October 23, 2012

Q and A on American Needle, Inc. v. National Football League with Jeffrey Standen, a professor of sports law at the Willamette University College of Law and author of the popular blog The Sports Law Professor

Q and A on American Needle, Inc. v. National Football League with Jeffrey Standen, a professor of sports law at the Willamette University College of Law and author of the popular blog The Sports Law Professor

Can you briefly review how the case got to the Court?
This case arose out of a marketing decision of the National Football League. The NFL is an unincorporated association of thirty-two independently owned teams. Since 1963 the NFL teams have joined to market their intellectual property, including team logos and trademarks, by granting licenses to various vendors, including American Needle, which held an NFL license for headwear manufacture for over twenty years. In 2001, however, as the result of a competitive bidding process the NFL granted an exclusive ten-year headwear license to Reebok.
American Needle filed suit against the NFL, arguing that the decision to grant Reebok the exclusive license constituted an illegal conspiracy in restraint of trade, violating the federal antitrust law. American Needle contended that the NFL is really a joint venture of thirty-two independent firms, who joined in this conspiracy. The NFL argued that it is but one single business entity and thus is incapable of conspiring: it takes at least two firms to conspire. Both the federal trial court and the appellate court sided with the NFL, concluding on summary judgment that the NFL is a single firm for the purpose of marketing its trademarks, and not thirty-two teams that have entered into a conspiracy. The appropriate legal characterization of professional sports leagues is a legal issue that has troubled courts and commentators for decades, thus leading the Supreme Court to review this important question.

Does this case have any significance beyond who gets to manufacture licensed NFL headwear?
Conspiracies in restraint of trade are illegal. By logic and law, only multiple business entities can conspire. If the NFL is a single entity for antitrust purposes, then in effect it is immune from antitrust liability. Throughout the NFL's history, antitrust law has been instrumental in eradicating the NFL's restrictions on player movement, its restraints on player salaries and its restrictions on player negotiating rights in the form of the entry draft. Only through bargaining with the NFL Players Association has the NFL been able to sustain many of its collective restraints. The union always retains the ability to dissolve itself for bargaining purposes and bring suit against the NFL, should the NFL's bargaining offers not be to the Players Association's liking. Should the NFL prevail in the Supreme Court and be declared a single entity, however, the NFL potentially would be free from those threats, assuming the Court decided to extend the single entity status to the labor market. The league would be able, at least legally, to re-impose restrictions on player movement and player salaries that were long ago struck down by courts. A decision in favor of the NFL would remove what has been a significant limitation on the discretion of the NFL teams to impose the conditions of labor they deem most appropriate.

How did the oral arguments go? Which side, if any, do you think should have come out feeling good about their hour in Court?
The oral arguments were an exercise in frustration. Appellate courts typically search for limiting principles, offering extreme hypothetical questions in the hope of discovering the outer contours of the law. In this oral argument no Justice could invent a situation that would fall outside the rules of law suggested by the antagonists. American Needle's position is that the NFL itself is a conspiracy, and thus anything the NFL does, including setting a league schedule or ordering office supplies, is potentially subject to antitrust liability should it constitute a restraint of trade. The NFL's position is that it is a single entity, and thus nothing it does can ever be subject to the antitrust law's prohibition no matter how egregiously its decisions restrain trade. The arguments seemed to present no room for compromise, no matter how hard the Court searched for one.

What do you think the Court saw as the strongest argument?
The strongest argument was made by an advocate not in the room. The U.S. Court of Appeals for the Seventh Circuit, the court from which this appeal was taken, obviously did not agree with American Needle's argument on this issue. That court did not, however, embrace the NFL's position either. Both parties requested that the Supreme Court overturn the Seventh Circuit's decision. The intermediate appellate court had decided that the NFL is in fact a single entity, but that it is a single entity only for the limited purpose of promoting NFL football through its marketing of its intellectual property. In other words, sometimes the NFL is a single entity and sometimes it is not. This decision presents a practical compromise, albeit an intellectually unsatisfying one. The Seventh Circuit's approach basically begs the question, shifting the debate to when the NFL should or should not enjoy single entity status. The lower court did not present a coherent principle for that decision. The Supreme Court could take it upon itself to devise such a principle, perhaps along the lines of examining in what markets the NFL competes with many other businesses (such as in the market for headwear) and those in which it does not (such as in the market to procure professional football players).

Were there any questions or discussions that surprised you?
The argument in American Needle was supposed to be about whether or not the NFL constitutes a single business entity. Presumably that inquiry would involve an examination of the NFL's historical establishment, its subsequent history, and its present configuration. That inquiry would also presumably require the Court to seek to understand the nature of the product the NFL produces and how that product is sold in various markets, among them merchandise sales. The Supreme Court, however, seemed uninterested in the issue of single entity, the very issue on which the Court had granted the petition to hear the appeal. Instead, nearly every minute of the argument involved a discussion of the likely application of the "rule of reason" test in antitrust law to the NFL.
This focus makes plain the real significance of this case. The rule of reason is the basic test to determine whether or not a particular agreement among competitors restrains trade to a sufficient degree to comprise an antitrust violation. The rule of reason requires courts to weigh the competitive advantages of any joint agreement, such as its saved costs or increased production, against the anti-competitive effect of the agreement in terms of any limitations on output or variety of products in a particular market. Antitrust litigation involving rule of reason claims tend to require a great amount of pre-trial discovery and result in prolonged federal trials. In short, they are very expensive.
The NFL seeks "single entity" status because it wants some or ideally all of its joint decisions to be free of this expensive form of judicial oversight. American Needle and its supporters want to deny the NFL the status of a single entity because they desire to continue to subject the NFL and the other professional sports leagues to antitrust review. The case ostensibly raises the issue of the proper definition of a single entity, but really the case is about the proper scope of the antitrust law as a regulator of joint business activities. The NFL, like other professional sports leagues, is a unique entity: unlike other businesses, which might occasionally enter a joint enterprise for a limited purpose, NFL teams must act jointly for nearly all their production activities. Games and playoff tournaments require cooperative ventures. Thus, to conclude that the NFL is subject to antitrust regulation for all of its joint activities is tantamount to subjecting the NFL to potential suit for all of its activities. The Court has been asked implicitly to wield the "single entity" doctrine to preclude or calibrate the need to oversee the business decisions of the NFL.

Any guesses on how the case will be resolved?
The position of each litigant appears to lead to outcomes that the Court is unlikely to endorse. This case will likely not be a vehicle for the NFL to escape any antitrust scrutiny for any activity that it chooses to undertake, either presently or in the future. On the other hand, American Needle's desire to subject the NFL to expensive antitrust review for every decision the league makes also appears to lead to absurd results, and would present a severe limitation on NFL decision-making especially at a time in which the league increases its national and even international prominence. The most plausible outcome of this important appeal is for the Court to uphold the decision of the Seventh Circuit and begin to delineate a range of behaviors for which the NFL is a single entity, and those for which it is not. The Court will accomplish this calibration by improving its definition of a "single entity." This decision will mark a significant development in antitrust jurisprudence, and will likely stand as the most important sports law case in history.