Last week, the U.S. Supreme Court asked the acting solicitor general to file an amicus brief in the case American Needle Inc. v. National Football League. This move seems to indicate that the Supreme Court will soon grant certiorari for purposes of clarifying whether the NFL is a single entity for trademark licensing purposes. The underlying facts in the American Needle case are rather straightforward. The plaintiff, American Needle, had for more than twenty years held a non-exclusive license to design and manufacture headgear bearing the NFL clubs' names and logos. Then, nine years ago, the NFL clubs decided to offer an exclusive license to American Needle's main rival, Reebok.
American Needle thereafter sued the NFL clubs in the Northern District of Illinois, contending that the NFL clubs conspired with one another to keep American Needle out of the NFL headwear market in violation of Section 1 of the Sherman Act. The NFL clubs, in turn, responded by not only alleging that their licensing arrangement was pro-competitive (which is the traditional defense to this sort of antitrust challenge), but also that the NFL clubs could not have illegally conspired with one another because they are really just one entity (the "single entity" defense).
Heading into this case, it did not seem as if any court would find the single-entity defense to apply to the NFL. While the Supreme Court has long held that a parent company and its wholly owned subsidiary combine to constitute a single entity for antitrust purposes, until recently no traditionally structured sports league had ever been defined as a "single entity" because each club in such a league has its own, independent ownership. Indeed, between the years 1982 and 2006, the NFL clubs had raised the single-entity defense on seven different occasions, with the reviewing court rejecting this defense each time.
The Seventh Circuit in American Needle, however, recently has taken a more pro-league view toward the single-entity defense. At the district court level, Judge Moran held that the NFL clubs morphed from a collection of separate businesses into a single entity by jointly licensing their trademarks for many years through a subsidiary, NFL Properties. Then, on appeal, a unanimous court affirmed, stating that the single-entity status of sports leagues "should be addressed not only one league at a time, but also one facet of a league at a time."
If the Supreme Court ultimately grants certiorari in this case (a seems likely) and it affirms the lower courts' rulings in favor of the NFL, the NFL clubs will remain allowed to keep their current licensing program irrespective of the program's actual competitive effects. Meanwhile, if the Supreme Court reverses and rules in favor of American Needle, the case would be remanded back to the Northern District of Illinois for a full trial on the competitive merits. Upon a full trial, a court would then uphold the NFL licensing arrangement only if it is found to yield a net effect favorable to comeptition.
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For further reading on this case, please see the following:
Marc Edelman, Single Entity Ruling: 'Needle' in Haystack, New York Law Journal (Jan. 2, 2008)
Marc Edelman, Why the Single Entity Defense Can Never Apply to NFL Club, Fordham Law Review (2008)
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2 comments:
Marc,
I read that the NFL is actually petitioning for certiorari too because they want the 7th circuit ruling EXPANDED upon by the Supreme Court to further solidify their position. This would be a major win for professional sports leagues if this examining of leagues "one facet at a time" holds up. If this is upheld would there be any other market besides the labor market where the NFL wouldn't be considered a single entity? Couldn't everything not relating to the labor/competition on the field market be done through subsidiaries? And in the same vein of pooling together, wouldn't it just about make the Sports Broadcasting Act unnecessary now?
Brian:
Great points. Again, I would be very surprised if the Seventh Circuit view in favor of evaluating single entities "one facet at a time" holds up. In essence, the NFL is asking for the Court to create new antitrust law that would rule certain behavior is per se legal, thus obviating the need for factual inquiry. Calling it a "single entity" defense is really just a guise.
Also, your point about the Sports Broadcasting Act of 1961 is right on the money. Congress passed this exemption to allow the NFL clubs to pool broadcasting rights specifically because the courts did not find the NFL had an exemption that allowed them to do so. Thus, in essence, if the NFL had traditionally been classified as a single entity when acting through its subsidiaries, the NFL never would have needed to go to Congress to get this exemption in the first place.
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