Supreme Court gives NFL the Terry Tate treatment

The NFL, having convinced both a district court and the Seventh Circuit Court of Appeals that it was a “single-entity” for anti-trust purposes and thus exempt from anti-trust liability under Section 1 of the Sherman Act, asked the U.S. Supreme Court to make that the law of the land for the entire country. Justice John Paul Stevens, writing for a unanimous court, said simply:

Actually that was Terry Tate, but the message was basically the same: NFL, you’ve overreached — you can’t transform 32 disparate, separately owned teams into a single-entity simply by setting up a joint venture, National Football League Properties or NFLP. For background, I’ve written about the case several times (where I confidently predicted that the NFL would lose), and the NY Times explains the posture well:

The case was brought by American Needle, an apparel maker from Illinois that lost its contract with the league when the N.F.L. entered into an exclusive 10-year, $250 million deal with Reebok in late 2000 to produce hats, jerseys and other league-branded merchandise.

American Needle argued that the league’s deal with Reebok violated antitrust law because the N.F.L. was a collection of individually owned teams that compete with one another, not a single entity able to negotiate contracts on behalf of its teams. By striking a deal with Reebok, the league effectively conspired to stifle competition, the company argued.

American Needle appealed to the Supreme Court….

In rejecting the position of the NFL (and that of the various other leagues who filed briefs in support of the NFL), the Court explained (I’ve removed the citations):

“Every contract, combination in the form of a trust or otherwise, or, conspiracy, in restraint of trade” is made illegal by §1 of the Sherman Act. The question whether an arrangement is a contract, combination, or conspiracy is different from and antecedent to the question whether it unreasonably restrains trade. This case raises that antecedent question about the business of the 32 teams in the National Football League (NFL) and a corporate entity that they formed to manage their intellectual property…

[...]

“[S]ubstance, not form, should determine whether a[n] . . . entity is capable of conspiring under §1.” This inquiry is sometimes described as asking whether the alleged conspirators are a single entity. That is perhaps a misdescription, however, because the question is not whether the defendant is a legally single entity or has a single name; nor is the question whether the parties involved “seem” like one firm or multiple firms in any metaphysical sense… 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 decision-making” and therefore of “diversity of entrepreneurial interests.”

In applying this framework, the Court rejected the NFL and lower courts’ rationale that the NFL is a “single-entity” because the NFL is seems like a single-entity in what it termed a “metaphysical sense,” simply because you need multiple teams and hence cooperation to play a football game:

Each of the teams is a substantial, independently owned, and independently managed business. “[T]heir general corporate actions are guided or determined” by “separate corporate consciousnesses,” and “[t]heir objectives are” not “common.”… Directly relevant to this case, the teams compete in the market for intellectual property. To a firm making hats, the Saints and the Colts are two potentially competing suppliers of valuable trademarks. When each NFL team licenses its intellectual property, it is not pursuing the “common interests of the whole” league but is instead pursuing interests of each “corporation itself”… Decisions by NFL teams to license their separately owned trademarks collectively and to only one vendor are decisions that “depriv[e] the marketplace of independent centers of decision-making,” and therefore of actual or potential competition.

[The NFL and its teams] argue that they constitute a single entity because without their cooperation, there would be no NFL football….But that does not mean that necessity of cooperation transforms concerted action into independent action; a nut and a bolt can only operate together but an agreement between nut and bolt manufacturers is still subject to §1 analysis. Nor does it mean that once a group of firms agree to produce a joint product, cooperation amongst those firms must be treated as independent conduct. The mere fact that the teams operate jointly in some sense does not mean that they are immune.

And in a footnote, the Court summed up its rejection of the “Zen riddle: Who wins when a football team plays itself?” argument the NFL advanced:

Although two teams are needed to play a football game, not all aspects of elaborate inter-league cooperation are necessary to produce a game. Moreover, even if league-wide agreements are necessary to produce football, it does not follow that concerted activity in marketing intellectual property is necessary to produce football.

The Court of Appeals carved out a zone of antitrust immunity for conduct arguably related to league operations by reasoning that coordinated team trademark sales are necessary to produce “NFL football,” a single NFL brand that competes against other forms of entertainment. But defining the product as “NFL football” puts the cart before the horse: Of course the NFL produces NFL football; but that does not mean that cooperation amongst NFL teams is immune from §1 scrutiny. Members of any cartel could insist that their cooperation is necessary to produce the “cartel product” and compete with other products.

(Emphasis mine.) This is correct: the NFL’s position was really too bizarre to stand (hence the unanimity in rejecting it). But it’s also true that this case is not that significant: it merely overturned the ruling of one outlier lower court, and otherwise it was a narrow opinion. It did not rule out that the NFL could ultimately win the case — indeed, it sent fairly clear signals that the NFL ought to win under the “rule of reason” analysis (which again speaks to why it was so weird that the NFL wanted pure immunity in the first place). All the Court determined was that the NFL could be liable.

So it was a narrow case, likely to soon be forgotten other than as a real but relatively minor humiliation of the NFL’s upper management and legal counsel for asking the Supreme Court to take the case in the first place (a rare thing for a party that wins in a lower court). Lyle Denniston of Scotusblog explains the ho-hum nature of the case:

As the Supreme Court moved in to referee a major dispute over pro sports leagues and their plea for antitrust immunity, the labor unions that represent the players in those leagues warned the Justices not to allow team owners to send a “Trojan horse” into that arena. Whether or not that was a valid fear, the Court with Monday’s decision clearly did not give team owners a free pass to carry on a wide range of joint activity to promote their sport with American consumers. But neither did the Court add much of anything new to antitrust law in general.

[...]How much further beyond trademark licensing this exemption might have gone, no one could be quite sure. The players’ unions, in their expressed fear of a “Trojan horse,” speculated that the leagues would next argue that “promoting” the game also meant a joint, anti-competitive deal on players’ salaries and selection. And the coaches, in turn, worried about an anti-competitive approach to hiring and paying the on-the-field managers. And so on.

The Supreme Court, ruling unanimously in American Needle v. NFL (08-661), put at least a temporary end to the speculation — at least to this extent: a claim that joint action is the only way to promote the “brand” of “NFL football” was simply but firmly rejected…

If promoting pro football with the consuming public is the economic goal, “there would be nothing to prevent each of the teams from making its own market decisions relating to purchases of apparel and headwear, to the sale of such items, and to the granting of licenses to use its trademarks,” Stevens said. “Competitors,” he added, quoting colleague Justice Sonia Sotomayor when she was a judge on the Second Circuit Court, ” ‘cannot simply get around’ antitrust liability by acting ‘through a third-party intermediary or ‘joint venture.’ ”

The concluding part of the opinion represented an attempt to narrow the scope of the ruling, suggesting that the NFL and other pro leagues may well be entitled to quite broad antitrust immunity for such joint efforts as producing and scheduling games, taking steps to maintain “a competitive balance” between teams, and acting to ensure that the sport makes money. The actual legality of any joint practice, the Court made clear, was not being decided in this case — including the specific tactic of joint marketing of the right to use team trademarks. Each “collective decision” a league chooses to make, the opinion concluded, is to be judged by an antitrust “rule of reason” — a flexible standard that is keyed to particular facts and circumstances.

The trademark licensing case now returns to the Seventh Circuit, and very likely back to District Court, for a trial on whether that scheme is, in fact, an “unreasonable restraint of trade” in the way that it actually operates. The outcome was not foreordained by Monday’s ruling.

While the American Needle case always had the potential to produce a significant new statement from the Court on the Sherman Act’s application to commercial “joint ventures” in general, in the end it did not do so. Much of Justice Stevens’ opinion is simply a reiteration of past rulings on such collective activity, and, indeed, did not mark any deviation from the main precedent on the subject, the Court’s 1984 decision in Copperweld Corp. v. Independence Tube Corp. Stevens was an entirely faithful follower of that decision — even though he had dissented when it was issued.

  • http://variousprovocations.blogspot.com dth

    Was it really so outlandish as to believe the NFL might win? IIRC the case history correctly, didn’t the NFL argue on narrow grounds at first before the Supremes ordered a reargument on the question of the single entity issue? Or am I crazy?

  • http://smartfootball.com Chris

    No. They could have argued the narrower grounds, but from the start they also argued the broader grounds as well. The district court dismissed American Needle’s case using the broad “single-entity” rationale, and the Court of Appeals affirmed on those grounds.

    And the NFL, in their petition to the Supreme Court to request a hearing, posed the question this way:

    “Section 1 of the Sherman Act applies only to a “’contract, combination . . or conspiracy’ between separate entities” to restrain trade. Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 768 (1984) (quoting 15 U.S.C. § 1). In CopperweId, this Court held that because their coordinated activities do not “deprive[] the marketplace of independent centers of decisionmaking’ or “represent a sudden joining of two independent sources of economic power previously pursuing separate interests,” a parent company and its separately incorporated subsidiary constitute a single entity for Section 1 purposes. Id. at 768, 769, 771.

    The question presented is: Whether, under the standards articulated in Copperweld, a professional sports league and its separately owned member clubs, which collectively produce an entertainment product that no member club could produce on its own, constitute – or at least can function as – a single entity for Section 1 purposes.”

    That looks pretty broad to me. The NFL went for the home run.

  • Old South

    Definitely the first, but hopefully not the last, comparison of Justice Stevens and Terry Tate.

  • Brian Burke

    Supreme Court yada yada, words, words…

    But a Terry Tate reference! Awesome! BEST…COMMERCIAL…EVER

  • http://psalms4thesinner.blogspot.com lawrence

    How can American Needle support this legal challenge with $1.6 million in revenues? (revenue # per Chicago sun times)

  • 4.0 Point Stance

    I was hoping for a more broadly worded opinion, but so be it. The Court certainly reached the right result, but there’s not much precedential value because the facts presented are fairly limited to sports leagues – the way the NFL is organized is just not that common for most businesses. Chris is seemingly quite confident the NFL will win on the merits anyway, but I’m not so sure.

    Lawrence’s point is quite interesting. If plaintiff’s revenues are truly $1.6 million, they have to be receiving some outside funding for this lawsuit. That trial isn’t going to be cheap either.

  • Dave

    Love the Terry Tate ad.

    Ironic that its a Reebok ad, and the NFL sole-sourcing w/ Reebok brought on the suit in the first place. Well maybe not real irony, maybe just Alanis Morissette irony.

  • Lawrence

    Can someone explain why Major League Baseball has anti-trust protection and all the other leagues do not? Is MLB simply grandfathered in because of it’s long history of National and American League? How can the court’s decision on the NFL seem to stand contrary to its decision that MLB has a right to be a monopoly?

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  • LongCat

    I wouldn’t say this is a humiliation for the NFL. They had an interesting and potentially dispositive argument that, if successful, could make any future suits fairly easy. Even if it didn’t win (as it was unlikely to from the beginning), it soaked up a significant amount of the plaintiff’s cash; given the financial disparity between the NFL and American Needle, this alone was worth the effort.

    Overall it’s a little bad press in exchange for proving to current and future litigants that suing the NFL will be a time-consuming and costly venture. Shady, but good lawyering.

  • 4.0 Point Stance

    “Shady, but good lawyering.”

    It’s a damn shame when “good lawyering” means “papering your opponent to death and using your vastly superior financial resources to outspend him.” Perhaps the courts, like the NFL, should institute a salary cap.

  • 4.0 Point Stance

    “Shady, but good lawyering.”

    It’s a shame when “good lawyering” means “papering your opponent to death and using your vastly superior financial resources to outspend him.” Perhaps the courts, like the NFL, should institute a salary cap.

  • Brian

    The NFL is covering all court costs for both sides (yes, you are allowed to do that).

  • Old South

    Costs are significant, but they pale in relation to the fees, and the fees alone probably put a hurtin’ on Needle.

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  • John

    http://blog.mises.org/12778/antitrust-7-nfl-0/

    Typical of the federal government to make the rules up as it goes along. I really wish someone could challenge the Sherman Act in the SCOTUS, but doing that successfully seems highly improbable when so much of the government’s power derives from its ability to order corporations around under such frivolous circumstances.

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  • Lewis Robinson

    there are so many intellectual property and copyright violations these days.’,

  • Letter Tray :

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