Supreme Court Finds NFL Not Single Entity for Purposes of Antitrust Analysis of IP Licensing

In American Needle Inc., v. National Football League et al., 2010 U.S. LEXIS 4166, 94 U.S.P.Q.2D 1673 (2010), the appellee American Needle Inc. (Needle) sued defendants including the National Football League (NFL), the NFLP, and Reebok for violations of §1 and 2 of the Sherman Act.  Between 1963 and 2000, the NFLP granted nonexclusive licenses to various vendors including Needle.  In 2000, the teams authorized the NFLP to grant exclusive licenses.  The NFLP granted a 10 year exclusive license to Reebok, and declined to renew Needle’s nonexclusive license.

The district court and the court of appeals believed the main issue in the case was “whether with regard to the facet of their operations respecting exploitation of intellectual property rights, the NFL and its 32 teams are, in the jargon of antitrust law, acting as a single entity.” American Needle Inc. v. New Orleans LA. Saints, 496 F. Supp. 2d 941, 943 (2007).  Both the district court and the court of appeals held that “in the facet of their operations they have so integrated their operations that they should be deemed a single entity rather than joint ventures cooperating for a common purpose.” Id.

The Supreme Court believed that the key issue was much narrower.  The main issue here was whether the alleged “contract, combination… or conspiracy” is concerted action that joined together separate economic actors pursuing separate economic interests such that the agreement deprives the marketplace of independent centers of decision-making. Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 at 773 (1984).

The NFL teams do not possess unitary decision-making quality.  Each team is a substantial, independently owned, and independently managed business.  Teams compete with one another, not only on the playing field, but to attract fans, for gate receipts, and for contracts with managerial and playing personnel. Brown v. Pro Football Inc., 518 U.S. 231, 249.

When each NFL team licenses its intellectual property, it is not pursuing the common interest of the whole league but is instead pursuing interests of each corporation itself. Copperweld, 467 U.S. at 770.  A firm making hats, the Saints and the Colts, for example, are two potentially competing suppliers of valuable trademarks.  As such, the NFL does not constitute a single entity for purposes of antitrust laws.

While not a single entity, when restraints on competition are essential if the product is to be available at all, the per se rules of illegality are inapplicable, and instead the restraint must be judged according to the flexible Rule of Reason. NCAA, 468 U.S., at 109. n. 39.  The NFL is such an organization.  Football teams need to cooperate to survive and are thus not trapped by antitrust law.  The special characteristics of this industry may provide a justification for many kinds of agreements. Brown v. Pro Football, Inc., 518 U.S. 231 at 252 (Stevens, J., dissenting).  The Supreme Court said that the fact that NFL teams share an interest in making the entire league successful and profitable, and that they must cooperate in the production and scheduling of games, provides a perfectly sensible justification for making a host of collective decisions.

Finally, NFLP’s licensing decisions are made by 32 potential competitors, and each of them actually owns its share of the jointly managed assets. United States v. Sealy, Inc., 388 U.S. at 352-354.  Thirty-two teams operating independently through the NFLP are not like the components of a single firm that act to maximize the firm’s profits.  At the same time, this need for concerted action was noted as being “an interest that may well justify a variety of collective decisions by the teams” that might weigh favorably in the rule of reason analysis.  However, the Supreme Court declined to definitively state that the specific arrangement was clearly an antitrust violation, and instead remanded to the lower courts to perform a proper rule of reason analysis.

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