Court Revives Single-Entity Defense for Pro Sports Leagues in Antitrust Action

Sep 12, 2008

A panel of judges from the 7th U.S. Circuit Court of Appeals has reaffirmed the veracity of the single-entity defense in an antitrust setting, firmly extending the protection to professional sports leagues.
In this instance, the NFL was sued by American Needle, Inc., a maker of headwear, after its licensing arm – NFL Properties LLC – reached an exclusive agreement authorizing Reebok International Ltd. to sell headwear bearing the logos of the NFL and its 32 teams.
The 7th Circuit, however, cited case law that “antitrust law encourages cooperation inside a business organization — such as, in this case, a professional sports league — to foster competition between that organization and its competitors.” Chi. Prof’l Sports Ltd. v. Nat’l Basketball Ass’n (“Bull II”), 95 F.3d 593, 597-600 (7th Cir. 1996)
American Needle’s lawsuit alleged that that the exclusive headwear licensing agreement between NFL Properties and Reebok violated § 1 of the Sherman Antitrust Act, which outlaws any “contract, combination . . . or conspiracy, in restraint of trade.” 15 U.S.C. § 1. As American Needle saw it, because each of the individual teams separately owned their team logos and trademarks, their collective agreement to authorize NFL Properties to award the exclusive headwear license to Reebok was, in fact, a conspiracy to restrict other vendors’ ability to obtain licenses for the teams’ intellectual property. American
Needle also contended that, by authorizing NFL Properties to award the license to Reebok, the NFL teams monopolized the NFL team licensing and product wholesale markets in violation of § 2 of the Sherman Antitrust Act. See id. § 2.
A year later, The NFL defendants moved for summary judgment, arguing that, under the United States Supreme Court’s decision in Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984), and its progeny, they were immune from liability under § 1. In Copperweld, the Supreme Court concluded that a parent corporation and its wholly owned subsidiary are a single entity for antitrust purposes. Id. At 771. Ultimately, the district court granted the NFL’s motion regarding § 1 of the Act.
The court then sought supplemental briefing on whether its single-entity finding compelled the dismissal of American Needle’s § 2 monopolization claim. Again, the court concluded for the NFL, finding that its earlier single-entity determination “doomed American Needle’s § 2 claim because, as a single entity, the NFL and its member teams could collectively license their intellectual property ‘to one or many without running afoul of the antitrust laws.’”
The plaintiff appealed.
The 7th Circuit affirmed, writing:
“(M)ost importantly, the record amply establishes that since 1963, the NFL teams have acted as one source of economic power — under the auspices of NFL Properties — to license their intellectual property collectively and to promote NFL football. Tellingly, American Needle does not dispute that the NFL teams collectively license their intellectual property to promote NFL football; in fact, when opposing the NFL defendants’ motion for summary judgment, American Needle relied on NFL Properties’ Articles of Incorporation, which state that the teams formed NFL Properties ‘[t]o conduct and engage in advertising campaigns and promotional ventures on behalf of the [NFL] and the member [teams].’ And our review of the record reveals no evidence that requires us to question the purpose of the teams’ licensing agreement.
“Simply put, nothing in § 1 prohibits the NFL teams from cooperating so the league can compete against other entertainment providers. Indeed, antitrust law encourages cooperation inside a business organization — such as, in this case, a professional sports league — to foster competition between that organization and its competitors. See Bulls II, 95 F.3d at 599. Viewed in this light, the NFL teams are best described as a single source of economic power when promoting NFL football through licensing the teams’ intellectual property, and we thus cannot say that the district court was wrong to so
“Moving on, the failure of American Needle’s § 1 claim necessarily dooms its § 2 monopolization claim. As a single entity for the purpose of licensing, the NFL teams are free under § 2 to license their intellectual property on an exclusive basis, see Cook Inc. v. Boston Scientific Corp., 333 F.3d 737, 740 (7th Cir. 2003), even if the teams opt to reduce the number of companies to whom they grant licenses, see Bulls II, 95 F.3d at 598 (“To say that participants in an organization may cooperate is to say that they may control what they make and how they sell it: the producers of Star Trek may decide to release two episodes a week and grant exclusive licenses to show them, even though this reduces the number of times episodes appear on TV in a given market . . . .”); Gregory J. Werden, Antitrust Analysis 18 No. 07-4006 of Joint Ventures: An Overview, 66 Antitrust L.J. 701, 730-31 (1998) (“An antitrust claim based solely on a single firm’s denial of a license to a trademark would readily be dismissed . . . .”). As such, American Needle has no colorable claim that the NFL teams and NFL Properties created a monopoly by awarding Reebok the exclusive headwear licensing contract. See Cook Inc., 333 F.3d at 740 (discussing competitive effects of exclusive-licensing agreements); Bulls II, 95 F.3d at 598. The district court was therefore correct to grant summary judgment to the NFL defendants on American Needle’s § 2 monopolization claim.”
American Needle Inc. v. National Football League et al.; 7th Cir.; No. 07-4006; 8/18/08


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