May.25.2010
In American Needle, Inc. v. National Football League, a unanimous Supreme Court held that the member teams of the NFL are subject to antitrust scrutiny for licensing activities carried out through a joint venture, National Football League Properties (NFLP). Reversing the Seventh Circuit, the Court held that NFLP's activities are not the legal equivalent of those of a single entity, but are subject to the Rule of Reason under Section 1 of the Sherman Act. The Court's opinion is attached here.
In 1963, the NFL teams formed NFLP to license their separate intellectual property and market trademarked items such as hats and jerseys. See Slip Op. at 2. For many years, NFLP granted nonexclusive licenses to a variety of apparel companies. In 2000, however, the teams voted to authorize NFLP to grant exclusive licenses, and NFLP granted Reebok International Ltd. an exclusive 10 year license to make and sell trademarked headwear for all 32 NFL teams. Id. American Needle, whose nonexclusive license was not renewed as a result, filed suit in the Northern District of Illinois alleging violations of Sections 1 and 2 of the Sherman Act. After allowing limited discovery, the district court granted summary judgment for the teams on the ground that they were acting as a "single entity" for purposes of their joint licensing activities. See id. at 3. The Seventh Circuit affirmed, holding that Section 1 did not apply to the challenged licensing activities.
American Needle petitioned the Court for certiorari. In an unusual move, the NFL—apparently believing that it had an opportunity to obtain a broad ruling in its favor on the single entity issue—supported the petition for certiorari. After the Supreme Court called for the views of the Solicitor General, the United States urged the Court not to grant review. However, the Court chose to do so.
Justice Stevens, writing for the unanimous Court, rejected the NFL's position and the opinion of the Seventh Circuit. The sole question before the Court was whether the NFL teams are capable of conspiring for purposes of a Section 1 claim or, put otherwise, whether their activity "must be viewed as that of a single enterprise." Id. at 4 (quoting Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 771 (1984)). In answering this question, the Court discussed in detail the body of law establishing that it is "substance, not form" that determines whether an entity is capable of conspiring under Section 1. Id. at 10 (quoting Copperweld, 467 U.S. at 773 n.21). As the Court explained, the test is not whether the parties are separate legal entities, but whether they have a complete unity of interest. Moreover, the fact that the parties have organized themselves as a single joint venture is "not dispositive." Id. at 13.
Applying this test, the Court observed that the "NFL teams do not possess either the unitary decision-making quality or single aggregation of economic power characteristic of independent action. Each of the teams is a substantial, independently owned, and independently managed business." Id. at 11-12. And, most important for the issue at hand, "the teams compete in the market for intellectual property." Id. at 12.
Addressing the teams' argument that they are not subject to Section 1 because, without their cooperation, "there would be no NFL football," the Court held that the "justification for cooperation is not relevant to whether that cooperation is concerted or independent action." Id. at 14. The Court also noted in a footnote that it was not at all clear that the teams needed to market their intellectual property collectively to produce football games. Id. at 15 n.7. Nor did the fact that the teams acted through a joint venture, NFLP, change this analysis. According to the Court, the fact that a joint venture is necessary to produce a product or service does not make it immune from Section 1 scrutiny. Thus, NFLP's actions are also subject to Section 1, "at least with regards to its marketing of property owned by the separate teams." Id. at 15.
The Court's opinion provides little guidance about how the Rule of Reason should be applied in this case on remand or in future joint venture cases. The Court simply noted that when restraints are necessary for the product to exist at all, "the agreement is likely to survive the Rule of Reason." Id. at 19. And, depending on the type of concerted activity in question, a quick look may be sufficient to determine legality. Furthermore, the Court suggested that while the interest of the NFL in maintaining a competitive balance among the teams could not remove the joint licensing from Section 1 scrutiny, it "may well justify a variety of collective decisions made by the teams." Id.
With American Needle, the long line of defense victories in antitrust cases in the Supreme Court has come to an end—a series of decisions that includes the Court's most recent prior decision concerning joint venture law, Texaco Inc. v. Dagher, 547 U.S. 1 (2006). Although the Court probably was correct to conclude that NFLP's arguments for treating its collective licensing of the teams' individual intellectual property as the conduct of a single entity were not persuasive under the Court's functional analysis, the opinion fails to provide a clear set of rules for determining when conduct should be outside the scope of Section 1. On the one hand, the Court appears to hold that the conduct of the NFL never could be the legal equivalent of that of a single entity. See Slip Op. at 14 ("But that does not mean that necessity of cooperation transforms concerted action into independent action . . . ."). On the other hand, the Court suggests that its holding is limited to "the marketing of the teams' individually owned intellectual property." See id. at 19. Therefore, there may yet be room for other joint ventures to press an argument that, under a proper "functional analysis," at least some of their activities must be regarded as those of a single entity. Perhaps the most useful advice is that offered by Professors Areeda and Hovenkamp, as quoted by the Court: "Obviously, the most significant competitive threats arise when joint venture participants are actual or potential competitors." Id. at 12-13 (quoting Areeda & Hovenkamp ¶ 1478a, at 318).