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American Needle Scores Touchdown Against NFL In Supreme Court

Posted  May 24, 2010

The U.S. Supreme Court ruled in favor of plaintiff American Needle and a more expansive view of the scope of antitrust law today with what may well turn out to be a landmark opinion in the much anticipated case of American Needle, Inc. v. National Football League.

The decision rejects the lower courts’ broad grant of immunity to joint ventures from the conspiracy prohibition of § 1 of the Sherman Antitrust Act.

American Needle, the plaintiff-petitioner and a manufacturer of NFL-licensed headwear, claimed 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 was operating as a single entity under antitrust law – as opposed to multiple, collectively acting ball clubs – and thus was immune from the conspiracy prohibition of § 1 of the Sherman Act.

The Supreme Court held unanimously that the NFL clubs are not immune from the conspiracy prohibition of the Sherman Act – at the very least with respect to licensing their intellectual property.  The Court’s language also indicates that the Court likely would hold the NFL clubs subject to the conspiracy prohibition with respect to the full panoply of the NFL’s operations.

The Court rejected the NFL’s position that, because everything the NFL does promotes NFL professional football, the NFL is really an integrated single entity immune from the conspiracy prohibition.  The Court also rejected the middle-of-the-road rule suggested by the Department of Justice’s Antitrust Division, which would not apply the conspiracy prohibition if “the teams and the league . . . have effectively merged the relevant aspects of their operations.”

Most importantly, the Court took the opportunity to restate and clarify the principles governing when to apply the Sherman Act’s conspiracy prohibition.  Thus, American Needle will govern the application of antitrust law in all industries, not just professional sports, as evidenced by the submission of an amicus brief by Visa and MasterCard in the payments industry.  (Visa and MasterCard are public corporations owned by separate legal entities, including banks that were members of Visa and MasterCard when Visa and MasterCard were organized as joint ventures.)

The Supreme Court’s ruling also is likely to affect on the analysis of other joint endeavors, including independent physician-owned integrated practices and benefits management providers, and joint ventures among pharmaceutical or biotech companies for the development or marketing of their products.

The Supreme Court held:

We have long held that concerted action under §1 does not turn simply on whether the parties involved are legally distinct entities. Instead, we have eschewed such formalistic distinctions in favor of a functional consideration of how the parties involved in the alleged anticompetitive conduct actually operate.

As a result, we have repeatedly found instances in which members of a legally single entity violated § 1 when the entity was controlled by a group of competitors and served, in essence, as a vehicle for ongoing concerted activity.

The Court held that the critical question is whether the conduct at issue “‘depriv[es] the marketplace of independent centers of decisionmaking’” or “joins together separate decisionmakers.”

With respect to the 32 clubs comprising the NFL, the Court held that their agreement to collectively license their trademarks did “‘depriv[e][s] the marketplace of independent centers of decisionmaking’” because “[e]ach of the teams is a substantial, independently owned, and independently managed business” and each team competes with each other “not only on the playing field, but to attract fans, for gate receipts, and for contracts with” managers and players. “To a firm making hats [i.e., American Needle], the Saints and the Colts are two potentially competing suppliers of valuable trademarks. When each NFL team licenses its intellectual property, it is not pursuing the ‘common interests of the whole’ league but is instead pursuing interests of each ‘corporation itself’ . . . and each team therefore is a potential independent cente[r] of decisionmaking.’”

The Court remanded the case for analysis of the NFL’s licensing practices under the antitrust Rule of Reason, pursuant to which the licensing practices’ anticompetitive effects are weighed against their procompetitive effects.

Tagged in: Antitrust Enforcement, Intellectual Property Law and Antitrust,