Supreme Court Eyes Threading American Needle At Oral Argument

If the recent oral argument in American Needle, Inc. v. National Football League is any guide, the U.S. Supreme Court might just thread the needle and decide that case on a narrower, more middle-ground, basis than the Seventh Circuit decision, which raised the specter of freeing all professional sports leagues from antitrust scrutiny.

The Supreme Court heard oral argument on January 13, 2010, in the much anticipated case, which may well result in a watershed opinion in antitrust law as applied to sports leagues and joint ventures generally.

American Needle, the plaintiff-petitioner and a manufacturer of NFL-licensed headwear, claims that the NFL acted anticompetitively by granting Reebok the exclusive license for certain NFL paraphernalia.  The trial court granted summary judgment to the NFL, and the U.S. Court of Appeals for the Seventh Circuit affirmed.  Both lower courts held that, in licensing individual team and NFL trademarks, the NFL is a single entity under antitrust law – as opposed to multiple, collectively acting teams – and thus not subject to the anticonspiracy prohibition of § 1 of the Sherman Act.

The Supreme Court’s treatment of the NFL’s claim to be a single entity will determine the extent to which the NFL’s actions are immunized from § 1 of the Sherman Act.  (While the NFL would remain subject to the antimonopoly provisions of § 2, § 1 claims are typically easier to prove.)

At one extreme, the Court could hold that, because everything the NFL does promotes NFL professional football, the NFL is really an integrated single entity immune from the anticonspiracy prohibition.  In this scenario, the NFL could fix prices for everything:  players’ and coaches’ salaries; tickets; hats; jerseys; T-shirts; etc.  At the other extreme, the Court could hold that, because the NFL is comprised of multiple ball clubs, everything it does is subject to the anticonspiracy prohibition.  For example—in a hypothetical posed by Justice Kennedy, the likely swing vote—the antitrust laws could be used to challenge game rules providing greater protection to quarterbacks because the rules would disfavor teams with better running games.

The justices’ questioning of the lawyers indicated that the Court will likely reject both extremes.

Although eight justices interposed questions, Justices Breyer and Stevens led the Court as the two most experienced jurists in antitrust.  Evident from both their questioning was a concern for the actual competitive effects of the NFL’s licensing structure and the need to flesh-out fully the economic facts of the case, i.e., a full-blown rule-of-reason analysis under the Sherman Act.

This Court, however, has scaled back the reach of antitrust at every opportunity since 2000 – expressly pointing to the very high costs of antitrust litigation.  Thus, it is unlikely that the Court will endorse a full blown rule-of-reason inquiry into every act by joint ventures generally or sports leagues in particular.

Neither is the Court likely to accept the NFL’s argument that the NFL is a single entity because the teams by themselves cannot produce NFL football.  Justice Scalia posed the hypothetical, to the NFL’s attorney, of whether the NFL could fix prices at which each franchise could be sold to a new owner.  The NFL’s attorney answered, “yes,” prompting Justice Scalia to reply, “I thought I was reducing it to the absurd.”

Rather, the Court is likely to espouse a more bright-line, middle-of-the-road rule like the one suggested by the Department of Justice in the DOJ’s brief:

Single-entity treatment for the teams and the league is appropriate if, but only if, two conditions are satisfied. First, the teams and the league must have effectively merged the relevant aspects of their operations, thereby eliminating actual and potential competition among the teams and between the teams and the league in that operational sphere. Second, the challenged restraint must not significantly affect actual or potential competition among the teams or between the teams and the league outside their merged operations.

The example of “effectively merged” operations given by the DOJ’s attorney – which found favor with Justice Breyer – was that of the NFL’s back office for running the day-to-day operations of the league.  As any sports fan knows, teams compete vigorously – i.e., they have not merged their operations – with respect to attracting player and coaching talent and live attendance.  Just think of the New York Yankees vs. The Boston Red Sox.  With respect to licensing of trademarks, however, the evidentiary record was not developed to the Justices’ liking, making a remand likely.

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