned that the product that the NFL offers—NFL football—can only be created through concerted action since one team is incapable of producing a competitive game by itself. According to the Seventh Circuit, the teams are a single source of economic power in the production of NFL football. It therefore follows that all teams share an economic interest and act as one source of economic power in collectively promoting NFL football. As such, the teams, through NFL Properties, act as a single entity in licensing their intellectual property and are incapable of forming the requisite combination in restraint of trade under Section One.

The parties brought the dispute to the Supreme Court. Before the Court, the parties and the Solicitor General argued about whether Section One exempts some joint activities from its reach. American Needle argued that all aspects of league operations, from rules of play to licensing of team logos, must be subject to Rule of Reason analysis. The NFL defendants staked out the position at the opposite end of the antitrust spectrum. They argued that because joint conduct is required to produce NFL football, all of their joint conduct must be immune from antitrust scrutiny. The Solicitor General filed an amicus brief supporting a position somewhere in the middle. It agreed with the NFL that some conduct (like league rules of play) should not raise any real Section One issue but agreed with American Needle that all conduct should be subject to at least some scrutiny. It also offered a three-part test that would create a safe harbor for at least some joint activities.

On the very narrow issue presented by the case, the Court’s decision sides with American Needle. The unanimous opinion declines the opportunity to place any joint activity outside the scope of Section One scrutiny. According to the Court, the joint action inquiry must concentrate on whether the alleged contract, combination or conspiracy is “concerted action—that is, whether it joins together separate decisionmakers.”[4] The relevant inquiry is, therefore, whether the alleged combination is among “separate economic actors pursing separate economic interests such that the agreement deprives the marketplace of independent centers of decisionmaking and therefore of diversity of entrepreneurial interests.”[5]

Applying this standard to the allegations of the complaint, the Court’s decision finds that the complaint alleges joint action. According to the Court, each NFL team is “a substantial, independently owned, and independently managed business,” and their actions are guided by “separate corporate consciousnesses” with divergent objectives.[6] Therefore, when licensing its intellectual property, a team is not pursing the common interests of the league, but seeks to serve its own interests. In fact, “[t]o a firm making hats, the Saints and the Colts are two potentially competing suppliers of valuable trademarks.”[7] Allowing the teams to jointly license their separately owned intellectual property “deprives the marketplace of independent centers of decisionmaking” and therefore, of actual or potential competition.[8]

Having reached that conclusion and, thus, the limits of the question presented, the Court’s decision punts the larger question of how to apply the rule of reason to the conduct at issue to the courts below. The only discussion of the “merits” of the conduct appears in the final four paragraphs of the decision. The discussion opens with the observation that “[f]ootball teams that need to cooperate are not trapped by antitrust law.”[9] And it suggests that joint licensing may survive full-blown Rule of Reason review for any number of reasons, including the fact that agreement is “essential if the product is to be available at all” or because the NFL has an “important and legitimate interest” in maintaining the competitive balance among its teams.[10]

In the end, this much-anticipated decision, which will be Justice Stevens’ last contribution to U.S. antitrust law, stands for an utterly unremarkable proposition: that joint action among competitors (or potential competitors) is joint action among competitors (or potential competitors) and, thus, subject to scrutiny under Section One of the Sherman Act. For those who hoped this decision would provide useful guidance on how to engage in concerted action without running afoul of the antitrust laws, it falls well short of the end zone.


 

[1] 500 U.S. ___ (2010). The original Seventh Circuit decision can be found at 538 F.3d 736 (Aug. 18, 2008).

[2] See Pet. Brief on Writ of Cert., 2009 WL 3004479, at *6 (Sept. 18, 2009).

[3] See Pet. Brief on Writ of Cert., 2009 WL 3004479, at *8.

[4] 500 U.S. ____, at *10

[5] Id. (internal quotations omitted).

[6] 500 U.S. ___, at *12.

[7] 500 U.S. ___, at *12.

[8] 500 U.S. ___, at *12.

[9] 500 U.S. ___, at *18.

[10] Of course, courts have struggled mightily with how to structure Rule of Reason review to account for the differences between legitimate collaborations and cartel behavior. For further discussion of the current confusion in joint venture jurisprudence and a proposal to alleviate it, see T. Brown, K. Robison & I. Simmons, Joint Ventures and the Sherman Act: The Problem Revealed by American Needle and How Best to Address It, CPI Antitrust Journal, March 2010(2), available at http://www.omm.com/files/upload/Brown.pdf.