A California federal court recently allowed a case to proceed in which an individual consumer is challenging an exclusive licensing deal between the National Football League (NFL) and Reebok. The case, Patrick Dang v. San Francisco Forty Niners, Ltd. et al., No. 5:12-CV-5481 (N.D.C.A. Aug. 2, 2013), arose from a December 2000 agreement under which the NFL, the individual NFL teams, and the National Football League Properties, Inc. (the corporation that licenses the intellectual property of NFL teams and the NFL) jointly granted Reebok an exclusive license to manufacture all official NFL-branded apparel. The Complaint asserted antitrust claims on behalf of a class of California consumers who allegedly overpaid for apparel bearing an NFL team’s logo.
The court found that the plaintiff, Mr. Dang, sufficiently alleged that consumers of NFL-licensed apparel suffered an antitrust injury in each of the “relevant markets” examined, based in part on the unique nature of sports teams’ trademarks.
A “relevant market” is a group of sellers or producers who have the ability to deprive each other of significant levels of business.
The Complaint alleges that Reebok’s exclusivity restrained competition in two relevant markets: (1) the apparel licensing market for individual NFL teams’ intellectual property, and (2) the retail market for apparel bearing that intellectual property.
Typically, trademarks serve to indicate the source of a product. The trademarks of sports teams, however, are more than source indicators; they may also be the very product that consumers seek to purchase. As a result, the value of NFL apparel to consumers lies in the apparel featuring the trademarks of NFL teams (as opposed to the apparel item itself). The court consequently found that anticompetitive conduct in the market for the licensing of NFL intellectual property is “inextricably intertwined” with the consumer retail market for such licensed apparel.
The court’s denial of the defendants’ motion to dismiss does not mean that consumers will ultimately prevail on the antitrust claims, or that all exclusive licenses are subject to antitrust challenges. This preliminary decision suggests that the exclusive licensing of sports teams’ intellectual property may be uniquely vulnerable to antitrust claims for two reasons.
First, the court found that sports leagues and their member teams constitute their own “relevant market” for antitrust purposes, because the individual teams compete against one another for consumers of team apparel and accessories. A company generally does not behave anticompetitively simply by virtue of the natural monopoly it holds over its own product, but sports leagues may be distinctive in this way.
Second, the trademarks of sports teams may be more than source identifiers; they may be the actual products that consumers seek to purchase. When it comes to licensed professional sports apparel, the interconnected thread between the trademark and the product itself differentiates such products from the typical exclusive license relationship.
The next step in the litigation will be the proposed certification of the class of consumers who claim injury as a result of the exclusive apparel license granted to Reebok.