American Needle v. NFL: The Supreme Court Stops NFL's Drive for Antitrust Immunity
May 24, 2010
In 1963, the teams of the NFL created National Football League Properties (NFLP) to "develop, license, and market" the teams' intellectual property. NFLP then granted a number of nonexclusive licenses to various licensees, which had the right to use the intellectual property of each of the NFL's teams. One of those nonexclusive licenses was granted to American Needle, which produced headwear (such as baseball caps and stocking hats) that bore the logos of the different NFL teams. This nonexclusive licensing arrangement continued until 2000, when the NFL teams voted to authorize NFLP to grant an exclusive license for headwear to Reebok.
American Needle sued the NFL, its teams, NFLP, and Reebok, arguing among other things that the decision by the NFL teams to grant the exclusive license to Reebok constituted an agreement among competitors in restraint of trade, in violation of Section 1 of the Sherman Act. After allowing only limited discovery, the district court granted summary judgment for the defendants, concluding that in the licensing of their intellectual property, the NFL teams "have so integrated their operations that they should be deemed a single entity rather than joint ventures cooperating for a common purpose." The United States Court of Appeals for the Seventh Circuit affirmed, noting that professional football itself can be produced only through collaboration, and then reasoning that the teams were exempt from Section 1 when licensing their intellectual property because "only one source of economic power controls the promotion of NFL football." In a noteworthy turn of events, both American Needle and the NFL requested that the Supreme Court hear the case.
Speaking through retiring Justice John Paul Stevens - who authored many of the Court's significant joint venture decisions in the past three decades - the Supreme Court reversed and remanded. The Court held that both the creation of NFLP and the decision by the NFL's teams to grant an exclusive license to Reebok constituted agreements among competitors, subject to scrutiny under Section 1 of the Sherman Act. Citing precedent that "concerted activity inherently is fraught with anticompetitive risk," the Court held that agreements will not be exempted from Section 1 when those agreements "bring together independent centers of decisionmaking." The Court reasoned that the NFL teams flunked that test because the individual teams are at least potential competitors in the licensing of their respective intellectual property, such that the decision to license collectively deprives the marketplace of "independent centers of decisionmaking."
The decision is significant both because it represents the first meaningful victory by a plaintiff in front of the Court in two decades and also because the Court rejected many of the arguments that defendants have recently proffered to avoid scrutiny under Section 1. For example, "eschewing" what it labeled as "formalistic distinctions," the Court rejected the argument that agreements within an independently incorporated entity could never fall within Section 1. Citing its 1967 decision in United States v. Sealy, Inc., the Court stated that it "repeatedly found instances in which members of a legally single entity violated § 1 when the entity was controlled by a group of competitors." According to the Court, even within an independently incorporated entity, apparently "intrafirm agreements may simply be a formalistic shell for ongoing concerted activity." The Court also rejected the argument presented by some Amici for the Defendants that "once a group of firms agree to produce a joint product, cooperation amongst those firms must be treated as independent conduct." The Court held that, just as corporate form does not insulate competitors from Section 1 scrutiny, neither does those competitors' cooperation in certain areas immunize them from Section 1. By rejecting the NFL's attempt for a wide-ranging exemption from Section 1, the Court continued in the spirit of its recent decisions such as Leegin Creative Leather Products v. PSKS, Inc. to emphasize competitive effects over formalistic distinctions.
* Messrs. Wildfang and Marth, along with Amelia N. Jadoo, were the authors of the Merchant Trade Associations' Amici curiae brief.
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