TAG | American Needle
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.
The Supreme Court began to hear American Needle v. NFL yesterday, a case to determine if the NFL can act as a single entity, being exempt from anti-trust laws, on behalf of all of its teams for licensing agreements. If ruled as such, the fear is that this exemption will expand unregulated monopoly power to additional areas of business.
On the front page of the Sports Business Daily page today, there is a quick synopsis of how various news sources have reacted (I’d link to the actual article, but I don’t have access, and presumably, you don’t either). Although it cautions “against trying to speculate the outcome of a Supreme Court decision based solely on the questions and comportment of the justices” it goes ahead in giving that information:
- The L.A. TIMES writes there was “skepticism from most of the judges” toward the NFL’s position
- The N.Y. POST notes the NFL “didn’t seem to score a lot of winning points”
- ESPN.com states justices Scalia, Breyer and Sotomayor “seemed to lay the foundation for the court to make a more limited ruling”
This article from ESPN also relayed some excellent quotes from the Justices:
- “You are seeking through this ruling what you haven’t gotten from Congress: an absolute bar to an antitrust claim,” Justice Sonia Sotomayor told NFL lawyers.
- Several justices wondered whether the antitrust investigation could stretch to the rules of the game and scheduling, “things that it just seems odd to subject” to antitrust investigation, Chief Justice John Roberts said.
It is interesting to note that both American Needle and the NFL appealed the case to the Supreme Court, which was dismissed in the lower court. The ESPN article notes why the NFL would appeal in such a circumstance: “NFL also appealed, hoping to get broader protection from antitrust lawsuits. Major League Baseball is the only professional sports league with broad antitrust protection.”
The court is expected to issue its ruling in June. As cautioned by SBD, it is far too early to project anything based on the remarks of the justices on day 1, and the NFL certainly has plenty of time to rebound by June.
While the Federal Court in California enters day 3 of the Prop 8 case tomorrow (today now, on the east coast), the Supreme Court will begin hearing American Needle v. NFL, a case to determine if the NFL can act as a single-entity representing its 32 teams for licensing agreements (as it did with the endorsement deal granting Reebok exclusive rights in 2001.)
The simple, elementary issue to be resolved is whether the NFL is permissible to do so or if it violates laws established under the Sherman Act for restricting competition. The argument for American Needle, supported by each major sport’s player’s association and Drew Brees (see below), in simple form, again, is that each team in the NFL is at fierce competition with each other in so many capacities, and that competition, and the free-market competition in which it operates, should be extended to licensing agreements for their brands. Further, that each team is individually owned and operated. They argue that allowing the NFL to operate as a single-entity for licensing grants monopoly power that is unnecessary, unwarranted, and strips the freedom to make individual brand licensing agreements from each team.
I tend to agree. 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.
I have read various news reports on the importance of this case: some say it is monumental for how all major sports leagues will function; others downplay it. Forbes says: “Many are hyping the upcoming Supreme Court case as the biggest in sports history. Don’t believe it.” Contrarily, the Sports Business Journal (Daily) reports: “American Needle is suing the NFL for antitrust law violations, and the apparel company contends that its case ‘could have a sweeping effect on the sport’s relationship with its players.’”
As I mentioned earlier, each player’s association is siding with American Needle. You can read the amicus brief the NFLPA, MLBPA, NBAPA, and NHLPA jointly filed to the Supreme Court here (note: it’s 52 pages long and mostly just talks about how the teams in the leagues compete in countless areas and should also be allowed to with apparel and other licensed goods.)
One of the most interesting developments of this story was Drew Brees throwing his hat in the ring by offering his opinion in an article for the Washington Post. As an NFLPA Executive Committee member, you can imagine which side he’s on. Very rarely do athletes take such a bold stand (Scott Fujita, another Saint, rocked the boat a bit with his support of gay rights earlier this year: read more if you missed it), especially in direct opposition against the NFL. If the Saints get bad calls this weekend, I’m calling shenanigans on the entire integrity of NFL refereeing.