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:

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Smart Notes 1/14/2010

1 There’s a new book out there that I highlight recommend: Coaching the Under Front Defense, by Jerry Gordon. It’s a very nuts and bolts approach to the “under front,” a very common shifted variant of the traditional 4-3 defense, which is the defense of choice for teams and coaches as diverse as Charlie Strong (Florida, now Louisville) and Pete Carroll (USC, now Seattle Seahawks). I hope to have Jerry contribute to the site soon.

2. Haiti. EDSBS collects links on how and where to donate for Haiti. Please do.

3. American Needle round-up. In addition to my post from yesterday, there has been some other great work on yesterday’s oral arguments. The consensus with all seems to be: The NFL won’t get what it wants, though it may ultimately win the case on narrower grounds. From the NFL’s perspective, it was kind of like going deep on second and short: could have been a big play, but as it stands they’ll probably get the first down. If you read one thing, I highly recommend Josh Levin and Dahlia Lithwick’s piece on Slate, where they note how little the Justices seem to know (or care) about football. Both Justices Breyer and Sotomayor disclaim knowledge of football, and Breyer keeps turning the hypotheticals into ones about baseball. Justice Alito, who is a huge baseball fan, doesn’t seem too interested either. (The Court’s biggest football fan, Justice Thomas, is more of a college football fan — his favorite team is the Nebraska Cornhuskers — and in any event he rarely if ever asks questions at oral argument.) Other good takes on the case from: Adam Liptak (NY Times), David Savage (L.A. Times), Jess Bravin (WSJ), and Ashby Jones (WSJ Law Blog).

4. “Depends on what the meaning of ‘is,’ is.” Check the 1:30 mark of Lane Kiffin’s press conference.

5. Speaking of books, I’m currently reading Hilary Martel’s Wolf Hall: A Novel (Man Booker Prize), a sort of reiminaging of the court of Henry VIII. I recommend it.

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 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):

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Is the NFL a “single entity” (and therefore exempt from many anti-trust laws)? A round-up

That’s the question presented in the upcoming U.S. Supreme Court case. And while there has already been some hyperbole (ESPN: “Antitrust case could be Armageddon”), the case does present some real and interesting questions, including ones beyond the narrow issue of the NFL and other sports leagues — I know, it’s hard to imagine anything beyond sports leagues. Here is how the full issue was summarized by David Savage in the ABA Journal:

[I]n American Needle v. National Football League, the justices will decide a legal question that has long hung over pro sports. Are their leagues a “single entity” and, therefore, immune from antitrust laws, or can these independently owned teams be sued for conspiring to restrain trade? A suburban Chicago maker of stocking hats and caps, American Needle sued in 2004 after it was shut out from using NFL logos. The league had made an exclusive deal with Reebok. The suit was thrown out by the 7th Circuit, but the justices agreed to decide whether pro leagues are shielded from antitrust charges.

Upon reading this you probably have an impulsive answer right away. Either, “Hey, of course the NFL is just one entity!” Or “Hey, of course there are thirty-two teams!” But you have to understand the weird nature of sports leagues as a branch of joint ventures, and the stakes — that a ruling of them as a joint entity makes them immune from anti-trust action, even with respect to other possible competitors.

Without getting too complicated, baseball has long enjoyed a unique place in anti-trust law — it doesn’t apply to it. Other leagues have come close, but haven’t been so lucky. There’s really no reason for these leagues to have such unique status, but baseball does and football wants it, anyway it can get it. The best they can muster from a policy perspective is that “hey, we’re the NFL, we’re important right!” And, within the cloistered halls of the NFL (not to mention ESPN, and the like) the world begins and ends insofar as it affects The Game, be it terrorism or the stockmarket or whatever else.

But legal battles in real courts deal with larger themes. Specifically, the government, in the form of the Solicitor General’s office, was asked to chime in on this case. This put them in an awkward position because (a) American Needle has a very weak case, even apart from this “single-entity theory,” and (b) the government really only cares about this case insofar as it affects other joint-ventures beyond sports leagues. As Morrison & Foerster partner Deanne Maynard noted at a recent Supreme Court panel, if the Court rules in favor of the NFL, this case could have wide-ranging implications beyond just sports organizations.

“I think it could affect any kind of joint business venture,” she said. “It could mean that in doing these (joint) activities, the companies are a single entity.”

Moreover, here’s some excellent commentary and background from Lyle Denniston of SCOTUSBlog (written while the Justices were still considering whether to hear the case): (more…)