American Needle, Inc. v. National Football League, et al.

Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1, provides that “[e]very contract, combination . . . or conspiracy, in restraint of trade or commerce . . . is declared to be illegal.” As a threshold matter, Section 1 of the Sherman Act does not apply to purely unilateral conduct. In Copperweld v. Independence Tube, the Supreme Court held that no "contract, combination . . . or conspiracy" within the meaning of the Sherman Act is possible between a parent company and its wholly owned subsidiary because the entities are subject to unitary control and constitute a single entity. In this case, the Court will address whether the thirty-two teams in the National Football League ("NFL") may act as a single entity, exempt from Section 1 of the Sherman Act, in jointly licensing intellectual property that is individually owned by each team to a single supplier.

The Supreme Court has consistently applied Section 1 of the Sherman Act to entities involved in joint ventures, even when substantial cooperation between the entities was necessary for the joint venture to succeed. Generally, when applying Section 1 to the actions of a joint venture, the Court applies a rule of reason analysis, invalidating the agreement only if the anti-competitive economic effects outweigh the pro-competitive benefits of the agreement. The Court has held that a legitimate joint venture's internal decisions regarding the best way to sell its products are not per se violations of Section 1.

Does Section 1 Apply to the NFL’s Exclusive Licensing Agreement with Reebok?

Petitioner, American Needle, Inc. ("American Needle") argues that Section 1 should apply to the exclusive licensing agreement, because each individual NFL team is separately owned and operated, and the Court's jurisprudence has consistently found that Section 1 applies to all agreements between separately owned entities operating in interstate commerce. Despite the holding in Copperweld that a parent company and its wholly-owned subsidiary may not conspire for Section 1 purposes, American Needle argues that Copperweld also acted to affirm that Section 1 applies to all agreements between separately owned and operated entities. Although the NFL teams act as a joint venture and cooperate for variousaspects of the league, the teams also act as competitors in many ways, including in licensing and merchandising activities. American Needle argues that due to the fact that the NFL teams do not uniformly act with unitary interest, the logic of Copperweld cannot extend to apply to NFL teams. Finally, American Needle asserts that the Court has consistently held in the past that Section 1 applies to agreements between NFL teams and that the proper judicial response to the need for cooperation between teams within a sports league is the application of a rule of reason analysis, rather than complete immunity from Section 1 scrutiny.

In contrast, respondents, the National Football League ("NFL") and Reebok International, Ltd. ("Reebok"), contend that Section 1 should not apply to the licensing agreement because an internal agreement between the NFL teams to jointly license their intellectual property is not the type of agreement the Sherman Act is meant to proscribe. The NFL argues that the determination of whether the NFL teams act as a single entity should focus on economic realities rather than a formal determination of how the league is structured. Given the fact that individual NFL teams would be inherently unable to produce the product of NFL Football independently, the NFL argues that the clubs are interdependent and must work as a collective source of economic power to produce a product. Consequently, although the NFL teams compete on the field, in an economic sense, the teams combine to form a single firm. The NFL argues that Copperweld explicitly held that a firm should be free to structure itself in a way to achieve the largest efficiencies without increasing its antitrust exposure. From Reebok’s perspective, the ability to transact with the NFL teams as a single entity captures significant efficiencies and allows Reebok to produce goods that meet consumer demand. Finally, the NFL argues that in order to ensure the success of NFL Football, the teams must be able to jointly promote the product by collectively licensing its intellectual property. The NFL contends that Section 1 is not meant to reach a joint venture's internal decisions regarding the best way to promote its product.

How Do Prior Precedents and Legislative Acts Affect the Court's Analysis?

American Needle asserts that the Court's prior decisions dictate that the NFL may not constitute a single entity under the Copperweld doctrine because the NFL teams are separately owned and controlled and the Court has never extended the logic of single entity immunity beyond the context of a parent company and its wholly owned subsidiary. In previous cases, the Court has uniformly applied Section 1 to agreements between the NFL teams and teams in other comparable sports leagues, including the NCAA. Additionally, American Needle contends that Congress has endorsed and ratified the idea that the NFL teams and other sports leagues should not be immune from antitrust scrutiny. American Needle notes four separate occasions in which Congress failed to pass bills that created antitrust immunity for sports leagues, including the NFL. Additionally, American Needle argues that the Curt Flood Act, which provides that with respect to employment conditions for major league baseball players, the major league baseball teams are subject to the antitrust laws to the same extent as any other professional sports league, would be meaningless if agreements between the NFL teams were not subject to Section 1 scrutiny.

The NFL, however, argues that the Court's previous decisions have not determined the proper analysis to apply when the challenged decision was made within a league as opposed to between separate sports leagues, and especially when the decision concerns promotion of the league members' collective product. Additionally, the NFL contends that the NFL cannot be fairly compared with the NCAA because the NCAA is a collection of independent sports leagues and does not act interdependently to produce a product in any way. Additionally, the NFL contends that Congress's enactment of the Curt Flood Act was simply to establish that major league baseball is a “business affecting interstate commerce” and has no bearing on the issue of antitrust scrutiny in this case. The NFL also argues that American Needle may not rely on bills Congress failed to pass in order to provide insight into Congress's view of the Sherman Act, especially considering that the bills that failed to pass exempted sports leagues from Section 2 of the Sherman Act rather than Section 1, and that Congress has also rejected legislation that would affirmatively subject sports leagues to antitrust scrutiny. Finally, Reebok contends that the courts have firmly established that the antitrust laws are meant to protect competition, not individual competitors such as American Needle, and that competition between companies for exclusive contracts is a well-established form of legitimate competition.