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 scotusblog.com:
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 –
JUSTICE SCALIA: Yeah.
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.
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.