On June 29, 2009, the United States Supreme Court granted certiorari in American Needle, Inc. v. National Football League et al.1, a case with potentially broad implications both inside and beyond the arena of professional sports. This case likely will clarify an issue central to the antitrust treatment of professional sports leagues: When does a sports league act as a “single entity” incapable of conspiring under Section 1 of the Sherman Act and when does it instead act as a group of independent competitors?
In answering this longstanding question, the Court also is likely to shed light on several other important antitrust issues that extend beyond professional sports, including the reach of the Supreme Court’s decision in Copperweld Corp. v. Independence Tube Corp.2 and the antitrust treatment of joint ventures, and may provide further insight into application of the Court’s decision in Bell Atlantic Corp. v. Twombly.3 Additionally, because the Court granted certiorari in unusual circumstances— with the support of both parties and over the objection of the Solicitor General, DOJ and FTC—this case also may provide an early test of possible differences in the Supreme Court’s and the Obama Administration’s approach to antitrust issues.
This article previews this important case.
The National Football League (“NFL”) is an unincorporated association currently comprised of 32 separately owned and operated member teams which annually produce a season of “NFL Football” games culminating in the Super Bowl. Since the early 1960s, the NFL and its member clubs have collectively licensed and marketed their logos and trademarks for use on various consumer products, including headwear, through an entity jointly owned by the member teams, National Football League Properties, Inc. (“NFL Properties”). For many years, NFL Properties granted multiple headwear licenses. In 2000, the NFL teams authorized NFL Properties to solicit bids from vendors for an exclusive headwear license. Reebok Int’l., Ltd. (“Reebok”) won the bidding and was granted an exclusive headwear license for a ten-year period.
One of the prior NFL headwear licensees which had lost its license, American Needle, Inc. (“American Needle”), then filed suit against the NFL, NFL Properties, individual member teams and Reebok, alleging violations of Section 1 and Section 2 of the Sherman Act. After the NFL defendants moved for summary judgment arguing that they were immune from liability as a single entity under Copperweld, the U.S. District Court for the Northern District of Illinois (Moran, J.) permitted discovery with respect to the “single entity” issue and thereafter granted summary judgment in favor of defendants with respect to the Section 1 claim on the ground that the NFL and the member teams act as a single entity in licensing their intellectual property. After supplemental briefing, the District Court also granted summary judgment in favor of defendants with respect to plaintiff’s monopolization claim under Section 2 of the Sherman Act, concluding that, as a single entity, the NFL and its member teams could collectively license their intellectual property to either a single licensee or multiple licensees.
The United States Court of Appeals for the Seventh Circuit affirmed in a unanimous panel decision.4 The Court of Appeals ruled that whether a professional sports league is a single entity should be decided not only “one league at a time” but also “one facet of a league at a time.”5 Applying this analysis, the Court of Appeals found that the NFL acted as a single entity and not as colluding competitors when the NFL awarded an exclusive license of trademarks and logos for headwear to Reebok and did not license American Needle. The Court of Appeals also affirmed the District Court’s decision that the ruling against plaintiff’s Section 1 claim also doomed plaintiff’s claim under Section 2.6
The American Needle case reached the Supreme Court in highly unusual circumstances. American Needle sought Supreme Court review, arguing that the Court of Appeals erred in ruling that the NFL was a single entity on this issue.7 Rather than accept this favorable ruling, the NFL also supported Supreme Court review in an effort to obtain an even broader declaration from the Supreme Court that professional sports leagues are highly integrated joint ventures that should be deemed to be single entities for Section 1 purposes, at least with respect to core venture functions. The NFL acknowledged that it was an “unusual step” to support certiorari in a case in which it had prevailed below.8 Although both the NFL and American Needle argued in favor of the Supreme Court hearing the case, the Solicitor General filed a brief on behalf the United States, joined by the Antitrust Division of the Department of Justice and the Federal Trade Commission, arguing that the Court of Appeals’ application of the single-entity concept was too expansive and not supported by Supreme Court precedent, but that the case should not be reviewed by the Supreme Court.9 Following this briefing, as well as amicus briefs by the National Basketball Association and its licensing arm, NBA Properties, and the National Hockey League in support of the NFL’s position, the Supreme Court granted certiorari.
Potentially Significant Issues
Single entity issues with respect to sports leagues
Whether and to what extent professional sports leagues should be viewed as a single entity has been a fundamental and unresolved issue, not only for the NFL, but for all professional sports leagues, with the possible exception of major league baseball which has an anachronistic but longstanding exemption from the antitrust laws granted nearly a century ago. If the NFL can establish that it is a single entity, it will free them—and probably other sports leagues—from concerns about charges of collusion under Section 1 of the Sherman Act.10
Although the merits briefing is scheduled for this fall, based on their papers with respect to the petition for certiorari, the NFL defendants will argue that a common licensing program is a core venture function of the highly integrated NFL joint venture and that the NFL should be viewed as a single entity under Copperweld with respect to this function. The NFL defendants also will emphasize that they have had the common licensing program for more than 40 years. They will argue that the certainty of declaring the NFL a single entity with respect to a broad scope of NFL activities is essential to permit the NFL to make the decisions it needs to make in order to function effectively in, and enhance, interbrand competition.
Based on their certiorari papers, petitioner American Needle will argue that the NFL teams are undisputedly separately owned and that the Supreme Court has held since the decision in Radovich v. NFL11 in 1957 that activities of the NFL and its member teams are subject to rule-of-reason inquiry under Section 1 of the Sherman Act. They will point out that Congress considered and did not pass four different bills that would have extended baseball’s historic antitrust exemption to other professional sports. As the Supreme Court pointed out in NCAA v. Board of Regents12, where the Court found that an agreement among colleges and universities to jointly market television rights violated Section 1, Congress by contrast passed a statute allowing joint marketing of television rights to professional sports leagues. American Needle will argue that this statute would have been unnecessary if the NFL was a single entity.
The Solicitor General, DOJ and FTC on behalf of the United States, in opposing the grant of certiorari, took the position that the NFL could properly be viewed as a single entity for certain narrow purposes such as scheduling and defining the rules of play. Beyond these narrow issues, the rule of reason should apply. The NFL is pursuing its single entity argument in a case involving an issue— licensing of trademarks and logos to manufacturers through a common licensing program—that is outside the narrow scope of what the Solicitor General, DOJ and FTC believe is appropriate for single entity treatment. If the NFL prevails in its argument that trademark licensing is part and parcel of the business of pro football which it conducts as a single entity in competition with other sports leagues and forms of entertainment, there likely will be few if any exceptions to the rule that the NFL and other sports leagues are single entities.13
Copperweld, Joint Venture Issues and Twombly
The American Needle case arises in the somewhat unique context of sports, in which, as the court pointed out in NCAA v. Board of Regents, some of the most basic activities can only be carried out jointly.14 Although this case arises in this context, it likely will illuminate several issues of more general antitrust interest:
- Copperweld. The court’s decision in Copperweld has long stood for the proposition that an entity is incapable of conspiring with itself and, specifically, that a parent corporation cannot conspire with its wholly owned subsidiary. Although this basic proposition has been clear, the court in Copperweld left open and did not consider “under what circumstances, if any” single entity treatment might be appropriate in other contexts.15 In deciding whether and to what extent sports leagues are single entities, the court in American Needle very likely will clarify other issues left open by the court in Copperweld.
- Joint Venture Issues. In illuminating the Copperweld doctrine, American Needle also will provide further guidance on the antitrust treatment of joint ventures. In the first instance, that guidance likely will be with respect to when a joint venture is so highly integrated that it should be treated as a single entity under Copperweld. But even if the court does not rule that the NFL should be viewed as a single entity, its decision may shed additional light on the application of Section 1 to joint ventures.
Assuming the court treats the NFL as a lawful joint venture but not a single entity, it may simply remand for application of the rule of reason. In NCAA v. Board of Regents, the court held the NCAA’s agreement limiting the sale of television rights unlawful on a “quick look” rule of reason. In Broadcast Music, Inc. v. Columbia Broadcasting System, Inc.16, the court held that blanket licenses to perform copyright musical compositions were not per se unlawful but required analysis under the rule of reason. American Needle will point to cases such as Board of Regents and Broadcast Music to argue that if the NFL is not deemed to be a single entity, the conduct at issue requires and should be held unlawful under either a quick-look or full-blown Section 1 rule-ofreason inquiry.
In its recent decision in Texaco, Inc. v. Dagher,17 however, where the court held that that a lawful joint venture may inherently set a price for its product and that such decisions of a legitimate joint venture are not per se illegal, the court expressed a willingness to approve joint venture conduct with respect to core-venture functions. In Dagher, the plaintiff did not press a rule-of-reason claims18 and it is possible that Dagher will not extend beyond the per se issue. Nevertheless, if the court approves of the NFL’s conduct here, but is unwilling to hold that it is functioning as a single entity, it is possible that the court would conclude that the conduct is lawful or at least that it does not require a full-blown rule-of-reason inquiry to be held lawful.
- Twombly. Copperweld and joint venture analysis present different ways for the American Needle case to be resolved. Each presents its own analytical and policy challenges for the court. One overarching concern, however, may be a concern to avoid protracted antitrust litigation, a concern that the court emphasized in Twombly in the context of a motion to dismiss.19 If the court concludes that the NFL’s conduct should be deemed lawful here, it will be interesting to see if the court reaches its conclusion in a way that would avoid protracted litigation, particularly discovery, in other cases, and whether the court grounds its decision in part on such concerns as it did in Twombly.
The approach to antitrust issues of the Supreme Court and the Obama Administration
This case also is potentially important as an early test of perceived differences on antitrust issues between the Obama Administration and the majority of the Justices on the Supreme Court. The Court invited the views of the United States with respect to whether to grant certiorari. In response, the Solicitor General, DOJ and FTC took the position that the case was not appropriate for certiorari, but also made clear that they believed the case was incorrectly decided and that the NFL should not be treated as a single entity with respect to common licensing of trademarks and logos. The Supreme Court granted certiorari over this opposition.
Now that the Supreme Court has decided to hear the case, it will have to decide whether it agrees with the Solicitor General and American Needle’s position that the decision was based on a too-expansive reading of the single-entity concept or if it accepts the NFL’s argument for an even more expansive reading. In addition, American Needle will be one of the first antitrust cases in which newly appointed Justice Sotomayor will participate, and will be further illuminating in that respect.
However it is decided, American Needle is very likely to be a watershed in the application of antitrust law to sports leagues on the central question of whether and to what extent sports leagues are single entities. In addition, the case is very likely to provide guidance on issues of more general applicability and to shed light on possible differences in the current Supreme Court’s and Administration’s approaches to antitrust law.