On August 18, 2008, the Seventh Circuit found that the National Football League did not violate antitrust laws when it granted an exclusive licensing agreement for NFL headwear to Reebok International Ltd., because the league operates as a single entity. American Needle, Inc. v. NFL, 538 F.3d 736 (7th Cir. 2008).
The NFL is an unincorporated association of 32 separately owned and operated football teams. After NFL Properties LLC – an entity created in 1963 to market memorabilia for the league – granted an exclusive headwear license to Reebok, hat manufacturer American Needle Inc. accused the league, the teams, NFL Properties and Reebok of antitrust violations. American Needle argued that because each of the individual teams separately owned their team logos and trademarks, their collective agreement to authorize NFL Properties to award the exclusive headwear license to Reebok was, in fact, a conspiracy to restrict other vendors’ ability to obtain licenses for the teams’ intellectual property. American Needle also contended that, by authorizing NFL Properties to award the license to Reebok, the NFL teams monopolized the NFL team licensing and product wholesale markets in violation of Section 2 of the Sherman Act. The NFL responded that, under the United States Supreme Court’s decision in Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984), and its progeny, it was immune from liability. Since Copperweld, federal courts have extended the single-entity concept beyond the context of a parent-subsidiary relationship, stating that affiliated companies or individuals could also be considered a single entity in certain circumstances.
The Seventh Circuit noted that it had yet to render a definitive opinion as to whether the teams of a professional sports league could be considered a single entity in light of Copperweld. The court was skeptical that Copperweld could provide the definitive single-entity determination for all the varying sports leagues and stated that “the question of whether a professional sports league is a single entity should be addressed not only ‘one league at a time,’ but also ‘one facet of a league at a time.’” The court found that, “though the several NFL teams could have competing interests regarding the use of their intellectual property that could conceivably rise to the level of potential intra-league competition, those interests do not necessarily keep the teams from functioning as a single entity.”
In a humorous comment on plaintiff’s legal argument, the court stated “that a single football team could produce a football game is less of a legal argument than it is a Zen riddle: Who wins when a football team plays itself?” Based on the record before it, the court concluded:
Simply put, nothing in §1 prohibits the NFL teams from cooperating so the league can compete against other entertainment providers. Indeed, antitrust law encourages cooperation inside a business organization – such as, in this case, a professional sports league – to foster competition between that organization and its competitors. Viewed in this light, the NFL teams are best described as a single source of economic power when promoting NFL football through licensing the teams' intellectual property, and we thus cannot say that the district court was wrong to so conclude.
The single-entity defense also doomed American Needle’s Sherman Act Section 2 claim: “As a single entity for the purpose of licensing, the NFL teams are free under Section 2 to license their intellectual property on an exclusive basis, even if the teams opt to reduce the number of companies to whom they grant licenses.”
American Needle, Inc. will likely lead to more antitrust actions against sports leagues because of the court’s comment that the single-entity defense must be decided on a case-by-case basis. Increased litigation aside, the case is beneficial to sports leagues, because it was decided on summary judgment and the trial court limited discovery to those documents pertinent to the single-entity defense.