The Third Circuit’s decision in Deutscher Tennis Bund, et. al. v. ATP Tour, Inc., et. al.,[1] marks the first discussion by a federal appellate court of the Supreme Court’s decision in American Needle, Inc. v. NFL.[2] In Deutscher, sponsors of a tennis tournament brought antitrust claims against a tennis association for placing restrictions on the tournaments in which member tennis players could participate. A jury issued a verdict in favor of the tennis association on claims under Section 1 of the Sherman Act because the tennis tournament failed to demonstrate a conspiracy among separate entities -- the association asserted it was a singly entity that could not conspire with itself. The plaintiffs appealed to the Third Circuit based, in part, on jury instructions that included a charge under the “single entity” doctrine. While analyzing the possibility that the tennis association could be viewed as separate competing entities that could conspire under the American Needle decision, which ruled that the NFL consisted of separate entities capable of conspiring with each other, in the end the Third Circuit passed on fully deciding the issue.

Background

The Association of Tennis Professionals (ATP) is a nonprofit corporation comprised of top male tennis players from around the world and organizers of professional tennis tournaments. ATP ranking points determine a player’s world ranking, which in turn determines seeding in Grand Slam tournaments. ATP tournaments are divided into three separate tiers. Each tier offers different minimum prize amounts and different ranking points for participating players.

In 2007, in an effort to better compete with other sporting events and entertainment markets, the ATP initiated a major restructuring called the Brave New World Plan, which was designed to strengthen top-tiered tournaments by addressing a growing decline in player participation. To that end, ATP adopted a “Special Events” rule prohibiting top players from participating in non-ATP tournament events during the weeks surrounding ATP tournaments. In addition, the Hamburg tournament was demoted from a Tier I to a Tier II tournament and replaced by a tournament in Shanghai, China.

Plaintiffs Deutscher Tennis Bund and Qatar Tennis Federation (the Federations) each own a stake in the Hamburg tournament. The Federations brought suit against ATP alleging violations of Section 1 of the Sherman Act for having “conspired and combined to control the supply of top men’s professional tennis players’ services, establishing a favored class of tournaments in which top-player participation was mandatory, while precluding other tournaments from competing for such player services.”[3] The Federations also brought claims for Section 2 violations and breach of the ATP directors’ fiduciary duties.[4]

District Court

The District Court reviewed the parties’ proposed jury instructions and adopted ATP’s single entity doctrine argument. Under that doctrine, according to the district court, “where entities ‘are commonly controlled or substantially integrated in their operations, they may be considered a ‘single entity’ or ‘single enterprise’ under the antitrust laws.’”[5] The jury entered a verdict for ATP on all claims, finding that under the Section 1 of the Sherman Act, the Federations failed to prove that ATP “entered into contract(s), combination(s) or conspirac(ies) with any separate entity or entities.”[6] The jury also found that the Federations failed to prove a monopolization or attempt to monopolize offense because they had not established “the existence of any relevant product market(s) within any geographic market(s),” as required under Section 2 of the Sherman Act.[7]

The Federations appealed the Section 1 verdict, arguing that the District Court erred in issuing the single entity doctrine instructions to the jury.[8]

Third Circuit

The Federations contended that the District Court erred in allowing the jury to find that ATP’s actions were undertaken as a single entity as opposed to independent actors capable of conspiring. This distinction is important because Section 1 of the Sherman Act only applies to “concerted action and does not proscribe independent action by a single entity, regardless of its purpose and effect on competition.”[9]

In Copperweld Corp. v. Independence Tube Corp., the Supreme Court ruled that under certain circumstances, separate legal entities are incapable of the concerted action required under Section 1 of the Sherman Act, but instead should be treated as a single economic entity for purposes of that antitrust provision.[10] While Copperweld concerned a parent-subsidiary relationship, other courts have applied the concept to joint ventures involving separately owned entities. The key question is “whether there is a ‘contract, combination ... or conspiracy’ involving separate economic actors pursuing separate economic interests, such that the agreement deprives the marketplace of independent centers of decision-making, and therefore of diversity of entrepreneurial interests, and thus of actual or potential competition.”[11] This analysis focuses on functionality rather than formalism.

Eight days after deciding Copperweld, the Supreme Court analyzed the single entity doctrine as applied to a sports league. In NCAA v. Board of Regents,[12] the Court recognized “that ‘a certain degree of cooperation is necessary’ to preserve the ‘type of competition that [the NCAA] and its member institutions seek to market.’”[13] Nonetheless, the Court concluded that the conduct at issue, which restricted the ability of member institutions to freely enter into separate agreements to televise their football games, prevented members from competing with one another and therefore, constituted a horizontal restraint, subject to rule of reason review under Section 1.

The Seventh Circuit, in applying the Cooperweld analysis to the NBA, ruled that despite the Court’s ruling in NCAA, sports leagues can sometimes be viewed as single entities outside Section 1 coverage. Specifically, in Chicago Professional Sports Limited Partnership v. NBA (“Bulls II”),[14] the Seventh Circuit considered whether restrictions imposed by the NBA on the number of Bulls’ games that could be broadcast constituted a violation of Section 1. In recognizing that classifying the NBA as either a single entity or joint venture was a difficult inquiry, the court concluded that “the league looks more or less like a firm depending on which facet of the business one examines.”[15] From the fans perspective, the NBA is a single entity, whereas from a potential player’s perspective, the teams are more distinct from one another and “the league looks more like a group of firms acting as a monopsony.”[16] The case was remanded and eventually settled.

In American Needle, Inc. v. NFL,[17] the Seventh Circuit considered whether the NFL constituted a single entity in the context of centralized licensing agreements for intellectual property. Applying its analysis in Bull II, the Seventh Circuit concluded that “the NFL teams are best described as a single source of economic power when promoting NFL football through licensing the teams’ intellectual property.”[18] The Supreme Court reversed, however, declaring that NFL teams are “substantial, independently owned, and independently managed business[es].”[19] In addition, the teams competed with one another in the intellectual property market. As a result, the Court ruled that “decisions by NFL teams to license their separately owned trademarks collectively and to only one vendor are decisions that deprive the marketplace of independent centers of decisionmaking, and therefore of actual or potential competition.”[20] Accordingly, the practice had to be examined under a Section 1 of the Sherman Act rule of reason analysis.

In Deutscher, ATP agued that it should be treated as a single entity because its tournament members depend upon each other to produce a common product in the form of a tennis tour that competes with other sporting events and forms of entertainment. The tournaments, therefore, operate in a realm of cooperation with one another. The Federations, in contrast, contended that the individual tournaments that comprise the ATP compete with one another to attract the top players to their tournaments and, therefore, the restrictions placed on players’ participation in tournaments unreasonably restrain trade in the players market and violated section 1.

In evaluating the Section 1 claims against the ATP, the Third Circuit saw parallels to the NFL licensing agreement in American Needle. The court noted that “the agreement among the ATP’s tournament members in the Brave New World Plan might have deprived the marketplace of potential competition . . .” because the “individual tennis tournaments traditionally compete for player talent.”[21] The mere fact that tournaments cooperate in producing the ATP tour does insure their immunity from Section 1 claims because “[t]he necessity of cooperation does not transform concerted action into independent action.”[22]

The Third Circuit stopped short, however, of declaring that the single entity doctrine jury instructions were given in error. Rather, the Court concluded that further analysis was unnecessary because the Federations had failed to prove a relevant market under their Sherman Act Section 2 monopolization claims, and therefore, could not succeed on their Section 1 claims, which relied on an identical market.

Conclusion

The Third Circuit has opened the door for broad application of American Needle to other sporting associations depending on the economic context at issue. The Deutscher decision demonstrates the risk professional sporting teams took in supporting the granting of certiorari in American Needle, which they had hoped would lead to broader antitrust protection -- not restraints requiring analysis under the rule of reason.