Steven G. Bradbury, Dechert LLP*
In a unanimous opinion penned by Justice Stevens, the Supreme Court has held that the National Football League must defend its collective trademark licensing arrangements from antitrust challenge under section 1 of the Sherman Act. American Needle, Inc. v. National Football League, No. 08-661 (U.S. decided May 24, 2010). The opinion represents the swan song in the area of antitrust law for Justice Stevens, who has authored some of the Court’s most significant antitrust rulings in recent decades, and it has the potential to refocus antitrust scrutiny of joint ventures beyond the specific context of professional sports leagues.
Because the 32 teams of the NFL are separate economic actors and could potentially compete with each other for the licensing of their separate trademarks, the Court reasoned, an agreement among the teams to license their trademarks collectively is concerted action that is subject to scrutiny as a restraint of trade under section 1. The Court stressed that whether a particular agreement represents concerted action for purposes of the Sherman Act turns on function, not form—it requires consideration of the economic relationship among the actors, including whether they represent separate decision makers and have the potential to compete with one another in the specific area that is the subject of the agreement in question.
The League has engaged in collective licensing of the teams’ trademarks to one extent or another since it formed NFL Properties in 1963. American Needle is a cap maker that actually benefited from a collective licensing agreement of its own with NFL Properties up until 2001, when the teams decided to grant Reebok an exclusive license for the manufacture of NFL caps. American Needle brought an antitrust suit claiming that the decision to enter into the exclusive deal with Reebok was an unlawful agreement in restraint of trade. After limited discovery, the district court in Chicago granted summary judgment for the NFL on the ground that for purposes of licensing their intellectual property, the NFL teams had so integrated their operations that they functioned as a single entity unable to conspire with itself in violation of section 1. The Court of Appeals for the Seventh Circuit affirmed, and American Needle sought cert. review in the Supreme Court.
The American Needle decision presents a cautionary tale for litigants before the Supreme Court. The NFL actually supported American Needle’s petition for cert. review and hoped to use the case for a “Hail Mary” pass: The NFL sought a ruling from the Court that would effectively have granted it antitrust immunity by holding that the 32 NFL teams function as a single economic decision maker for all purposes related to the production and promotion of professional football. Unfortunately for the NFL, the limited record developed below was never sufficient to support that sweeping ruling, and the Supreme Court did not buy it.
On remand, the NFL will now likely be forced to defend under Rule of Reason analysis not only the specific decision to grant an exclusive license to Reebok, but also the continued existence of NFL Properties and the entire concept of collective trademark licensing by the teams. The League is likely to have a good argument that the collective licensing of NFL trademarks is reasonable under section 1: National consistency in NFL merchandise may enhance the image and value of the NFL brand and thereby promote the competitiveness of NFL football versus other forms of entertainment. However, Rule of Reason litigation is notoriously protracted and burdensome, and a favorable ruling could be years away for the NFL. Moreover, the Supreme Court’s decision may open the League up to new antitrust challenges involving other collective business decisions that do not relate directly to the rules and schedules of the games or to the process of collective bargaining with the players’ union (an area previously held to be exempt from antitrust scrutiny by the Supreme Court).
*Partner in the Washington, D.C., office of Dechert LLP. Mr. Bradbury’s practice encompasses antitrust, securities and other commercial litigation, and appellate matters. He represented the petitioners in Brown v. Pro Football, Inc., 518 U.S. 231 (1996), the last Supreme Court decision addressing the status of the NFL under the antitrust laws. In 1992-1993, Mr. Bradbury served as a law clerk to Justice Clarence Thomas on the Supreme Court, and from 2004 to 2009 he was a senior official in the Department of Justice.