By: Robert G. Wilson
Cotkin Law Group
Los Angeles, CA
The National Football League consists of 32 teams, based in nearly as many separate markets. For 17 weeks in the fall and winter of each year, as well as the playoffs thereafter, the NFLs teams vigorously compete with each other to make the playoffs and, then, to win the Super Bowl. In a case to be argued this week — as the playoffs are beginning — before the United States Supreme Court, the NFL is attempting to establish the principle that the playing field is the only venue within which the teams compete and that for all other purposes they are part of a single economic entity. The purpose of this exercise is to obtain immunity from Section 1 of the Sherman Antitrust Act, an immunity enjoyed by Major League Baseball since 1922. Federal Baseball Club v. National League, 259 U.S. 200 (1922). Aside from the fact that it involves professional sports, the case is also interesting and illuminating about the degree to which separate entities may cooperate in jointly marketing their products.
In American Needle, Inc. v. National Football League, No. 08-661, American Needle seeks reversal of a decision of the United States Court of Appeals for the Seventh Circuit, which held that the NFLs member teams did not violate Section 1 of the Sherman Act by jointly agreeing exclusively to market the teams individually-owned intellectual property to a jointly-selected monopoly licensee. American Needle, Inc. v. National Football League, 538 F.3d 736 (7th Cir. 2008). American Needle had, for many years, been an NFL licensee for the production of caps bearing team logos. In 2000, the NFLs teams agreed that each team would license its trademarks and logos exclusively to a jointly-selected monopoly licensee and that no team would compete by licensing its intellectual property separately. After a competitive bidding process, Reebok was selected as the exclusive licensee, and American Needle was no longer entitled to produce and market NFL-licensed products.
The principal issue presented by the appeal is whether the decision of the United States Supreme Court in Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984), is sufficiently broad to permit the NFLs individual member teams to cooperate in that manner. In Copperweld, the Court held that a parent corporation and its wholly-owned subsidiary were incapable of conspiring with each other under Section 1 because both entities are inherently subject to a single source of control. Thus, the Court held that such corporate entities must be viewed as a single entity for purposes of the Sherman Act, which bars [e]very contract, combination, in the form of trust or otherwise, or conspiracy, in restraint of trade. . . . 15 U.S.C. 1. Simply put, one cannot conspire with oneself, a sensible concept.
Although the NFLs individual member teams are individually owned, and not subject to common control, the NFL nevertheless argues that they should be viewed as a single entity for Sherman Act purposes because the product of NFL football a structured series of athletic contests, with win-loss records and playoffs leading to a championship — cannot exist without close collaboration between the member football organizations. Thus, the NFL asserts that it and its members cannot be viewed as independent sources of economic power . . . pursuing separate interests.
A measure of the importance placed on this concept by the NFL is the fact that it affirmatively supported review of the case by the Supreme Court despite having prevailed in both the trial and appellate courts. It is highly unusual to say the least for the winner to ask a higher court to look at a case. Here, however, the NFL is asking the Supreme Court to expand the lower courts holdings and broaden the NFLs immunity from antitrust scrutiny.
The NFL is up against a number of unfavorable precedents in making this argument. For example, in NCAA v. Board of Regents, 468 U.S. 85 (1984), decided only a couple of weeks after Copperweld, the Court found that Section 1 did apply to an agreement of separately-owned and controlled teams in the college ranks with regard to licensing of their television broadcasts. And, in a pre-Copperweld case, Radovich v. NFL, 352 U.S. 445 (1957), the Court had upheld the viability of a Section 1 claim against the NFL, albeit without addressing the single entity argument.
In L.A. Memorial Colosseum Commn v. NFL, 726 F.2d 1381 (9th Cir. 1984), the Court of Appeals for the Ninth Circuit had rejected the single entity argument proffered by the NFL in the dispute over whether the Raiders could move to Los Angeles. Other courts of appeals have made similar holdings with respect to the NFL and other sports leagues. See, e.g., NHL Players Assn v. Plymouth Whalers Hockey Club, 419 F.3d 462 (6th Cir. 2005); Fraser v. Major League Soccer, L.L.C., 284 F.3d 47 (1st Cir. 2002); and St. Louis Convention & Visitors Commn v. NFL, 154 F.3d 851 (8th Cir. 1998).
In fact, the traditional approach of various courts, including the Supreme Court, in addressing claims against sports leagues has been to focus on the particular league activity in question and to examine functionally whether the activity is one that can only be conducted jointly. E.g., Chicago Professional Sports LP v. NBA, 95 F.3d 593, 600 (7th Cir. 1996).
This was the approach taken in a case in which the author was lead counsel for the plaintiffs, Law v. NCAA, 134 F.3d 1025 (10th Cir.), cert. denied, 525 U.S. 822 (1998). In Law, the Court of Appeals found that the individual members of the NCAA, i.e., the colleges and universities, acted independently of one another and competed with respect to hiring coaches in their respective sports. For that reason, the Court of Appeals found that an NCAA rule that restricted the salaries paid to a particular category of Division I assistant coach constituted an agreement in restraint of trade among the individual members and violated Section 1 of the Sherman Act.
In American Needle, the NFL is (overbroadly, in my view) stating the issue as whether its members function as a single entity for Section 1 purposes in promoting [NFL football.] Thus, the NFL seeks to subsume within the broad description of promoting the narrower aspect of licensing team logos and symbols on an exclusive basis. Not surprisingly, American Needle describes the issue much more narrowly as limited to the licensing and marketing of [the teams] respective intellectual property.
Which one of these characterizations prevails is likely to determine the outcome of the case. The fact that the NFL actively supported review by the Supreme Court suggests that the league is confident that it can attract at least five votes despite the various adverse precedents.
If the NFL prevails, it will continue to be able to exclusively license the logos and other intellectual property through Reebok, or another manufacturer, and will be able to avoid the competition that would necessarily result from the existence of multiple licensees. The practical consequence for the consumer is that caps, jerseys, pennants, foam fingers, and the like, will be more expensive to purchase and available at fewer outlets. A Reebok Vice-President is quoted in the case record as calling the eliminations of price competition a godsend because the price of basic fitted hats has increased to $30 from $19.99.
The NFLs players are also very concerned about the prospect of more sweeping antitrust immunity for the league. The NFL Players Association, as well as the hockey, baseball and basketball players groups, have filed an amicus brief opposing the NFLs position. They are concerned about such concepts as free agency and controls on salaries. See Saints Quarterback Drew Brees Weighs in on NFLs Supreme Court Case, The Washington Post, January 10, 2010. In his opinion piece Brees likens the NFLs supporting review in a case it had won to his requesting instant replay review of one of his touchdown passes.
In addition to its effects in the arena of professional sports, the decision will also reveal whether the Supreme Court, in its current incarnation, is inclined to limit the reach of the Copperweld single entity doctrine or is willing to consider a broader application of it based upon a larger number of economic variables than mere common ownership. An expansion of Copperweld will likely lead to an increase in the number and types of areas in which businesses can pursue common interests despite the fact that they are competitors. Whether such an outcome is good for competition and the consumer remains to be seen.