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 the Court will soon grant certiorari for purposes of clarifying the NFL’s antitrust status.

The underlying facts in the American Needle case are 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 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, but also by raising as a defense the single entity exemption from antitrust law. (For those less familiar with antitrust law, Section 1 of the Sherman Act states that any “contract, combination…or conspiracy in the restraint of trade or commerce…is declared to be illegal.” The single entity exemption, meanwhile, states that where the only defendant to a Section 1 suit is a single entity, a conspiracy in restraint of trade cannot exist.)

Could the NFL lose? More discussion after the jump.

There is not a lot of case law to explain how a court should define a “single entity” for antitrust purposes. Indeed, the most relevant Supreme Court case seems to be Copperweld Corp. v. Independence Tube Corp, in which the Court held that a tubing company and its wholly-owned subsidiary comprised a single entity for antitrust purposes. Yet, even the Copperweld holding is not directly on point because, unlike a parent and its wholly owned subsidiary, a sports league consists of various independent ownership groups with competing economic interests.

Until recently, no traditionally structured sports league had ever avoided antitrust liability based on the single-entity defense. 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.

Yet, the Seventh Circuit in American Needle took a decidedly more pro-league view. 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.”

In my view, both the district court and the court of appeals got this case wrong for two reasons. First, both courts’ opinions imply that because the NFL clubs have collectively licensed their trademarks for a long period of time, the NFL clubs have transitioned into a single entity; yet, there is absolutely no legal doctrine to support the view that multiple entities can transform into a single entities based on their business practices. In addition, both the district court and the court of appeals focus heavily on the efficiencies of joint licensing as part of their reason for finding the NFL to be a single entity. However, under antitrust law efficiencies have traditionally served more as a subject for Rule of Reason analysis than for determining single-entity status.

Nevertheless, even if American Needle has the better legal argument, the NFL clubs seem to have the stronger legal team. If the Supreme Court grants certiorari in this case, the NFL clubs will be represented by the law firm Covington & Burling LLP, which is where former NFL commissioner Paul Tagliabue continues to serve as Senior of Counsel. The attorneys at Covington & Burling have a very long history of helping to push antitrust law in the NFL’s direction. Even in this litigation, Covington & Burling has already convinced two courts to take an iconoclastic position.
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Marc Edelman is a Visiting Assistant Professor at Rutgers School of Law-Camden. He will be joining the faculty of Barry Law School in Fall 2009. His bio is available here, and his publications, here.