Relaxing whilst doing Competition Law is not an Oxymoron

Competition Law and Sport (I) – American Needle v. NFL

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A few days ago, shortly before its infamous and dangerous ruling in Citizens United, the US Supreme Court heard the oral arguments in American Needle v. NFL. American Needle is the latest antitrust case to have made it to the Court’s docket, and it has the potential to be the single most important decision in the history of sports law in the US.

The application of competition law to the sports sector is a fascinating theme yet to be fully explored in Europe and which, moreover, has been haunting me for a while now. I will therefore develop some reflections on this topic in soon to come posts, but for the time being American Needle seems a very good starting point.

The facts in a nutshell: American Needle, a manufacturer of sportswear had traditionally enjoyed a non-exclusive license to manufacture and distribute products including NFL’s teams names and logos. In 2000 the NFL changed its policy and decided to grant a exclusive license to Reebok. American Needle responded by challenging the agreement between the NFL and Reebok on the grounds that it violated Section 1 of the Sherman Act.

The applicability of antitrust law to exclusivity arrangements in the sports sector is not a novel issue, and similar claims have arisen regarding sports equipment standards. However, the debate at stake in American Needle goes well beyond a mere contractual dispute and has more profound implications.

Part of NFL’s defense consists in arguing that sport leagues constitute single entities, which pursuant to the Copperweld doctrine, would imply that no agreement (“contract, combination or conspiracy’ in the sense of the Sherman Act) can be found within the said leagues. The NFL’s argument brings to the fore an interesting debate: given that Copperweld’s single entity doctrine relates to the relationship between a parent company and a wholly owned subsidiary, could such doctrine be applied to sports leagues? How divergent are the interests of the members of such peculiar organizations? Can a league be deemed to be a single entity only with respect to certain aspects of its functioning?

In the past, the applicability of the single entity argument with regards to sporting leagues had been rejected practically every time it was brought up before a Court. However, in American Needle the 7th Circuit adopted a new stance by accepting the NFL’s arguments and declaring that this is a matter that “should be addressed not only one league at a time, but also one facet of a league at a time”. This statement was used for the purpose of affirming the District Court’s decision, which had held that the fact that teams had traditionally licensed their trademarks jointly through a company called NFL Properties meant that on this particular aspect they acted as a single entity. Such reasoning raises an interesting question: is a traditional business practice enough to determine that franchises within a league do form a permanent single-entity? How integrated must the conduct of the members of a joint venture be in order to exempt them from potential antitrust liability by virtue of the single entity doctrine?

Moreover, as a way to support the proposition that the NFL acts as a single entity regarding licensing of trademarks, both the District Judge and the 7th Circuit emphasized the efficiencies arising from joint licensing. Once again, this argument seems flawed: there are other markets where joint licensing/selling is common and generates efficiencies, but it doesn’t follow that those efficiencies justify granting single-entity status to the ‘intermediary’. On the contrary, the fact that efficiencies may arise is precisely what determines that such practices are to be subject to a rule of reason analysis instead of to a per se rule, and is a key factor to be considered when engaging in that analysis (see BMI v. CBS).

The approach of focusing closely on the competitive impact on the restraint rather than on the single-entity issue seems more appealing to me. Such approach was used by the 1st Circuit in Fraser v. Major League Soccer, an opinion written by Judge Boudin (which, by the way, served as inspiration for his exam at Harvard last semester). An opinion authored by Justice Sotomayor before being appointed Supreme Court Justice (Major League Baseball Properties v. Salvino) also implicitly undertook a similar approach.

A reading of the transcripts of the recent hearing suggests that the Court may be inclined to accept the Solicitor General’s view, grounded on the precedent in NCAA v. Board of Regents, that leagues may be entitled to single-entity treatment with respect to the issues where cooperation is required to organize the essential aspects of the league’s operations, but not in relation to additional business activities such as licensing of trademarks.

As illustrated by the number of amicus curiae briefs submitted to the Supreme Court, the stakes are very high. If the NFL’s argument were upheld, that would bring about radical changes in the way professional sport in the US now operates (for instance, collective bargaining agreements to deal with issues such as salary caps for players wouldn’t be needed in order to immunize the agreement from antitrust scrutiny), and even possibly in the manner in which the Sherman Act is applied to certain joint ventures.

The Court’s ruling is expected by late June. In the meanwhile, for a couple of very good articles analyzing the case and its possible implications, see here and here

(Image possibly subject to copyrights: source here)

Written by Alfonso Lamadrid

3 February 2010 at 11:00 am

Posted in Guest bloggers

3 Responses

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  1. […] the above seems to confirm something I mentioned on a previous post: the world of sports will be an important and growing source of interesting and complex […]

  2. […] most important antitrust decision of the term in the case confronting American Needle and the NFL. As we expected, the Court unanimously rejected the NFL’s contention that its 32 teams should be treated as a […]

  3. […] “competition law and sport” series (see posts I, II, III, IV, and V) was born out of our belief that the application of competition law to the […]

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