Supreme Court says NFL is not a single-entity; Remands case to determine if competition reasonable

The Supreme Court issued its opinion in American Needle, Inc. v. National Football League today, declaring that the NFL is not a single-entity of the collective teams and cannot grant exclusive use of the individual teams’ colors and logos (as was the case with Reebok being the single manufacturer of official NFL apparel for all teams between 2000 and 2010).  The Court remanded the case to the district court to determine if the NFL acted reasonably or if the anti-competition violates the Sherman Act.

Retiring Justice Stevens, writing for the unanimous court, held that the NFL and NFL Properties—the company set up to manage the collection of teams licensing—violates Section 1 of the Sherman Act.  The holdings of the case were made on the distinction between independent actions, which are okay, and concerted actions, which are not.

Stevens writes: “The NFL teams do not possess either the unitary decision making quality or the single aggregation of economic power characteristic of independent action. Each of the teams is a substantial, independently owned, and independently managed business.”

The competition between the teams, beyond being opponents on the field but also competing for fans, revenue from marketing, etc., was integral to the Court’s holding.  “Directly relevant to this case, the teams compete in the market for intellectual property. To a firm making hats, the Saints and the Colts are two potentially competing suppliers of valuable trademarks. When each NFL team licenses its intellectual property, it is not pursuing the ‘common interests of the whole’ league but is instead pursuing interests of each ‘corporation itself,’ teams are acting as ‘separate economic actors pursuing separate economic interests,’ and each team therefore is a potential ‘independent cente[r] of decision making.’”

Simply summarized: each NFL team owns their respective intellectual property and the NFL, by acting as a single-entity for all the teams combined, stifles the competition that should exist for teams to individually contract their own apparel licenses.

The NFL also argued three additional points, all shot-down by the Court: (1) the formation of NFL Properties was akin to an acceptable merger, (2) they have been acting as this single entity, promoting the common interest of the league for quite some time, and (3) without the cooperation as a single entity, there would be no NFL.

To (1), the Court said you cannot evade anti-trust law by simply creating a new company as it would allow anyone to do so in any industry.

To (2), the Court said “history of concerted activity does not immunize conduct from §1 [of the Sherman Act] scrutiny.”

To (3), the Court basically says the cooperation needed to maintain the league is irrelevant to these matters.

I agree entirely.  As I first wrote when this case was presented to the Court in January, “In many ways, major sports leagues do need some protection from antitrust suits; however, that protection should not extend to areas where the competitive business arena is sufficient.  Areas where teams must agree to cooperate, or act as a single entity, in order for the league to function does not include licensing agreements.”

Well you may be wondering, what now?

First, the case was remanded back to the district court to determine if the league, acting in a concerted way, acted reasonable or if the actions negatively affected competition (led to increased prices, etc.).  The NFL issued a statement this afternoon saying: “We remain confident we will ultimately prevail because the league decision about how best to promote the NFL was reasonable, pro-competitive, and entirely lawful.”

Sorry, but I disagree.  It was not pro-competition and certainly not necessary for the league to function.  Each team managing its own trademark licensing would be the best for competition.

In the NFL’s statement, they also noted that the “decision has no bearing on collective bargaining, which is governed by labor law.”  This is important, since the CBA negotiations is a hot topic right now with many curious minds.  In this regard, the league is correct: these are two completely unrelated topics with no bearing on each other.

Second, assuming the district court rules, as I think it will, that leagues do not need anti-trust exemption for exclusive marketing deals for teams, what will be the consequences?

Will Adidas, Nike, and other companies shop their services to particular teams?  Will there be a massive revamp of uniforms and apparel across the league?  Will we see the return of head coaches wearing suits (as originally barred entirely by the agreement with Reebok only to be given a 2-game exemption)?  Will Bill Belichick get a new selection of hoodies to wear?

And here’s a really big question: will some company use this precedent to try to chip away at MLB’s anti-trust exemption that is superior to all the other sports leagues?  I think so, especially on the Court’s holding about the history of concerted actions.  If the other professional leagues do not need protection beyond what is necessary to function, why should the MLB maintain those protections?

It will be interesting to see what the district court does and how it will affect the NFL, and all other professional leagues.  If you want to read more, Sports Illustrated and the New York Times have two of the first and best substantive analyses of the situation.

American Needle, New York Times, NFL, Reebok, Sports Illustrated, Supreme Court