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May 25 2010

Supreme Court Rules Against NFL in Licensing Case

OK, let’s break out all the sports analogies:   “The Supreme Court sacked the         NFL… ” , “The NFL took a hit yesterday . . .” ” The Supreme Court blind sided the NFL  . . .”

Now that we have that out of the way, here’s what happened.  In what will be considered a landmark intellectual property/anti-trust case, a unanimous Supreme Court yesterday ruled that the NFL may violate The Sherman Antitrust Act by negotiating licensing agreements on behalf of the whole league and not permitting businesses to negotiate with individual teams for licensed apparel and other products. The case is called American Needle Inc. v. National Football League and the case can be found here if licensing is your thing:

http://www.supremecourt.gov/opinions/09pdf/08-661.pdf

American Needle is a hat-maker that had a deal with the New Orleans Saints and other teams to make official team hats. It did so successfully for  several years.  Then in 2000, the NFL owners decided to give an exclusive license to one company to make official team hats for the entire NFL.  That right went to Reebok.  American Needle went to court alleging that the Reebok agreement violated Article 1 of the Sherman Antitrust Act which prohibits  “Every contract, combination in the form of a trust or otherwise, or, conspiracy, in restraint of trade” (15 U. S. C. §1).  The plaintiff argued that the agreement was a trust of sorts which violated the “restraint of trade” clause of the Act and the Court agreed; it did not decide whether trade was restrained, actually, it just said that the act applies to the NFL and that it was a concerted action by a group and not a  single enterprise when it entered into the agreement, meaning that it fell under the law’s reach. That’s a big deal! (Non-lawyers, if you’re still reading this, trust me on that one).

The NFL is comprised of 32 separately owned independent teams that act together in an unincorporated association they call the NFL. Section 1 of the Act applies only to” concerted action” that restrains trade.  Section 2, by contrast, covers both concerted and independent action, but only if that action “monopolize[s],” or “threatens actual monopolization,”  which is much narrower than restraint of trade.  The NFL tried to argue that it is just a “single entity” but that was rejected; the Court saying that when separate, independent legal entities get together to grant exclusive licenses  they may restrain trade in a concerted action  is big news.  Of course it will effect every other professional sports league (except Major League Baseball of course, which has long been granted an exemption from most of the Sherman Act’s provisions in an effort to preserve “the national pasttime”).  But it may also effect trade associations and professional groups or any collection of businesses that decide to act together in this fashion.

The case is also important because this Court has consistently ruled in favor of Big Business and has been very negative toward claims under the Sherman Act.  In fact Salil Mehra, a  Law Professor at Temple University’s Beasley  School of Law and a former Justice Department antitrust lawyer, was quoted in today’s New York Law Journal as saying that the ruling was the “first private plaintiff victory since 1992 in an antitrust case in front of the Supreme Court.”

This is frankly a case that makes  a clear  argument for why we have these types of laws on our books in the first place:  to protect the free flow of business.   When the NFL gave this right to Reebok exclusively, American Needle was put out of business.  Personally, as a father of three boys, I hope it will help bring the price down of licensed NFL apparel by opening up competition to a variety of vendors.

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