Today the Supreme Court agreed, ruling 9-0 to overturn the Seventh Circuit’s ruling in American Needle v. Nat’l Football League , in which the Seventh Circuit had held the NFL clubs sometimes exempt from Section 1 review.
In a concise, 23-page opinion (PDF), the Supreme Court explained that the NFL is not a single entity because “the NFL teams do not possess either the unitary decisionmaking quality or the single aggregation of economic power characteristic of independent action.”
This case will now be remanded to the Northern District of Illinois for further discovery and then review of its antitrust merits under the Rule of Reason. (More detailed discussions of the issues on remand are available here and here).
Additional analysis and background, after the jump.
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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. This second argument was an attempt to obtain the case’s dismissal without ever allowing an assessment on the merits of the NFL’s licensing practices.
After allowing the case to proceed into the discovery stage, Judge Moran of the Northern District of Illinois granted summary judgment in favor of the NFL clubs, ruling that the NFL acted as a single entity for purposes of trademark licensing and thus was exempt from Section 1 of the Sherman Act. The Seventh Circuit Court of Appeals affirmed, holding that whether a sports league should be treated as a single entity is a matter to be decided “one league at a time” and “one facet of a league at a time.”
In a final effort to overturn this ruling, American Needle hired the law firm of Jones Day and filed a petition for certiorari to the Supreme Court. In its petition, American Needle noted that the Seventh Circuit’s ruling seemed to conflict with previous rulings about the single entity status of sports leagues issued in the First, Second, Third and Ninth Circuits. American Needle also argued that the Seventh Circuit may have overstepped its bounds given the Supreme Court’s 1984 ruling in the case Copperweld Corp. v. Independence Tube Corp, in which the Court had held the proper test for single entity status involved whether the entity joins together separate economic decisionmakers.
On June 23, 2009, the Court granted certiorari in the case (see here). The Court then heard oral arguments on January 13, and today issued its much awaited ruling.
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Today’s ruling in favor of American Needle is hugely important to any plaintiff seeking to challenge sports leagues; conduct under Section 1 of the Sherman Act because it preserves the opportunity for the court to review league-wide conduct on its merits.
Today’s ruling also is important from a broader antitrust perspective because it confirms that a collection of separate businesses that function as a cartel cannot “avoid antitrust law simply by creating a joint venture to serve as the exclusive seller of their competing products.”
However, whether American Needle will ultimately prevail on the merits remains far from settled. As Rutgers School of Law-Camden professor Michael Carrier noted in a recent law review article, defendants have won 221 of the past 222 cases that have involved a court’s final determination under the Rule of Reason (link to Professor Carrier’s article)
In addition, even if the NFL clubs’ licensing practices have led to some anti-competitive effects, league-wide trademark licensing might also produce some pro-competitive benefits by reducing the transaction costs of obtaining licenses to use all club logos on a single piece of merchandise (link to my law review article).
Marc Edelman, Above the Law’s sports columnist, is an Assistant Professor at Barry University’s Dwayne O. Andreas School of Law. He is teaching this summer at Fordham Law School, Seton Hall Law School, and Rutgers School of Law-Camden. His full collection of law review articles is available here.