High Court: NFL Licensing Conduct Constitutes Concerted Action

High Court: NFL Licensing Conduct Constitutes Concerted Action

WASHINGTON, D.C. — (Mealey’s) The U.S. Supreme Court on May 24 unanimously held that conduct by the National Football League, its 32 teams and the clubs’ wholly owned licensing company in granting an exclusive license to Reebok International Ltd. to use the NFL’s and teams’ trademarks on apparel constituted concerted action “that is not categorically beyond the coverage of” Section 1 of the Sherman Act and that is to be judged under the rule of reason (American Needle, Inc. v. National Football League, et al., No. 08-661, U.S. Sup.).

American Needle Inc., which was granted licenses to use the NFL’s and teams’ trademarks on headwear it manufactured until 2000, when NFL Properties entered into an exclusive license with Reebok, sued the defendants in the U.S. District Court for the Northern District of Illinois.  The District Court ruled that, in the facet of their operations respecting exploitation of intellectual property rights, the defendants “have so integrated their operations that they should be deemed a single entity rather than joint ventures cooperating for a common purpose.”  The Seventh Circuit U.S. Court of Appeals affirmed.

In reversing, the court, in an opinion written by Justice John Paul Stevens, said that “the inquiry is one of competitive reality.  . . .   The question is whether the agreement joins together ‘independent centers of decisionmaking.’  . . .  If it does, the entities are capable of conspiring under §1, and the court must decide whether the restraint of trade is an unreasonable and therefore illegal one.”

Here, “[t]he NFL teams do not possess either the unitary decisionmaking quality or the single aggregation of economic power characteristic of independent action.  Each of the teams is a substantial, independently owned, and independently managed business,” the court said, finding that “the teams compete in the market for intellectual property.  . . .  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 decisionmaking,’ . .  and therefore of actual or potential competition.”

Moreover, “it is not dispositive that the teams have organized and own a legally separate entity that centralizes the management of their intellectual property,” Justice Stevens wrote.

In remanding, the court instructed that that the “flexible” rule of reason applies when “restraints on competition are essential if the product is to be available at all” and that “features of the NFL” “may well justify a variety of collective decisions made by the teams.”

Read the Supreme Court's opinion and other related materials

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