The United States Supreme Court concluded earlier this week that the National Football League ("NFL") is not a single business, but rather is 32 separate entities. In American Needle, Inc. v. National Football League, the United States Supreme Court held, in a unanimous decision delivered by Justice Stevens, that the licensing activities of the NFL constitute concerted action within the meaning of Section 1 of the Sherman Act, which is not per se illegal, but rather, must be judged under the Rule of Reason.
That decision has the potential not only to impact the methodology used by the NFL and other leagues to license and market intellectual property, but also to materially impact ongoing labor negotiations between the leagues and players' associations. There are also broader implications for any business operating in the format of an association, partnership, joint venture or other collective.
Showing recognition of the substantial nature of what was at stake, Major League Soccer, the National Association for Stock Car Auto Racing, the National Basketball Association ("NBA"), the National Collegiate Athletic Association, and the National Hockey League ("NHL") all filed amici briefs in support of the NFL's position. The players' associations for the NFL, NBA, NHL and Major League Baseball all filed amici briefs in support of American Needle.
Here, the NFL sought to identify itself as a "single entity" incapable of conspiring with itself. If the NFL is a single entity, then, in theory, the league essentially would have free reign to act as a unified single entity not just in its licensing activities, but also with regard to its other activities — negotiating player salaries, free agency, and other aspects of player contracts. The National Football League Players Association ("NFLPA") of course does not want the NFL to be able to have any kind of antitrust immunity in negotiating salaries, free agency, and other important aspects of the labor relationship.
Critical to the decision is the fact that each team owns its own intellectual property rights. In 1963, the teams jointly formed National Football League Properties ("NFLP") to collectively develop, license and market those properties. From 1963 through 2000, the NFLP granted non-exclusive licenses to various vendors, including American Needle, to manufacture and sell team-labeled apparel. In late 2000, however, the teams authorized the NFLP to issue exclusive licenses. NFLP then granted a ten-year exclusive license to Reebok International, Ltd., now a division of adidas AG, to manufacture and sell trademarked headgear for all 32 teams. It thereafter declined to renew American Needle's non-exclusive license, and American Needle filed this action alleging that the agreements between the NFL, its teams, the NFLP and Reebok violated Section 1 of the Sherman Act. Section 1 of the Sherman Act makes "[e]very contract, combination ... or conspiracy, in restraint of trade" illegal. The defendants argued that the teams, NFL and NFLP were incapable of conspiring within the meaning of Section 1 "because they are a single economic enterprise, at least with respect to the conduct challenged." Slip op. at 2-3. A single economic enterprise, of course, cannot illegally conspire or agree with itself.
The district court granted summary judgment on the question "whether, with regard to the facet of their operations respecting exploitation of intellectual property rights, the NFL and its 32 teams are, in the jargon of antitrust law, acting as a single entity," concluding that their operations were so integrated that they should be deemed a single entity. Slip op. at 3. The Court of Appeals for the Seventh Circuit affirmed. The Supreme Court granted certiorari on the narrow issue of whether the NFL respondents were capable of engaging in a "contract, combination..., or conspiracy as defined by Section 1 of the Sherman Act," or, otherwise stated, whether the alleged activity by the NFL respondents must be viewed as that of a single enterprise for the purpose of antitrust law.
The Court first rejected the use of formalistic distinctions as a basis for determining whether the parties involved were truly legally distinct entities, and endorsed an analysis requiring functional consideration of how the parties involved in the alleged anticompetitive conduct actually operate:
Slip op. at 10 (citations omitted). Thus, it is not determinative that two parties to an alleged Sherman 1 violation are legally distinct entities, nor it is determinative that two legally distinct entities have organized themselves under a single umbrella or into a structured joint venture. Rather, the question is whether the agreement joins together "independent centers of decisionmaking" and if it does, the entities are capable of conspiring under Section 1. Only if there is a "conspiracy" does the Court then reach the question of whether the restraint of trade is an unreasonable and therefore illegal one. Slip op. at 11.
The Supreme Court found that each NFL team was a substantial, independently owned and managed business, that their general corporate actions were guided by separate corporate consciousness, and that their objectives were not common (slip op. at 11-12) — all indicia which undermined the NFL's position that the NFL was a single entity. The Court further found that
Slip op. at 12 (citations omitted). By way of simple example (a different example than that used by the Court), it is a certainty that different people will buy a Philadelphia Eagles hat than will buy a New York Giants hat. In short, the Court held that decisions by NFLP regarding the teams' separately owned intellectual property constitute concerted action, the legality of which must be judged under the Rule of Reason.
American Needle may not actually represent a "change" to antitrust law, but the unanimous nature of the decision certainly does suggest a new approach to judicial application of existing doctrine. From a labor standpoint, the decision provides an interesting window into how the Supreme Court may rule if collective bargaining discussions evolve into antitrust lawsuits challenging free agency and salary restraints.
The decision also has broader implications outside the realm of professional sports. Many businesses operate as collaborations of differing economic interests. Trade associations, buyers' cooperatives and even some types of law firms are examples of such collaborations. The concept of a collaborative business entity as a "walking conspiracy" is alive and well after American Needle, and we can expect to see increased usage of antitrust pleading in more routine business disputes involving collaborative entities of these kinds and natures.
As the NFL was quick to point out, correctly, in the wake of the decision, and as Justice Steven's decision notes, being left with a live "Rule of Reason" claim hardly suggests that American Needle will win their case. A "Rule of Reason" case is expensive to prosecute, and subject to dismissal on a host of grounds. While the Court acknowledged that the licensing arrangement amounted to concerted action, the Court also acknowledged that:
There is an important and legitimate interest in maintaining a competitive balance among athletic teams. Such an interest may well justify a variety of collective decisions made by the teams. The Court directed the lower court to consider what role such an interest properly plays in applying a Rule of Reason analysis to the allegations made by American Needle.
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