Tuesday, January 12, 2010

American Needle v. NFL: Oral Arguments Begin Tomorrow

Tomorrow, the Supreme Court will begin hearing oral arguments in the case American Needle v. National Football League for the purposes of determining whether the NFL clubs’ collective licensing of individual club trademarks is exempt from Section 1 of the Sherman Act under antitrust law’s single entity defense.

American Needle, which is represented by the law firm Jones Day, will argue that the Supreme Court should uphold the ruling of at least seven lower courts, each of which has found that the business practices of the NFL clubs are subject to Section 1 of the Sherman Act (American Needle’s briefs are available here and here). By contrast, the NFL, which is represented by the law firm Covington & Burling, will argue that, despite these lower court rulings, the NFL is really more akin to a single company and should be treated as such for antitrust purposes (The NFL’s brief is available here).

For those who are less familiar with the American Needle case, the original plaintiff, American Needle Inc., had for more than twenty years maintained 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.

Upon being foreclosed from the opportunity to sell NFL headgear, American Needle sued the NFL clubs in the Northern District of Illinois, 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 NFL clubs, in turn, responded by not only alleging that their licensing arrangement was pro-competitive under antitrust law’s Rule of Reason but also by arguing that the NFL clubs constituted a single entity under antitrust law.

American Needle’s surprising choice of where to bring suit played an important role in this case making its way to the Supreme Court. Although the First, Second, Third and Ninth Circuits have long since rejected the NFL’s single entity defense, American Needle instead decided to bring suit in the Seventh Circuit, which had never before addressed the issue. Upon reviewing the matter, the Seventh Circuit disagreed with these other circuits’ views of the single-entity exemption and instead held that the single-entity status of a sports league should be determined on a case-by-case basis, and that the NFL constituted a single-entity for the purposes of licensing intellectual property.

The Seventh Circuit’s ruling has since been challenged by both American Needle and the NFL clubs. American Needle, as expected, filed a petition for certiorari, urging the Supreme Court to reverse the Seventh Circuit’s ruling and adopt the position previously articulated by the First, Second, Third, and Ninth Circuits. Meanwhile, the NFL clubs have petitioned the Court to not only uphold the Seventh Circuit’s ruling with respect to licensing markets, but more broadly to rule that sports leagues are single entities for all purposes—thus shielding the NFL from future Section 1 antitrust challenges.

In arguing for a complete exemption from Section 1 of the Sherman Act, the NFL clubs rely on a broad reading of the 1984 Supreme Court case Copperweld Corp. v. Independence Tube Corp., in which the Court had held that a tubing company and its wholly-owned subsidiary comprised just one entity for antitrust purposes. Meanwhile, American Needle relies primarily on a different Supreme Court case from that same year, National Collegiate Athletic Association v. Board of Regents of the University of Oklahoma, in which the Court ruled that NCAA football teams are independent actors and not a single entity for purposes of antitrust law.

The only justice who remains on the Supreme Court from these earlier rulings is Hon. John Paul Stevens, who wrote the majority opinion in NCAA and dissented to Copperweld. Since that time, the Supreme Court has moved in a decidedly more conservative direction, having ruled in antitrust cases almost exclusively in favor of the defendants.

Nevertheless, even despite the recent conservative push of the Supreme Court, this case may perhaps represent an instance where even law-and economics minded conservatives would support the plaintiff’s position. Indeed, while there may be strong reasons why a court would ultimately uphold the NFL joint licensing program under the Rule of Reason (e.g., lack of market power in a broader market for sports logos and reduction of transaction costs), it makes little sense from a law-and-economics perspective for the Court to broaden antitrust law’s single-entity defense at the expense of allowing for full discovery and economic analysis.
Marc Edelman is an Assistant Professor at Barry University’s Dwayne O. Andreas School of Law, where he teaches in the areas of contracts, property, antitrust and sports law. His full collection of law review articles is available here. Professor Edelman’s article, Why the ‘Single Entity’ Defense Can Never Apply to NFL Clubs: A Primer on Property Rights Theory in Professional Sports, has been cited in three Supreme Court briefs on this case.

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