A federal judge from the Northern District of Illinois has granted American Needle’s motion to compel Reebok International to produce documents involving its license agreement with the NBA. The discovery ruling was made as part of American Needle’s ongoing antitrust litigation against Reebok, NFL, its teams, and NFL Properties.
“American Needle has demonstrated the importance of the NBA information to the market definition and market power issues,” wrote the court. “The benefit of producing the NBA information to American Needle’s theory of market definition outweighs the burden to Reebok.”
For more than 20 years, American Needle maintained a non-exclusive license with the NFL to design and manufacture headgear bearing the NFL teams’ names and logos. Then, a little over a decade ago, the teams collectively decided to offer an exclusive license to American Needle’s main rival, Reebok.
Upon being foreclosed from the ability to sell NFL headgear, American Needle sued the teams in federal court, contending that the new NFL licensing arrangement violated Section 1 of the Sherman Act by illegally restraining trade in the market for purchasing rights to NFL logos. The teams, in turn, responded by not only alleging that their licensing arrangement was pro-competitive under antitrust law’s Rule of Reason, but also by contending that the teams combined to form a single-entity that was entirely exempt from antitrust scrutiny. Both the district court and the Seventh Circuit Court of Appeals granted summary judgment to the teams based on the single-entity theory. American Needle appealed to the U.S. Supreme Court.
On May 24, 2010, the Supreme Court rejected the NFL’s “single entity” argument as a shield against antitrust lawsuits based on Section 1 of the Sherman Antitrust Act and remanded the case.
Back to the discovery dispute, American Needle’s request centered specifically on Reebok’s license agreement with the NBA and “related royalty/sales data.”
“American Needle’s motion to compel is well-founded,” wrote thee court. “With regard to the benefit of the information sought, American Needle argues that the NBA information is relevant to determining issues of market definition and market power.
“Under the Rule of Reason analysis, a plaintiff’s threshold burden is to show a precise market definition in order to demonstrate that Defendants wield market power. Agnew v. Nat’l Coll. Athletic Ass’n, 683 F.3d 328, 337 (7th Cir. 2012). ‘Products are in the same market if they are reasonably interchangeable for the purposes for which they are produced.’ ChampionsWorld, LLC v. U.S. Soccer, 2012 WL 3580536, at *30 (N.D.Ill. August 17, 2012). ‘The outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it.’ Brown Shoe Co. v. United States, 370 U.S. 294, 325,
82 S. Ct. 1502, 8 L. Ed. 2d 510 (1962) The Supreme Court has identified seven ‘practical indicia’ that a separate market exists: ‘industry or public recognition of the submarket as a separate economic entity, the product’s peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized vendors.’ Id. The Seventh Circuit requires ‘actual data and reasonable analysis . . . to demonstrate that a product or service is a good substitute for another.’ Reifert v. S. Cent. Wisc. MLS Corp., 450 F.3d 312, 318 (7th Cir. 2006).”
The court went on to restate American Needle’s “view” that “each professional sports league’s team licensed products constitute a separate product market. American Needle is entitled to discovery to support its theory that NFL licensed products and NBA licensed products constitute separate markets. The NBA information American Needle seeks may assist American Needle in defining the relevant product market, including determining the substitutability of NBA and NFL-licensed products. An analysis of cross-price elasticity of demand between the NFL licensed products and NBA licensed products may be also relevant to assessing whether American Needle’s proposed market definition is reasonable. American Needle intends to use the NBA information to evaluate what effect price increases or decreases have had on consumer pricing activity. More specifically, American Needle seeks to discover whether Reebok has been able to raise the prices of NBA team licensed products significantly above competitive levels without losing business to products that bear other professional sports league’s logos and trademarks.
American Needle further plans to use the NBA information to support its claim that the seasonal nature of major sports leagues evidences the separateness of the product markets for antitrust purposes.”
The court added that “American Needle’s proposed NBA discovery may aid in defining the relevant markets, and American Needle is entitled to discover facts which may support the relevant market definitions that it has alleged. For purposes of discovery, American Needle has sufficiently demonstrated the relevance of the NBA information to its claims in this case.”
Next, the court examined the alleged burden to Reebok associated with producing the information.
“Reebok contends that the potential harm here is essentially twofold,” wrote the court. “First, Reebok points out that the NBA license agreement prohibits disclosure of the requested NBA information. The NBA is not a party and it has declined to consent to the production of its confidential licensing terms and royalty/sales information.
Reebok argues that producing the requested NBA information would impose competitive hardships on both Reebok and the NBA. Reebok notes that American Needle is a competitor of Reebok and the NBA is a competitor of the NFL. Reebok thus contends that disclosing confidential, sensitive details of Reebok and the NBA’s business dealings – including licensing terms, royalty rates, items sold, sales volumes, pricing, timing, buyers/customers, and the like – to American Needle and the NFL would put Reebok and the NBA at a competitive disadvantage. Reebok is particularly concerned because American Needle has no outside counsel in this action. American Needle is represented solely by its in-house general counsel, who it asserts is also routinely involved in American Needle’s business matters, including its licensing matters. Reebok contends that it is not possible for American Needle’s in-house counsel to analyze the NBA’s sensitive business information in this litigation context and then not be aware of it for other contexts of American Needle’s business.”
The court took apart Reebok’s argument of confidentiality and business risk.
“Although the NBA has a valid interest in protecting its confidential business information, confidentiality is not a sufficient reason to altogether prohibit the disclosure of relevant material and the NBA’s consent is not necessary for disclosure in litigation,” wrote the court. “Third-parties cannot simply refuse to produce relevant, albeit confidential, information.”
As to the business risk, the court highlighted the fact that American Needle “has agreed to retain outside counsel to review the NBA information if it is designated ‘outside counsel only’ under the provisions of the protective order. This renders moot any concern that American Needle’s in-house counsel’s access to the NBA information would create an impermissible risk of inadvertent disclosure to American Needle’s business. Similarly, if the NBA information is marked ‘outside counsel only,’ that information may be disclosed only to the NFL’s outside counsel of record who will be bound to protect the confidential nature of the information disclosed to them.”
American Needle, Inc. vs. New Orleans Saints et al; N.D. Ill.; 04 C 7806. 2012 U.S. Dist.
LEXIS 137401; 9/21/12
Attorneys of Record: (for plaintiff) Jeffrey M. Carey, LEAD ATTORNEY, Law Office of Jeffrey M. Carey, Buffalo Grove, IL. (for team defendants) Dean Cary Kalant, Gozdecki, Del Giudice, Americus & Farkas Llp, Chicago, IL; Derek Ludwin, Covington & Burling, Washington, DC; Richard A. DelGiudice, Gozdecki, Del DelGiudice, Americus & Farkas LLP, Chicago, IL. (For NFL defendant) Gregg Levy, LEAD ATTORNEY, Derek Ludwin, Covington & Burling, Washington, DC; Dean Cary Kalant, Gozdecki, Del Giudice, Americus & Farkas Llp, Chicago, IL; Earl Edward Farkas, Eugene E. Gozdecki, Gozdecki and Del Giudice, LLP, Chicago, IL; Leah E. Pogoriler, PRO HAC VICE, Ross A. Demain, PRO HAC VICE, Covington & Burling LLP, Washington, DC; Richard A. DelGiudice, Gozdecki, Del DelGiudice, Americus & Farkas LLP, Chicago, IL. (for Reebok International Ltd., defendant) Timothy Bunker Hardwicke, LEAD ATTORNEY, John J Marhoefer, Latham & Watkins LLP, Chicago, IL; Michael J. Nelson, Latham & Watkins LLP (IL), Chicago, IL.
