TEAM LOGOS AND ANTITRUST LAW: The American Needle Case

By Ivan Hoffman, B.A., J.D.



        In American Needle, Inc. vs. National Football League et. al., the Supreme Court ruled that, at least for the purposes of licensing intellectual property, the National Football League Properties (“NFLP”) and its member teams are subject to the Sherman Antitrust Act (“The Act”).

        The Act, at 15 United States Code, in section 1 states in part:

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.
        These were the simple facts as stated by the Court:
Respondent National Football League (NFL) is an unincorporated association of 32 separately owned professional football teams, also respondents here. The teams, each of which owns its own name, colors, logo, trademarks, and related intellectual property, formed respondent National Football League Properties (NFLP) to develop, license, and market that property. At first, NFLP granted nonexclusive licenses to petitioner and other vendors to manufacture and sell team-labeled apparel. In December 2000, however, the teams authorized NFLP to grant exclusive licenses. NFLP granted an exclusive license to respondent Reebok International Ltd. to produce and sell trademarked headwear for all 32 teams. When petitioner’s license was not renewed, it filed this action alleging that the agreements between respondents violated the Sherman Act, §1 of which makes “[e]very contract, combination ... or, conspiracy, in restraint of trade” illegal. Respondents answered that they were incapable of conspiring within §1’s meaning because the NFL and its teams are, in antitrust law jargon, a single entity with respect to the conduct challenged. The District Court granted respondents summary judgment, and the Seventh Circuit affirmed.
The Decision

        The NFLP had argued that it was a “single entity” and a “single economic enterprise” and thus, by definition, it could not act in restraint of trade since that would require more than one entity.  The 32 member teams had given the NFLP the right to license each member team’s intellectual property (i.e. logos for example) and the NFLP was thus acting as that single entity.

        The Court ruled that, when making these decisions, that courts should look to the facts and not to the formalities.  The Court stated in part:

We have long held that concerted action under §1 does not turn simply on whether the parties involved are legally distinct entities. Instead, we have eschewed such formalistic distinctions in favor of a functional consideration of how the parties involved in the alleged anticompetitive conduct actually operate.
 As a result, we have repeatedly found instances in which members of a legally single entity violated §1 when the entity was controlled by a group of competitors and served, in essence, as a vehicle for ongoing concerted activity. In United States v. Sealy, Inc., 388 U. S. 350 (1967), for example, a group of mattress manufacturers operated and controlled Sealy, Inc., a company that licensed the Sealy trademark to the manufacturers, and dictated that each operate within a specific geographic area. Id., at 352-353. The Government alleged that the licensees and Sealy were conspiring in violation of §1, and we agreed. Id., at 352-354. We explained that "[w]e seek the central substance of the situation" and therefore "we are moved by the identity of the persons who act, rather than the label of their hats." Id., at 353. We thus held that Sealy was not a "separate entity, but ... an instrumentality of the individual manufacturers." Id., at 356. In similar circumstances, we have found other formally distinct business organizations covered by §1. See, e.g., Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co., 472 U. S. 284 (1985); National Collegiate Athletic Assn. v. Board of Regents of Univ. of Okla., 468 U. S. 85 (1984) (NCAA); United States v. Topco Associates, Inc., 405 U. S. 596, 609 (1972); Associated Press v. United States, 326 U. S. 1 (1945); id., at 26 (Frankfurter, J., concurring); United States v. Terminal Railroad Assn. of St. Louis, 224 U. S. 383 (1912); see also Rock, Corporate Law Through an Antitrust Lens, 92 Colum. L. Rev. 497, 506-510 (1992) (discussing cases). We have similarly looked past the form of a legally "single entity" when competitors were part of professional organizations3 or trade groups.4

The relevant inquiry, therefore, is whether there is a "contract, combination ... or conspiracy" amongst "separate economic actors pursuing separate economic interests," id., at 769, such that the agreement "deprives the marketplace of independent centers of decisionmaking," ibid., and therefore of "diversity of entrepreneurial interests," Fraser v. Major League Soccer, L. L. C., 284 F. 3d 47, 57 (CA1 2002) (Boudin, C. J.), and thus of actual or potential competition, see Freeman v. San Diego Assn. of Realtors, 322 F. 3d 1133, 1148-1149 (CA9 2003) (Kozinski, J.); Rothery Storage & Van Co. v. Atlas Van Line, Inc., 792 F. 2d 210, 214-215 (CADC 1986) (Bork, J.); see also Areeda & Hovenkamp ¶1462b, at 193-194 (noting that the "central evil addressed by Sherman Act §1" is the "elimin[ation of] competition that would otherwise exist").[emphasis added]

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," Copperweld, 467 U. S., at 770; teams are acting as "separate economic actors pursuing separate economic interests," and each team therefore is a potential "independent cente[r] of decisionmaking," id., at 769. 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," ibid., and therefore of actual or potential competition. See NCAA, 468 U. S., at 109, n. 39 (observing a possible §1 violation if two separately owned companies sold their separate products through a "single selling agent"); cf. Areeda & Hovenkamp ¶1478a, at 318 ("Obviously, the most significant competitive threats arise when joint venture participants are actual or potential competitors").
 …

The question whether NFLP decisions can constitute concerted activity covered by §1 is closer than whether decisions made directly by the 32 teams are covered by §1. This is so both because NFLP is a separate corporation with its own management and because the record indicates that most of the revenues generated by NFLP are shared by the teams on an equal basis. Nevertheless we think it clear that for the same reasons the 32 teams' conduct is covered by §1, NFLP's actions also are subject to §1, at least with regards to its marketing of property owned by the separate teams. NFLP's licensing decisions are made by the 32 potential competitors, and each of them actually owns its share of the jointly managed assets. Cf. Sealy, 388 U. S., at 352-354. Apart from their agreement to cooperate in exploiting those assets, including their decisions as the NFLP, 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.

For that reason, decisions by the NFLP regarding the teams' separately owned intellectual property constitute concerted action. Thirty-two teams operating independently through the vehicle of the NFLP are not like the components of a single firm that act to maximize the firm's profits. The teams remain separately controlled, potential competitors with economic interests that are distinct from NFLP's financial well-being. See generally Hovenkamp, 1995 Colum. Bus. L. Rev., at 52-61. Unlike typical decisions by corporate shareholders, NFLP licensing decisions effectively require the assent of more than a mere majority of shareholders. And each team's decision reflects not only an interest in NFLP's profits but also an interest in the team's individual profits. See generally Shusido, 39 Hastings L. J., at 69-71. The 32 teams capture individual economic benefits separate and apart from NFLP profits as a result of the decisions they make for the NFLP. NFLP's decisions thus affect each team's profits from licensing its own intellectual property. "Although the business interests of" the teams "will often coincide with those of the" NFLP "as an entity in itself, that commonality of interest exists in every cartel." Los Angeles Memorial Coliseum Comm'n v. NFL, 726 F. 2d 1381, 1389 (CA9 1984) (emphasis added). In making the relevant licensing decisions, NFLP is therefore "an instrumentality" of the teams. Sealy, 388 U. S., at 352-354; see also Topco Associates, Inc., 405 U. S., at 609.

Conclusion

        The implications of this decision are hard to imagine at this point.  Although seemingly limited to the licensing of intellectual property, the history of American jurisprudence says that the case may yet become a springboard for other claims.
 

Copyright © 2010 Ivan Hoffman.  All Rights Reserved.

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This article is not legal advice and is not intended as legal advice.  This article is intended to provide only general, non-specific legal information.  This article is not intended to cover all the issues related to the topic discussed.  The specific facts that apply to your matter may make the outcome different than would be anticipated by you.  This article is based on United States law.  You should consult with an attorney familiar with the issues and the laws of your country.  This article does not create any attorney client relationship and is not a solicitation.

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