Wednesday, July 1, 2009

Supreme Court to Hear Case Regarding Exclusive Sports Team Licensing: American Needle v. NFL

Supreme Court to Hear American Needle Appeal - On June 29, 2009 the Supreme Court agreed to hear an appeal of the Seventh Circuit's decision in American Needle, Inc. v. NFL, previously discussed here, in which the Seventh Circuit found that the NFL, NFL Properties, and the NFL teams could collectively negotiate an exclusive license with apparel manufacturers for the use of their individually owned trademarks without violating the antitrust laws.

Section 1 of the Sherman Antitrust Act normally prohibits groups of competing individuals or businesses from coordinating on prices or negotiating collectively, but an exception is made when the alleged competitors are all part of a "single entity." The single entity doctrine was announced in the 1984 Supreme Court case Copperweld Corp. v. Independence Tube Corp., where the Court held that a tubing company and its wholly-owned subsidiary were just one entity for antitrust purposes, reasoning that there was a "unity of interest," and that coordination between the two entities did not represent a "sudden joining of two independent sources of economic power previously pursuing separate interests."

NFL Teams Collectively Licensed Apparel Rights - In American Needle v. NFL, the issue was whether the 32 separately-owned NFL teams were independent competitors, or whether they were part of a "single entity" under the Copperweld doctrine. Plaintiff American Needle Inc. was a manufacturer of headwear, and had a non-exclusive license to produce NFL-branded headwear for over 20 years. In 2001, the 32 NFL teams authorized NFL Properties to solicit bids and enter into an exclusive 10-year license with Reebok for headwear and other apparel. American Needle filed an antitrust suit alleging that the NFL, NFL Properties, and the individual NFL teams had conspired in restraint of trade in violation of Section 1 of the Sherman Act.

The trial court and the Seventh Circuit both found that the NFL teams acted as a single entity when they made the exclusive license deal with Reebok. The Seventh Circuit pointed out that the teams "share a vital economic interest in collectively promoting NFL football," and that the NFL teams have collectively promoted NFL football since 1963 under the auspices of NFL Properties.

Supreme Court Review - Lower courts on several previous occasions had rejected attempts to extend the single entity defense to professional sports leagues, and American Needle asked the Supreme Court to hear its appeal, partly to resolve the conflict between the Seventh Circuit's decision and the other lower court decisions. The NFL Defendants also requested that the Supreme Court review the decision, which is unusual for a prevailing party. The NFL hopes that the Supreme Court will rule in its favor and grant it broad protection from future antitrust challenges to coordinated action by the 32 member NFL teams.

Commentary - The NFL is already enormously profitable, and it is unclear how joint licensing of apparel rights to manufacturers is consistent with competitive interests. Unlike the parent and wholly-owned subsidiary in Copperweld, it appears that the NFL teams do not have a "unity of interest," but are independently-owned economic entities that compete for fans and for customers of their team's apparel. Evidence provided by American Needle indicates that prices of the licensed NFL apparel increased significantly after Reebok was granted an exclusive license, to the detriment of football fans across the country.

Similarly, while manufacturers such as Coke and Pepsi have a shared economic interest in category promotion, e.g., promoting the consumption of cola products, they could not credibly invoke a Copperweld defense if they chose to jointly negotiate agreements with customers.

Thus, instead of adopting the Seventh Circuit's shared vital economic interest analysis, the Supreme Court should consider sending the case back to the trial court for a determination of whether the NFL Defendants were in fact acting as a single economic unit, or whether they competed with each other for customers of their team's apparel.

Related post: Antitrust Implications of Exclusive Deals by Groups of Sports Teams.


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