In the next couple of months, the United States Supreme Court is expected to decide the case of American Needle, Inc. v. National Football League, a case that legal scholars and sports law experts agree could have an enormous impact on both the sports world and antitrust law. The issue: does the NFL consist of 32 separate entities (i.e. teams), or is it a single entity for purposes of Section 1 of the Sherman Act?
American Needle filed suit against the NFL on antitrust grounds in 2004 in the United States District Court for the Northern District of Illinois. Prior to the suit, American Needle had enjoyed a non-exclusive licensing agreement with the NFL for over 20 years to produce headwear bearing the various NFL clubs' logos. In 2001, the league entered into an agreement with Reebok, one of American Needle's major competitors, to exclusively license the NFL teams' trademarks and logos.
American Needle asserts that in jointly agreeing to this exclusive contract, the 32 separate NFL teams violated Section 1 of the Sherman Act, which prohibits agreements that unreasonably restrain trade and competition. The crux of American Needle's argument is that the NFL is comprised of 32 separately owned and controlled entities that are capable of, and often engage in, competition. And by granting an exclusive contract to Reebok, American Needle argues that these entities illegally agreed not to compete with each other for the licensing of their intellectual property and also prohibited other manufacturers from competing with Reebok. In support of its claim, American Needle cites to a gamut of case law holding that separately owned and controlled competitors are subject to Section 1 of the Sherman Act.
The NFL, on the other hand, argues that the 32 clubs comprise as a single unit for antitrust purposes. Specifically, the NFL asserts that as a sports league, it produces a single entertainment product -- football -- and that the teams compete as one entity against other entertainment providers. By extension, the teams act in concert when promoting their collective product, which includes licensing their trademarks and logos. Put another way, the economic power generated by the sport is not derived from the individual member clubs. Rather, as the NFL argues, this power comes from the combined effort of the teams.
Both the District Court and the Seventh Circuit Court of Appeals ruled in the NFL's favor, agreeing with the NFL's single entity defense. Those courts held that although the teams could conceivably have competing interests, those interests do not preclude the league from functioning as a single entity in marketing the sport. According to the Court of Appeals, the NFL is a single source of economic power, permitting NFL clubs to license their intellectual property in an exclusive manner under the Sherman Act. See American Needle, Inc. v. Nat'l Football League, 538 F.3d 736, 743 (7th Cir. 2008).
Following the Seventh Circuit's decision, American Needle asked the United States Supreme Court to review the case. In an interesting turn of events, the NFL -- despite having won at both the trial and appellate court levels -- also asked the Supreme Court to a review the decision. Why would the NFL ask for review of a decision it had won?
It's all about the current composition of the Supreme Court. The NFL not only asked the Court to uphold the Seventh Circuit's determination, but asked the Court to rule more broadly that the teams comprise a single entity for all purposes, not just for licensing matters. A ruling in favor of this argument by the NFL would render it immune from future antitrust attacks, and would also apply to other sports leagues, like Major League Baseball and the National Basketball Association.
Many legal scholars predict that Justices Roberts, Alito, Thomas, and Scalia will side with the NFL. Justice Breyer may also join them, given his opinion in the 1996 case Brown v. Pro Football, in which he wrote "[w]e concede that the clubs that make up a professional sports league are not completely independent economic competitors, as they depend upon a degree of cooperation for economic survival." Brown, 518 U.S. 231, 248 (1996).
On the other hand, Justice Sotomayor suggested during oral arguments that the NFL was attempting an end-run around Congress: "You are seeking through this ruling what you haven't gotten from Congress: an absolute bar to an antitrust claim." As prominent law professor Ashby Jones noted, "with more Obama appointees likely to join the Supreme Court, the NFL probably isn't going to get a more favorable landscape than right now." "Threading 'American Needle': Could It Destroy Free Agency in the NFL?" Wall St. J. Law Blog, Jan. 12, 2010 (quoting Vermont Law School Professor and Legal Analyst Michael A. McCann).
Opponents of the NFL's single entity theory are concerned that consumers will suffer if the Seventh Circuit's ruling is upheld. Team owners could use their new monopoly powers to restrict player movement in free agency and impose salary caps or salary schedules. Leagues could more stringently regular paraphernalia sales and television programming, while demanding more from sponsors. And fans could end up paying more for tickets, television, and merchandise.
A decision in the case is expected before the Court's summer recess begins in late June.