Supreme Court Blitzes NFL in American Needle

In the National Football League, 9-0 means three field goals, perhaps a tight defensive battle in the snow in the NFC’s black-and-blue division. In the Supreme Court, 9-0 is a shellacking. The NFL could have just been content to run out the clock, but instead, it got fancy and threw one away. The Supreme Court issued its opinion in the American Needle case this morning and ruled that the actions of the NFL in licensing its trademarks for sports gear were collective actions subject to Sherman Act Section 1 inquiry.

NFL teams are separately owned and each team typically owns its logos. Go to Tess at uspto.gov and run a search to see what this looks like. Other leagues run differently: the Chicago Fire and Real Salt Lake may compete vigorously on the soccer pitch, but their trademarks are both owned by the same entity, Major League Soccer LLC.

The NFL relies on a separate legal entity, National Football League Properties, to do much of the licensing of logos for clothing and other paraphernalia. They do that even though on the ground there must be some competition between clubs for fans. Pick a point midway between Chicago and Indianapolis and let’s see which shirts are being worn (somehow I suspect Peyton Manning jerseys outnumber Jay Cutlers).

NFLP changed how it approached licensing. It had granted multiple licenses, including one to American Needle, but NFLP subsequently switched course and granted an exclusive license to Reebok for headwear. American Needle responded with an antitrust lawsuit alleging that the NFL had eliminated competition among its members via NFLP in violation of Section 1 of the Sherman Act. Section 1 bars all agreements that unreasonably restrain trade.

American Needle lost in the district court and then lost on appeal, 3-0, in the Seventh Circuit. American Needle then asked the Supreme Court to take the case, as did the NFL. Full stop there: as did the NFL. Even though the NFL had won going away in the appellate court, it wanted more. The NFL acknowledged that it was “taking the unusual step” of asking the Court to hear the case, even though it had already won. Why? The NFL wanted a uniform, national rule that would treat the NFL as single entity for the purposes of Sherman Act Section 1. That would mean full immunity from Section 1 liability, as liability can only attach under that section for joint action of at least two entities. The Court took the case at the NFL’s urging even though the Solicitor General urged the Court to decline the case.

The Court’s opinion directs us to focus on “competitive reality” in assessing whether a situation presents multiple actors with diverging interests. Separate firms can’t arrange their affairs to try to hide concerted action in a single entity and thereby self-immunize from Section 1 inquiry. This is how the Court characterizes Sealy (1967), a decision that doesn’t seem to have much to say for it on the economic merits—go back and read Bork on it—but the Court’s entity framing this morning of Sealy seems right. Nor does formal separateness—Copperweld—equate to meaningful interest divergence and separateness.

Of course, none of this is to say that the NFL won’t win on the remand under a rule of reason inquiry. The Court suggests that many agreements will be necessary for football to exist and will be consistent with the rule of reason, but it doesn’t give us any real guidance on those. And some of those agreements enjoy more direct protection. The Sports Broadcasting Act creates special protection for some TV deals and the “nonstatutory” labor exemption—see, for example, Brown v. Pro Football—insulates other activities. The NFL’s press release on today’s decision characterized the decision as a narrow one and quickly tried to separate the outcome from its ongoing labor issues. (As you might imagine, the NFL Players Association takes a more open-ended view of the decision.)

The NFL and its lawyers made a striking choice in looking to resolve the NFL’s status as a single entity. They had to understand that this was a risky undertaking going in and they must have anticipated a win and certainly nothing more than a tight defeat. I can’t imagine that they envisioned 9-0 the other way.

Lyle Denniston has more coverage of the decision at scotusblog.

Comments

[Michael F. Martin]

The decision could have some harsh consequences for the patent owners because of the relatively harsh parantheticals regarding joint ventures. It will be interesting to see whether/how the Federal Circuit incorporates the case into its decision of Princo.

[Saleem Safdar]

An interesting case with a fair outcome. Treating the teams as separate entitites is also healthier for competition as well as the integrity of the sport.