Recap: Supreme Court hears argument in American Needle v. NFL

The U.S. Supreme Court today heard argument in the American Needle v. NFL case, which proposed the question whether the NFL is a “single-entity” for antitrust purposes and thus immune to antitrust liability. (Read more about it here.) Or does it present that question? The excellent Lyle Denniston attended today’s oral argument (and, unlike most sports outlets, understands the issue), and has his take up on

If the National Football League, and other pro sports leagues, want to combine their efforts in commercial activity, they probably are going to have to justify that in federal court, in perhaps prolonged trials focusing on whether any such action is really for the good of the game, or is aimed only at making more money. Just one trip to the Supreme Court to avoid that, it appears, will not be enough. That prospect loomed on Wednesday as the Justices weighed the NFL’s broad claim to antitrust immunity for joint operations, a claim that the other pro sports leagues similarly make.

The Court heard 70 minutes of oral argument in American Needle v. NFL (08-661), a case that supposedly was to focus on a single, simple question: is the NFL, along with its 32 teams, a “single entity” and therefore immune to the Sherman Antitrust Act when they act jointly in a business effort? But Justice after Justice insisted strenuously that that is not really the issue, and that the case probably needs to go back to the lower courts for a potentially penetrating inquiry into what kinds of commerce are closely enough related to pro football that they escape antitrust liability.

In particular, the Justices were unconvinced of the NFL’s sweeping arguments:

The specific kind of activity under legal attack in the case is the joint effort of the NFL and its teams to sell hats, jerseys, and other fan gear displaying the teams’ trademarked logos. While the NFL insists that that is crucial to promoting the popularity of the games on the field, it did not appear that any Justice was firmly convinced — right now — of that. From the bench, for example, came the question of whether the NFL could escape antitrust liability if it decided, jointly, to build houses. While the NFL’s lawyer said that would not promote the game, Chief Justice John G. Roberts, Jr., shot back that, maybe, selling trademarked goods was closer to selling houses than it was to promoting football games. And that, it seems, is precisely the issue that would dominate a subsequent trial on the legality of joint selling of fan goods.

That doesn’t mean, however, American Needle would win the case outright — indeed, they probably have a loser. But the sweeping legal ruling that the NFL won at the lower courts preempted further inquiry into the specific facts. A remand to the lower courts would allow the NFL to win the case on narrower grounds that would not have much application in other, future cases beyond this one. Moreover, such a ruling would absolve the Justices of the danger of deciding a case about the NFL that applies to a wide swath of joint business ventures throughout the country. (The NFL’s argument was founded largely on its exceptionalism: We are the NFL and get this treatment, though no other business joint ventures should. That kind of argument is more persuasive on Around the Horn than it is in the Supreme Court building.) As Denniston added:

The content of the entire argument strongly suggested that there was not now a majority either to uphold broad immunity for pro sports leagues’ joint commercial enterprises, or to make everything the league and its teams do jointly open to antitrust challenge. What most of the Justices seemed to be tempted by was a middle-ground approach, with each specific joint effort tested under a “rule of reason” analysis to determine whether it was essentially to the success of the sporting enterprise. Even that, though, would amount to a significant tactical loss for pro sports.

I will post the transcript when it is up.

Update: The Associated Press has an article up titled “Court seems sceptical of NFL antitrust protection.”

Update: The transcript of the oral argument is available here.

Update again: It’s unclear what the Supreme Court will actually do (likely hold that these decisions of the NFL are subject to a “rule of reason” analysis, which means that the NFL could win below but they aren’t automatically immune). But this exchange at the end of the argument explains why I think it is highly unlikely that the NFL will succeed (after the jump; Levy is the NFL’s lawyer):

MR. LEVY: But, Your Honor, I would agree with almost everything that you said, but we are not dealing here with independent sources of economic power. These clubs are not independent. None could produce their product on their own.

JUSTICE SOTOMAYOR: But they own the trademarks, so they could.

MR. LEVY: They do, but the trademarks don’t have any value. They don’t have any purpose independent of the game. The trademarks are invented to identify the clubs on the field. They are — they are promoted and distributed to — to encourage loyalty among fans of the clubs. The — the trademarks are simply a tool that the clubs use . . . .

JUSTICE SCALIA: Well, you — you say that the — that the trademarks have no value apart from the — from the game. I guess you could say the same thing for each individual franchise of each of the 32 clubs. They are worthless, if NFL Football disappears. So does that mean they — that they — they can agree to fix the price at which their — their — their franchises will be sold, by concerted agreement, because after all, they are worthless apart from the NFL?

MR. LEVY: Well, I — I certainly agree with your — your premise, Your Honor, that they are worthless apart from — except there is some residual value, I don’t — I don’t —


MR. LEVY: I don’t dispute — dispute that. Could they agree on prices for their franchises to be sold? Yes, I assume they could agree because they are not independent sources of economic power.

JUSTICE SCALIA: Oh, okay, you —

JUSTICE BREYER: So we don’t even ask the question whether under the rule of reason such a thing is reasonable or justified?

MR. LEVY: Your Honor —

JUSTICE SCALIA: I thought I was reducing it to the absurd.

(Laughter. )

In other words, the NFL argues that basically all its decisions are immune from any antitrust scrutiny, and the reason for that is that everything the NFL does is worthless except as a part of the whole — including the value of the trademarks (as if the Dallas Cowboys logo at this point has no value of its own) and the very franchises themselves. Indeed, Levy says the trademarks have no value of their own, but earlier in the argument the Justices discussed how its disingenuous to say that the only reason the NFL says hats is to “promote the game,” rather than make money selling hats. (If that was the case, they would give them away, or at least not sell them for as high of prices as they do.)

But the franchise point was even more striking. Justice Scalia said he was simply trying to come up with an “absurd” hypothetical to test the contours of the NFL’s argument — it had to have some limit — but instead, as suspected, their argument was limitless. And keep in mind too that this case was about selling hats, not the business of putting on football games or even broadcasting them. You never know, but I think it’s a safe bet that the Seventh Circuit will be reversed, and the NFL will lose on their sweeping claim. Again, however, this doesn’t mean they have tons of liability, just that they can’t deflect anticompetitive practices by saying they are a single entity — they will have to make some effort to show their practices aren’t anticompetitive.

  • ntm

    These kinds of things remind me of why I think we could have another pro league. Right now college football is the minor league- for better or worse. I think it would have to be a regional thing – so no usfl- mainly for logistics purposes. Also, not in the south. They don’t so much love football as they love THEIR college’s football. Anything else would be competing with the main dish. I have a hunch that a league in the upper northwest would have some legs. Open minded-educated people with some money to spend on such a thing.

    Also, I am rooting for American Needle here.

  • Steve

    The interesting thing is that the NFL pushed for certiorari. American Needle of course made a petition, but the question isn’t terribly interesting (NCAA was a loser in their case 25 years ago, but the case broadly confirmed that the essentials of running a sports league are immune from antitrust immunity), there’s no circuit split on the issue, and the government petitioned SCOTUS to not take the case. However, the NFL went for broke on this. I’m not sure I entirely understand the rationale, unless they feel that the composition of justices that would conceivably create a broad antitrust exemption will never be better than it is now, and figure that, no matter what, they’re going to win on the merits (even if its the narrower grounds of the 7th Circuit that are upheld).

    My best guess is that they figured SCOTUS would never grant cert on such an uninteresting case unless it was to pronounce a broad sports exemption, but now that cert has actually been granted, that’s hardly clear.

  • Brian

    I wonder if it will be brought up the fact that when a new franchise is sold, all the team owners at the time get an equal share of the sale price, kind of like when a new partner buys into a business. This would suggest that all the franchises are connected under the NFL “shield” and although they compete on the field, they are financially partners off it. If the NFL can successfully argue on that point, they might win the case rather easily.

  • Sam

    Not an attorney, but it seems that NFL counsel’s belief that the current Court leans pro-business obscured the long-held concern about an “activist” judiciary. The “rule of reason” test, if that is the legal application that comes out of this review, appears to be a confirmation of a Court that is both pro-business and strictly interpreting precedent and law … I know that is black-and-white, but am I missing something?

  • Patrick

    After some thought, I’m a little confused by something that strikes me as a glaring inconsistency in the NFL’s argument that fan apparel is merely meant to “promote” the game akin to “placing flyers under windshields.” Flyers under windshields are free, and distributed widely in order to catch the attention of as many people as possible. Fans buying hats, jerseys, and jackets, not so much.

    In my mind, that argument falls apart. If the NFL is really selling team gear solely to “promote” the game, why is there an interest in consolidating all the rights into Reebok? Wouldn’t it be more prudent to sell licensing rights to as many manufacturers as possible in order to generate more fan items (thereby simultaneously making them more affordable and more prevalent, increasing the NFL’s “promotion”).

    Also, if the team ballcap is really meant to just advertise the fact that there’s a “Saints-Redskins game this Sunday,” Why is it often difficult to get out-of-market merchandise other than online? Wouldn’t the NFL rather increase the presence and awareness of out-of-market teams to “promote” when those teams come to town?

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  • football

    I miss the days of the XFL and NFL Europe etc. Developing players need an outlet. Anti-trust / monopoly is probably taking it too far. It is big-budget franchises like the NFL that prove the point that this is getting out of hand. But now with the tough economic times, somebody would have to be crazy to even talk about a new league or monopolies. The NFL will take their licks in declining ticket sales in the foreseeable future. Except maybe in New Orleans who opens this week against the Vikings… Can’t wait.

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