May 24, 2010

Supreme Court Decides American Needle, Inc. v. National Football League

On May 24, the Supreme Court decided American Needle, Inc. v. National Football League, No. 08-661, holding that the National Football League and its member teams are not a single entity for purposes of licensing the individual teams' intellectual property, and they are therefore not exempt from a suit alleging that their joint action in this context violates section 1 of the Sherman Antitrust Act.

Each member team of the NFL is separately owned, and each has its own name, colors, logo, and owns related intellectual property. In 1963, the teams formed National Football League Properties (NFLP) to develop, license, and market their intellectual property. Beginning in 2000, they authorized it to grant exclusive licenses to manufacture and sell team-labeled apparel. NFLP did not renew American Needle's previous non-exclusive license to sell team-labeled apparel when it expired, and the company sued, alleging that the teams' agreements amounted to a "contract, combination . . . or conspiracy, in restraint of trade," in violation of section 1 of the Sherman Act. The district court held that the teams were a single economic enterprise for purposes of section 1 analysis and therefore were incapable of conspiring within the meaning of the statute. The Court of Appeals for the Seventh Circuit affirmed.

The Supreme Court reversed unanimously. Whether there is concerted action under section 1 of the Sherman Act, the Court held, does not depend on formalistic distinctions such as whether the alleged conspirators are legally distinct entities, but on functional considerations of how they actually operate. The key question is whether the agreement in question joins together "separate economic actors pursuing separate economic interests" so that it "deprives the marketplace of independent centers of decision making" and thus of actual or potential competition. Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 768-69 (1984).

The Court found that the NFL and its members do not possess either the unitary decision-making quality or the single aggregation of economic power characteristic of independent action. Each team is separately owned and separately managed, and they compete with one another in numerous respects in addition to their competition on the field. Most notably for purposes of this case, they are potentially competing suppliers in the market for intellectual property—for team-branded merchandise. While the teams have a common interest in promoting the NFL brand, their interests in promoting their own brands are separate, and agreements that allegedly suppress competition in the latter context—including actions by NFLP, through which they carry out their agreements—may unreasonably restrain trade in violation of the antitrust laws.

The Court acknowledged that the NFL teams must cooperate to make the product of "NFL football games" available at all. This fact will require the lower courts, on remand, to evaluate the agreements at issue under the antitrust "rule of reason" to determine whether they unreasonably restrain competition in this context.

Justice Stevens delivered the opinion of the unanimous Court.

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