By Jordan Mamorsky
For the average National Football League (“NFL”) fan, purchasing new Reebok licensed team merchandise is an annual rite of the fall football season. For the Supreme Court, antitrust attorneys, and league executives, this purchase from Reebok International Ltd., the exclusive licensed provider of NFL team goods, has created a contentious sports antitrust lawsuit that in many ways will decide the future liabilities of the NFL and other professional sports leagues.
At Fordham Law School’s 14th Annual Sports Law Symposium, the discussion focused upon this pending antitrust suit against the NFL, American Needle v. NFL. Leading sports law practitioners and academic experts debated the merits of the case, the league’s use of the antitrust single entity defense, and the potential results of a positive ruling for the NFL in the U.S. Supreme Court.
Until 2002, American Needle was one of the NFL’s traditional licensed distributors. During the 1990s, an exclusive licensing agreement with Reebok became attractive to the NFL and its licensing company, NFL Properties, when revenues from its goods became increasingly sluggish. From the NFL prospective, granting an exclusive license to one of its traditional distributors seemed like a logical way to raise profits from league merchandise.
“Revenue became stagnant [and] how did they [the NFL] fix that?” said Jeffrey Carey, General Counsel for American Needle. “They wanted to raise prices and decided to maximize profits by finding a monopoly price.”
That monopoly price came in the form of $250 million from Reebok in a 2002 exclusive 10-year licensing deal. American Needle sued in 2004, claiming that this contract was in violation of Section One of the Sherman Act. The case is now in the Supreme Court.
Section One of the Sherman Act applies only to unlawful combinations and restraints of trade among multiple entities. Hence, if a company such as NFL Properties was declared a single entity, Section One of the Sherman Act would be inapplicable. The NFL believes such should be the case since each of the 32 NFL franchises gives their licensing rights to NFL Properties in order to effectively market their goods to consumers.
“The NFL argument is that teams can produce nothing on their own,” Tulane University Associate Professor of Law Gabe Feldman said. “For example, all teams must agree on many topics and cooperation is required for the product to exist. The NFL is arguing that the Court should not see each NFL franchise as multiple entities, because each team needs each other to survive.”
The Seventh Circuit agreed with the NFL’s argument. This precluded American Needle from even raising potential anti-competitive arguments in district court.
However, leading sports law academic Professor Marc Edelman, who has widely written on the subject and was cited by three Supreme Court briefs in the American Needle v. NFL case disagrees. Edelman explained that the Seventh Circuit stands alone as the only authority to hold that a sports league can be characterized as a single entity, and that the treatment of a sports league as a single entity is an improper one under antitrust law given to the diverse ownership and economic interests of the individual NFL club owners.
“Thirty-two collective clubs are marketing their trademarks through NFL properties,” Professor Edelman said. “The NFL is trying to argue that they are a single entity. [However,] there has been no support for [the NFL being a single entity] outside the Seventh Circuit.” Edelman also went on to explain that the reason why the NFL club owners so badly want single entity classification is that they do not want their licensing practices to be reviewed on their merits under antitrust law—the likely next step if the Supreme Court rejects the single entity defense and remands the case to district court.
While the Seventh Circuit may be the only Circuit to hold a sports league can be immune from U.S. antitrust law, the NFL is hopeful for a positive ruling in the Supreme Court. The strength of the NFL’s argument flows from the fact that collective marketing and revenue sharing through NFL Properties creates the allure to fans, rather than the single team standing alone.
“What excites fans is the Super Bowl, collectively structuring and scheduling,” said Herrick Feinstein Partner Irwin Kishner. “League sharing of revenues has created balance and pooling creates a stronger product. Collective use of the NFL trademark is ancillary to cooperation pertaining to the product on the field and advertising shouldn’t have as much scrutiny.”
On Jan. 13, 2010, Supreme Court oral arguments were held on the American Needle case. On the single entity issue, both sides left the Court hopeful that they made the most impact on the judges.
“We came away feeling good after oral argument,” Carey said. “We want the Court to look at pro-competitive effects for Reebok’s exclusive license. Prior to the exclusive license, NFL represented 25 percent of American Needle’s sales.”
The NFL hopes to benefit from the court’s pro-business holdings in recent years. In fact, some believe that the oral arguments demonstrated the Court’s sympathy for the Seventh Circuit’s holding. However, it should be noted that this pro-business leaning may not only tilt the NFL’s way. For even the most ardent business minds on the bench, it might be thought to be most beneficial for a jury to hear American Needle’s anti-competitive arguments.
“Being pro-business might not be the only thing important in their hierarchy of values,” said Jones Day Partner Meir Feder. “The Court is not a mindless pro-business court or a knee jerk pro-business court. Just being pro-business is a one dimensional argument.”
The Court last considered the single entity issue in Copperweld Corp v. Independence Tube Corp., 467 U.S. 752 (1984). In that case, a parent company
and its subsidiary was held to be a single entity under Section One of the Sherman Act.
Whether the Court will use this precedent to uphold the Seventh Circuit opinion is questionable. Edelman pointed out that Justice Stevens wrote a strong dissent in
Copperweld, arguing that even a company and its wholly owned subsidiary should be viewed as separate and diverse entities. Presumably, Stevens would vote against the single entity finding here as well. Additionally, Feder explained that at one point in oral argument, Justice Breyer (a former antitrust law professor) described the NFL’s attempt to use Copperweld as “baffling.”
Regardless of the take-away impressions from oral argument, if the Court does hold that the NFL or NFL Properties is a single entity, a huge ripple effect would be felt throughout the sports law litigation landscape. The NFL, NFL Properties or both would no longer be subject to potential suit under Section One of the Sherman Act. This immunity would potentially domino into holdings in favor of other sports leagues and would make it ultimately impossible for a potential Section One Plaintiff to escape summary judgment.
American Needle is hoping that they can prevent this near Armageddon scenario for future Section One Plaintiffs. “The League doesn’t have a ticket office or groundskeeper,” said Carey. “The league doesn’t produce anything. It is an entity of the whole. Teams make the NFL; the NFL doesn’t make the teams.”
Only time will tell if the Supreme Court agrees.
