By Ryan M. Rodenberg and Peter C. Lawler
The U.S. Supreme Court decided the case of American Needle v. NFL on May 24, 2010. Retiring Justice John Paul Stevens, in one of his final decisions after close to 35 years on the bench, wrote for a unanimous court and rejected the NFL’s “single entity” argument as a shield against antitrust lawsuits based on Section 1 of the Sherman Antitrust Act. In the wake of American Needle, there have already been a number of articles analyzing the case. Mike McCann in Sports Illustrated, Gabe Feldman in Huffington Post, and Marc Edelman in Sports Business Journal have all given their analysis. After tracking the case’s movement through the federal court system the past three years and reading the recently-released Supreme Court opinion in detail, we present the following in question and answer format.
How important is the case?
Lester Munson of ESPN described the case as a potential “Armageddon” in a 2009 column. While the case could indeed have been groundbreaking if the NFL would have won a sweeping victory granting the league (and other sports leagues) broad antitrust immunity, it didn’t turn out that way. The unanimous decision in American Needle’s favor did decimate one element of the NFL’s defense, namely the NFL’s claim that decisions made among its constituent member were immune to scrutiny under §1 because the league operates as a single entity. In Justice Stevens’s words, “the NFL’s licensing activities constitute concerted action that is not categorically beyond the coverage of §1.” However, the NFL may ultimately prevail in the case when it goes to trial and the legality of the NFL-Reebok agreement is evaluated under antitrust law’s “rule of reason.”
What impact, if any, did the background facts have in how the case was decided?
The factual background relevant to the case did not necessarily favor the NFL. Prior to the formation of National Football League Properties (“NFLP”) in 1963, individual NFL teams licensed their marks to apparel and merchandise manufacturers directly. Only upon the formation of NFLP did the league collectively pool licensing rights. As such, it was difficult for the NFL to make the argument that such pooled licensing rights were absolutely necessary for the promotion of the “product” that is NFL football. Likewise, it was not helpful that Dallas Cowboys owner Jerry Jones sued the NFL in the 1990’s in an attempt to withdraw his team from the pooling agreement. After getting countersued by his fellow NFL owners, the parties settled out of court. Nevertheless, the Jones-NFL lawsuit was a high-profile example of conduct inconsistent with the NFL’s single entity argument.
Any comment about the NFL’s strategy of seeking review of a case they had previously won?
Given that the NFL was victorious at both the District Court and Court of Appeals level, pundits will question the wisdom of the NFL in seeking review of the appellate decision by the Supreme Court. After the Solicitor General recommended that the Supreme Court not grant cert in the case, it is an open question whether at least four of the justices would have granted the writ of certiorari if only American Needle had sought review. With that said, the upside of a decision favoring the NFL’s single entity argument would have been profound, as such antitrust immunity would have had the potential to spill over into other realms, including labor relations.
What role did precedent have in the decision?
Like virtually all Supreme Court decisions, dozens of prior cases were cited as authority. In his decision, Justice Stevens is faithful to the Supreme Court’s precedent-setting 1984 decision in Copperweld even though he originally dissented (with Justice Brennan and Justice Marshall) in the Copperweld case. In addition, citing 1947’s Yellow Cab decision, Justice Stevens makes clear that the antitrust laws are “aimed at substance rather than form.” As such, the mere fact that NFLP is a separate corporation was not found to be dispositive in the determination of whether certain conduct is subject to antitrust review. Justice Stevens put more focus on the fact that each of the 32 NFL teams are individually-owned and compete with each other in a number of ways in addition to the games between them on Sunday.
Was there anything interesting buried in a footnote or parenthetical?
Yes. In footnote #7, Justice Stevens indirectly describes the NFL as a “cartel.” In responding to the league’s single entity argument that only the NFL can produce “NFL football,” Justice Stevens states: “Of course the NFL produces NFL football; but that does not mean that cooperation amongst NFL teams is immune from §1 scrutiny. Members of any cartel could insist that their cooperation is necessary to produce the ‘cartel product’ and compete with other products.” Use of the word “cartel” in this way does not bode well for sports antitrust defendants, as the description carries with it a stigma of impermissible conduct that is possibly collusive in nature.
What was the most noteworthy part of the opinion?
The opinion concludes with Section VI. It is the most noteworthy, as previous sections largely regurgitated well-established antitrust principles and applied them to the NFL’s practice of collectively licensing its team-owned intellectual property on an exclusive basis to a third party. In fact, Justice Stevens may have been compelled to add Section VI in an effort to keep the opinion unanimous and avoid any concurrences or dissents by his more conservative colleagues on the Supreme Court. Section VI is noteworthy for two reasons. First, it specifically alludes to the fact that the NFL and some other sports leagues have special characteristics that may make conduct which would normally be considered anti-competitive reasonable under circumstances unique to team sports leagues. In this connection, Justice Stevens mentions “the production and scheduling of games” and “the interest in maintaining a competitive balance among athletic teams” as two examples. Second, this section hints that the NFL may, on remand to district court, ultimately prevail on the merits. Justice Stevens finds that “[t]he fact that NFL teams share an interest in making the entire league successful and profitable…provides a perfectly sensible justification for making a host of collective decisions.” To the extent that the NFL can persuade a judge and/or jury that joint licensing of team intellectual property is such a justifiable decision, the league still could prevail at trial – if the parties don’t reach an out-of-court settlement first.
Could this decision impact the way non-team sports league or associations operate?
The opinion may have some chilling effect on the way such associations (e.g. LPGA Tour, WTA Tour, PGA Tour, ATP World Tour) conduct their affairs. While any league can still attempt to defend any §1 charge by hoping a judge/jury finds their collective actions “reasonable,” the potential inability to rely on a single entity defense in the future removes a very significant arrow from the quiver of these associations. Furthermore, non-team sports groups are by their very nature much more disparate and economically independent than a team sports league. Joint conduct which attempts to maintain some competitive balance (which Justice Stevens cited as an example of concerted action that may prove to be reasonable conduct in a team sports league) among golf tournaments, or among tennis players allocated to tennis events, for example, could prove to be anathema to any judge or jury examining such conduct with anti-trust implications on their mind.
The authors were colleagues in Octagon’s legal department from 2003 to 2007 and are long-time Supreme Court aficionados. © Ryan M. Rodenberg and Peter C. Lawler 2010.
