Sports

Sports And The Law: Elena Kagan Punts Away American Needle v. NFL

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Back in February, 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 — a move that seemed to indicate that the Supreme Court would soon hear oral arguments. Yesterday, however, U.S. Solicitor General Elena Kagan did her best Jeff Feagles impersonation by filing a 22-page amicus brief (pdf) that ultimately attempted to punt this case off the Supreme Court’s docket. The brief, which was co-authored by the Federal Trade Commission, concluded that “[t]he petition for a writ of certiorari should be denied.”
For those who have not been following 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. 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 under antitrust laws, but also by contending that the NFL clubs combined to form a single-entity that was entirely exempt from antitrust scrutiny.
Let’s take a look at the NFL’s “defensive line” after the jump.


The “single entity” issue emerged as the NFL’s main line of defense, as the NFL clubs hoped to get the case dismissed without needing to withstand a trial on the merits. In terms of existing Supreme Court law, the NFL clubs seemed to rely upon the case Copperweld Corp. v. Independence Tube Corp, in which the high court had held that a tubing company and its wholly-owned subsidiary comprised just one entity for antitrust purposes. However, on seven prior occasions, lower courts had refused to extend Copperweld‘s holding to the NFL given that the 32 NFL clubs each have separate ownership.
Despite past courts’ reluctance to define the NFL as a single entity, the Seventh Circuit in American Needle took the different position, holding that the NFL’s joint licensing practices were exempt from antitrust review. 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 Seventh Circuit Court of Appeals 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 two separate law review articles (here and here) I have argued that both the district court and the court of appeals wrongly decided the American Needle case. First, both opinions seem to 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. However, there is absolutely no legal doctrine to support that view. In addition, both court opinions focus heavily on the efficiencies of joint licensing as part of their reason for finding the NFL to be a single entity. Yet, under antitrust law, efficiencies have traditionally served more as a subject for Rule of Reason analysis than for determining single-entity status.
The United States amicus brief seems to share at least my second criticism of the Seventh Circuit’s ruling in American Needle, as the brief states that “[t]he potential implications of the court of appeals’ decision are problematic [because contrary] to the court of appeals’ apparent understanding, an agreement to restrict competition among separate firms does not cease to be concerted action simply because it may be efficiency-enhancing.” After this strong opening, however, the United States brief retreats toward its ultimate position that “[a]lthough the court of appeals’ reasoning is in some tension with this Court’s precedents, its holding does not conflict with any decision of this Court or another court of appeals.”
The United States brief ultimately recommends that the Supreme Court not grant certiorari for two reasons. First, while the United States lawyers seem to believe that the NFL is not a single entity, they seem resigned that American Needle would have still ultimately lost the case on other grounds. In addition, the United States amicus brief points out that “the somewhat idiosyncratic nature of the relationship between individual NFL teams and the league as a whole makes this case an unsuitable vehicle for resolving broader questions of the kind the NFL respondents identify.”
Unfortunately, by encouraging the Supreme Court to deny certiorari, the United States is ultimately helping activist sports leagues to use the Seventh Circuit’s ruling in American Needle to further expand the single-entity exemption in other matters. For instance, the NHL, through their lawyers Skadden Arps, have since argued to the Second Circuit that the American Needle holding exempts all of their league’s internal business decisions from antitrust scrutiny. This clearly is not a position ever stated by the Seventh Circuit in American Needle, much less one ever stated by the Supreme Court in Copperweld. It is also not a position that would ever be acceptable from the perspective of a sports consumer.
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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. Professor Edelman is also Founder and CEO of the fantasy sports dispute resolution business SportsJudge.com.

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