Supreme Court Holds Collective Licensing of NFL Teams' Intellectual Property Subject to Antitrust Scrutiny

25 May 2010 Publication
Authors: James T. McKeown

Legal News Alert: Antitrust

The Supreme Court held Monday that the NFL’s centralized licensing of NFL team intellectual property rights did not protect those licensing decisions from the Sherman Act prohibition against collective conduct that unreasonably restrains trade. American Needle, Inc. v. NFL, No. 08-661 (May 24, 2010). The decision, written by Justice Stevens for a unanimous Court, resolved the “narrow issue” of whether NFL teams and their centralized licensing entity were capable of engaging in concerted conduct within the meaning of Sherman Act § 1. The Court concluded that “entities are capable of conspiring under § 1,” reasoning that the NFL teams are “independent centers of decision making” that historically had the authority to make licensing decisions individually. Slip op. at 4. Holding that the district court should not have dismissed the action on grounds that Sherman Act § 1 could not apply to the conduct, the Supreme Court sent the case back to the district court to “decide whether the restraint of trade is an unreasonable and therefore illegal one.” Id. at 11.

  • American Needle’s Sherman Act challenge to the NFL’s decision to grant an exclusive license

American Needle, Inc. had been a longtime NFL licensee for use of team names, colors, and logos on hats. In 2000, the NFL teams collectively authorized NFL Properties, a separate corporation responsible for licensing and marketing team-owned trademark rights, to solicit bids from vendors on an exclusive headwear license. In 2001, NFL Properties awarded Reebok, the high bidder, a 10-year exclusive license and did not renew the licenses of other headwear licensees, including American Needle.

American Needle sued the NFL, each NFL team, NFL Properties, and Reebok, alleging that the exclusive license agreement with Reebok unreasonably restrained trade in violation of Sherman Act § 1, contending that the Reebok license prevented other headwear vendors from licensing NFL trademark rights. The district court, looking to the doctrine of Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984), which provides that corporations and their wholly owned subsidiaries are single actors for Sherman Act purposes, granted the NFL defendants summary judgment. The district court held that, in the context of producing and promoting NFL football games, the NFL, its teams, and NFL Properties were a single economic entity for Sherman Act purposes, and, thus, their conduct was beyond the reach of § 1.

The court of appeals affirmed. Reasoning that the teams could only produce “NFL football” through joint conduct, the court concluded that there is only one source of economic power for the promotion of NFL football. The court believed that the fact that the NFL’s teams had collectively licensed their intellectual property since 1963, when they formed NFL Properties to conduct and engage in advertising campaigns and promotional ventures on their behalf, supported its conclusion that the NFL operated as a single economic entity in competing against other entertainment providers for the licensing of intellectual property. Concluding that the challenged licensing decisions were conducted by a single economic entity, the court of appeals ruled that Sherman Act § 1 did not apply to the NFL’s decisions about licensing the use of its trademarks and logos.

  • The Supreme Court’s holding that NFL intellectual property licensing agreements are subject to scrutiny under Sherman Act § 1

In reversing the lower courts’ single-entity rulings, the Supreme Court emphasized the need to evaluate the “functional considerations of how the parties involved in the alleged anticompetitive conduct actually operate” to determine whether the conduct is “concerted activity” subject to review under § 1. Slip op. at 6. The Court described the single-entity inquiry as one of substance, not form, looking to whether the alleged conduct deprives the market of actual or potential competitors:

The key is whether the alleged “contract, combination … or conspiracy” is concerted action — that is, whether it joins together separate decisionmakers. The relevant inquiry, therefore, is whether there is a “contract, combination … or conspiracy” amongst “separate economic actors pursuing separate economic interests,” such that the agreement “deprives the marketplace of independent centers of decisionmaking,” and therefore of “diversity of entrepreneurial interests,” and thus of actual or potential competition.

Id.at 10 (internal citations omitted). While commencing its analysis from Copperweld’s holding that corporations and their wholly owned subsidiaries are not independent actors capable of conspiring for purposes of § 1, the Court emphasized that the legal relationships among alleged conspirators do not control § 1’s application. Instead, “competitive reality” is the touchstone:

Because the inquiry is one of competitive reality, it is not determinative that two parties to an alleged § 1 violation are legally distinct entities. Nor, however, is it determinative that two legally distinct entities have organized themselves under a single umbrella or into a structured joint venture. The question is whether the agreement joins together “independent centers of decisionmaking.” If it does, the entities are capable of conspiring under § 1, and the court must decide whether the restraint of trade is an unreasonable and therefore illegal one.

Id.at 11 (internal citations omitted).

Applying this test, the Court concluded that the NFL teams are separate economic entities that compete in the intellectual property licensing market and that any need they may have for cooperation to produce NFL football does not transform them into a single entity. “The justification for cooperation,” the Court stated, “is not relevant to whether that cooperation is concerted or independent action.” Id. at 14.

The Court also rejected the NFL’s argument that American Needle’s antitrust challenge to the NFL’s refusal to renew its license related only to the unilateral action of NFL Properties, a separate licensing corporation. The Court reasoned that the teams’ agreement to employ NFL Properties as their licensing agent and their ownership of NFL Properties did not make the licensing decisions unilateral. The Court concluded that Sherman Act § 1 applied, stating that “[a]part from their agreement to cooperate in exploiting those assets, including their decisions as … NFL[ Properties], there would be nothing to prevent each of the teams from making its own market decisions” about licensing its marks. Id. at 15-16. But, while acknowledging that most intra-firm decisions do not implicate § 1, the Court suggested a potentially broad principle that intra-firm agreements that implicate independent economic interests are subject to § 1 scrutiny: “Agreements made within a firm can constitute concerted action covered by § 1 when the parties to the agreement act on interests separate from those of the firm itself, and the intra-firm agreements may simply be a formalistic shell for ongoing concerted action.” Id. at 16.

The Supreme Court was not asked to decide — and did not decide — whether the NFL’s decision to grant an exclusive license to Reebok and not to renew American Needle’s license violated the Sherman Act. Having answered the question presented by holding that § 1 applies to the NFL licensing agreements, the Court remanded the case to the district court to assess whether the agreements were lawful under the Sherman Act. In so doing, the Court noted that the need for cooperation by the teams to produce NFL football may justify those licensing agreements under § 1’s rule of reason standard. “Football teams that need to cooperate,” the Court emphasized, “are not trapped by antitrust law.” Id. at 18. “The fact that NFL teams share an interest in making the entire league successful and profitable, and that they must cooperate in the production and scheduling of games, provides a perfectly sensible justification for making a host of collective decisions. But the conduct is still concerted activity rather than that of a single entity.” Id. The Court left for the district court to consider on remand the extent to which these interests, including an interest in ensuring competitive balance, which the Court labeled “legitimate and important,” justify the teams’ collective licensing decisions for purposes of the rule of reason standard. Id. at 19.

 


Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and colleagues. If you have any questions about this update or would like to discuss this topic further, please contact your Foley attorney or the following:

James T. McKeown
Chair, Antitrust Practice
Milwaukee, Wisconsin
414.297.5530
jmckeown@foley.com

G. Michael Halfenger
Partner
Chair, Appellate Practice
Milwaukee, Wisconsin
414.297.5547
mhalfenger@foley.com

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