Is the NFL’s Single-Entity Defense About to Become Old Hat?

On January 13, 2010, the United States Supreme Court heard oral arguments in American Needle Inc. v. National Football League, et al.ⁱ The transcript of the oral arguments is available here.ⁱⁱ Though the NFL is a household name, not everyone is aware that the league is an unincorporated association of 32 distinct football teams that collaborate for the regular season games and championship Super Bowl each year.ⁱⁱⁱ Despite the distinct branding of each team, the success of the individual teams and the league overall are interdependent, and as such, the teams sought to jointly promote the NFL Brand (the intellectual property of the NFL and its teams) for profit.^iv In 1963, the teams formed NFL Properties, a separate corporate entity responsible for development, licensing, and marketing of the teams’ intellectual property (logos, trademarks, etc.), as well as advertising and promotional campaigns, and most importantly, the authorization to grant licenses to vendors allowing them to use the teams’ intellectual property to manufacture and sell consumer products featuring the teams’ logos and trademarks, like jerseys and hats.^v One such vendor was American Needle, which held a NFL headwear license for almost 20 years until 2000, when the NFL teams authorized NFL Properties to solicit vendor bids for an exclusive license, which was granted to Reebok for ten years.^vi

American Needle subsequently filed an antitrust action in the Northern District of Illinois against the NFL, NFL Properties, the individual teams, and Reebok for the loss of its headwear license, claiming that the agreement between Reebok and NFL Properties violated § 1 of the Sherman Antitrust Act^vii because it illegally restricted market trade for purchasing rights to NFL logos.^viii The NFL responded with the “single-entity argument” that renders it incapable of violating § 1: it was immune from liability because the individual teams constituted a single entity under antitrust law. This assertion was based on the Supreme Court’s 1984 decision in Copperweld Corp. v. Independence Tube Corp.,^ix which held that for antitrust purposes, a parent corporation and its wholly owned subsidiary are a single unit, because “the parent-subsidiary relationship did not yield the anti-competitive risks that the Sherman Antitrust Act was enacted to combat.”^x

The district court held, and the Seventh Circuit affirmed, “that the NFL acts as a single entity when collectively licensing its intellectual property”^xi, as the NFL teams have functioned as a “single source of economic power”^xii since 1963 and antitrust law generally encourages competition inside a business organization.^xiii American Needle seeks to overturn the ruling and reverse the Seventh Circuit.

Marc Edelman, a professor at the Dwayne O. Andreas School of Law at Barry University and Of Counsel at Ebanks & Sattler, was cited in a brief to the Supreme Court^xiv where he opines that “clubs in the four premier American sports leagues lack sufficient unity of interest for any court to classify them as ‘single entities.’”^xv In a recent post on the popular legal blog Above the Law, Edelman writes: “while there may be strong reasons why a court would uphold the NFL joint licensing program . . . it makes little sense from a law-and-economics perspective for the Court to broaden antitrust law’s single-entity defense at the expense of allowing for full discovery and economic analysis.”^xvi

The Washington Post published an Associated Press article voicing some of the most pertinent concerns that would result from a decision granting the NFL a blanket antitrust exemption.^xvii Player advocates say that football and other professional sports leagues, like basketball and hockey, could suffer player strikes.^xviii Leagues could also have latitude to raise ticket prices, reshape non-sport business practices, and reduce player salaries by ending free agency.^xix As such, the NBA, NHL, NCAA, NASCAR, MLS, and professional tennis are all supporting the NFL with the hope that the Court will extend the exemption to other sports beyond Major League Baseball, especially because other circuits have ruled differently.^xx The article also explains that lawsuits against pro sports leagues, multinational businesses, and credit card companies could result from a decision rendering the league’s teams separate entities, and a victory by the plaintiff American Needle, according to the NFL’s court briefs, “would convert every league of separately owned clubs into a walking antitrust conspiracy.”^xxi

The NFL players’ union and other professional athletic organizations oppose the antitrust protection, observing that labor agreements in multiple sports leagues expire in or around 2011.^xxii Drew Brees, the starting quarterback for the New Orleans Saints, wrote an editorial published in the Washington Post on January 10, 2010, where he articulates that the NFL’s appeal for the Supreme Court to dramatically expand its “single-entity” ruling is “an odd request – as if I asked an official to review an 80-yard pass of mine that had already been ruled a touchdown.”^xxiii Brees opines that the idea that the teams function as a single entity is “absurd” because the 32 organizations comprising the NFL and their staff are in stiff competition for coaches, players, and especially the fans’ loyalty.^xxiv He also expresses the concern that players could lose their free agency leverage if the Court rules that the NFL is a single entity exempt from antitrust laws. ^xxv

Gabriel A. Friedman, a law professor and the director of the Tulane Sports Law Program, addresses three points that he believes have been misunderstood or overlooked by the press.^xxvi He stresses that if the NFL loses this case, it does not mean that their exclusive licensing agreements are illegal; rather, the current arrangement “will then be analyzed under the rule of reason, where a court will weigh the pro-competitive benefits of the agreement versus its anticompetitive effects.^xxvii Friedman also mentions the many comparisons that have been made to the Major League Baseball exemption from competition law, and emphasizes that Curt Flood, the leader of the fight for baseball free agency, lost his case before the Supreme Court when baseball’s exemption from competition law was reaffirmed.^xxviii Finally, Feldman explains that the NFL already has an antitrust exemption for its television deals with Fox, NBC, and CBS, so regardless of the outcome, these agreements cannot be challenged; however, the decision could affect the NFL’s arrangements with the NFL Network and DirecTV.^xxix

From a legal perspective, we’ve been overloaded by the press coverage of this case. Upon review of the transcript of the oral arguments, it appears that the justices have doubts about the NFL’s position. I specifically note Justice Sotomayor’s statement to counsel for the NFL: “you are seeking through this ruling what you haven’t gotten from Congress: an absolute bar to antitrust claims” and Justice Breyer’s analogy to baseball to demonstrate that competition between NFL teams in selling apparel is unlikely. ^xxx

Interestingly enough, one sports league hasn’t been mentioned in the articles discussing the ramifications of an extension of the single-entity rule: the new United States Football League. The original United States Football League played during the spring and summer months from 1983-85, and filed an antitrust action against the NFL after announcing its intention to switch to a fall schedule beginning in 1986.^xxxi Though the USFL won the lawsuit, it received such minimal damages that the league collapsed under its debt before embarking on its first fall season.^xxxii

According to an August 2008 press release, the new USFL’s inaugural season was slated to begin in February 2010,^xxxiii but a November 2009 announcement modified the plan for the league to begin in Spring 2011.^xxxiv Citing both history and a desire for a spring football season, the teams will play “traditional stadium-played football with most of the rules being based from the original USFL concepts.”^xxxv Whether the Supreme Court affirms the Seventh Circuit’s single-entity antitrust protection for the NFL or reverses, important questions remain within the realm of professional football. Will the new USFL be subjected to the same rules as the NFL with regard to antitrust protection? If the NFL is successful, will the USFL seek its own exemption, or could it automatically be included if the single-entity defense is expanded to encompass other professional sports leagues?

Only this much is certain: regardless of the legal consequences of the Court’s ruling, there will be football, and hats will cost more money.

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ⁱ American Needle v. National Football League, et al., 538 F.3d 736, 737 (7th Cir. 2008), cert. granted, 129 S. Ct. 2859 (Dec. 14, 2009).
ⁱⁱ Transcript of Oral Argument, American Needle v. National Football League, et al., No. 08-661, available at http://www.supremecourtus.gov/oral_arguments/argument_transcripts/08-661.pdf
ⁱⁱⁱ American Needle, 538 F.3d at 737.
^iv Id. at 737–38.
^v Id. at 738.
^vi Id.
^vii 15 U.S.C. § 1.
^viii American Needle, 538 F.3d at 738.
^ix 467 U.S. 752 (1984)
^x American Needle, 538 F.3d at 738.
^xi Gabriel A. Feldman, American Needle and the NFL’s Single Entity Argument, HUFFINGTON POST, Jan. 2, 2010, http://www.huffingtonpost.com/gabriel-a-feldman/american-needle-and-the-n_b_409532.html.
^xii American Needle, 538 F.3d at 744.
^xiii Id.
^xiv Marc Edelman Biography, http:// www.marcedelman.com/marcedelmanbio.html (last visited Jan. 12, 2010).
^xv Marc Edelman, Why the “Single Entity” Defense Can Never Apply to NFL Clubs: A Primer on Property-Rights Theory in Professional Sports. 18 FORDHAM INTELL. PROP. MEDIA & ENT. L.J. 891 (2008).
^xvi Marc Edelman, Sports and the Law: Oral Arguments Begin Tomorrow in American Needle v. NFL, ABOVE THE LAW, Jan. 12, 2009 http://abovethelaw.com/2010/01/sports_and_the_law_oral_argume.php#more.
^xvii Jesse J. Holland, Hats off: NFL apparel fight could have big impact, WASH. POST, Jan. 11, 2010, available at http://www.washingtonpost.com/wp-dyn/content/article/2010/01/11/AR2010011100249.html?sub=AR.
^xviii Id.
^xix Id.
^xx Id.
^xxi Id. (quoting Brief of Respondent at 21, American Needle v. National Football League, et al., No. 08-661, available at http://www.abanet.org/publiced/preview/briefs/pdfs/09-10/08-661_RespondentNFL.pdf)
^xxii Id.
^xxiii Drew Brees, Saints’ quarterback Drew Brees weighs in on NFL’s Supreme Court case, WASH. POST, Jan. 11, 2010, available at http://www.washingtonpost.com/wp-dyn/content/article/2010/01/07/AR2010010702947.html?hpid=opinionsbox1.
^xxiv Id.
^xxv Id.
^xxvi Friedman, supra note 10.
^xxvii Id.
^xxviii Id.; see also Flood v. Kuhn et al., 407 U.S. 258 (1972).
^xxix Id.
^xxx Supreme Court seems skeptical of NFL antitrust protection, ESPN.com, Jan. 13, 2010, http://sports.espn.go.com/nfl/news/story?id=4822872 (last visited Jan. 13, 2010); see also Transcript of Oral Argument, supra note 2, at 16, 47.
^xxxi USFL – United States Football League, http://www.oursportscentral.com/usfl/history.php (last visited Jan. 12, 2010).
^xxxii Id.
^xxxiii The New United States Football League to Kick Off in February 2010, http://www.mediasyndicate.com/index.php?name=News&file=article&sid=10118 (last visited Jan. 11, 2010).
^xxxiv NewUSFL, http://www.newusfl.com/ (last visited Jan. 12, 2010).
^xxxv Id.