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Monday, October 08, 2007
MSG v. NHL II: Can the NHL Apply a Single-Entity Defense Based on American Needle?

As sports-law enthusiasts wait for the NHL to answer Madison Square Garden's Section 1 Sherman Act complaint (explained previously here), some discussion has shifted to predicting what the NHL's potential defenses will be. One potential defense, suggested by a reader of Sports Law Blog, is the Copperweld or "single entity" defense, which explains that as a matter of law a single enterprise cannot violate Section 1, because a single enterprise cannot conspire with itself.

Historically, courts have repeatedly rejected the Copperweld or "single entity" defense in the context of traditionally structured sports leagues -- finding that pro sports teams are individual actors, and not a single enterprise. In fact, until very recently, the closest that any court had come to accepting the single-entity defense in traditional sports leagues was Judge Easterbrook's 1996 concurring opinion in Chicago Bulls v. NBA, 95 F.3d 593 (7th Cir. 1996), in which the revered judge stated that "[w]hether the NBA itself is more like a single firm ... or like a joint venture ... is a tough question under Copperweld" and that "we do not rule out the possibility that an organization such as the NBA is best understood as one firm when selling broadcast rights."

Very recently, in the July 2007 decision American Needle, Inc. v. New Orleans Saints, 496 F.Supp.2d 941 (N.D. Ill. 2007), Judge Moran went a big step further, actually accepting the defense in ruling that NFL teams could not violate Section 1 of the Sherman Act by allegedly collectively refusing to license their trademarks to American Needle, Inc. because "the NFL and the teams act as a single entity in licensing their intellectual property." (emphasis added). Nevertheless, Moran's opinion has three glaring flaws that greatly reduce its future value:

Flaw No. 1, Poor Legal Analysis/Legal Support: Judge Moran's opinion provides only cursory analysis of an extremely complex issue of law, rejecting existing case law to instead rely almost exclusively on the views of a single author of a 2006 law-review note. Further, Moran handles the substantial weight of conflicting law poorly. He responds with only a single sentence: "[w]e reach this conclusion while recognizing that others might well disagree."

Flaw No. 2, Dubious Presumption that Long-Lasting Behavior Becomes Legal Behavior: Judge Moran's opinion seems to imply that because the NFL had been merchandising team paraphernalia in a collective manner since 1963, the NFL has automatically transformed itself from a joint venture to a single entity. A single-entity defense based on prolonged collusion by multiple entities is simply illogical!

Flaw No. 3, Ignoring a Stronger and More Traditional Legal Theory: Finally, Judge Moran could have easily (and without much controversy) decided American Needle in favor of the NFL teams by citing to the pro-competitive effects of collective licensing. Yet, even though Judge Moran states in his opinion that "[w]e recognize, as well, that supposed efficiencies in economic arrangements are more the stuff of the rule of reason than of distinguishing between single entities and joint ventures," Moran still chose not to rule based on pro-competitive effects but rather based on a single-entity defense.


Thanks for the post. I have a question. Let's say that a court rules that single entity Copperweld standard does not apply. Couldn't the NHL still win out in a rule of reason analysis, since there may be good business reasons for limiting team control over web sites?

Blogger Mark Conrad -- 10/09/2007 9:52 PM  


Great question. Indeed, even if the NHL loses on the single entity defense, the NHL could still win its case under rule of reason if it can show a pro-competitive justification for these alleged restraints in the same markets as the purported anti-competitive conduct. (This is slightly different from just showing a "good business reason").

For case of illustration, while I thought Judge Moran was wrong to decide American Needle in favor of the NFL based on a single-entity defense, I think Judge Moran reasonably could have decided American Needle in favor of the NFL based on the pro-competitive effects of collective licensing.

Blogger Marc Edelman -- 10/09/2007 11:27 PM  

As the author of the law review note relied on by Judge Moran I may be a bit biased, but I think the American Needle opinion has merit. While I agree with Marc that Judge Moran could have ruled on narrower grounds, and also agree that the opinion should have given greater consideration to the existing precedent, I believe that the Judge's ultimate conclusion that the NFL is a single entity is proper.

In an upcoming article, I analyze the seven prior opinions to consider the NFL's single entity analysis, finding that they were all either wrongly decided, or not reliable precedent. While Judge Moran should undoubtedly have taken greater care in explaining why the prior decisions were disregarded, I do believe the court ultimately decided the single entity issue correctly.

Anonymous Nathaniel -- 10/10/2007 9:01 AM  

Count me as a person who thinks rejection of single entity defenses has been error.

The league controls to a significant degree the markets franchises operate in.

In the NFL (unsure of the others) a portion of gate receipts are shared.

With salary caps and luxury taxes franchises either cannot just spend whatever it takes to assemble the greatest team or does so at financial penalty.

Bill Gates can't just write a check and compete in the league of his choice in the market of his choice. He must either purchase an existing franchise or obtain the rights to an expansion franchise.

Competition among franchises is limited. With a few exceptions, franchises within a league do not compete against one another for ticket sales, local media income, or local sponsorships.

As we have seen in Saint Louis, Houston, Baltimore, and Cleveland the local consumer is far more interested in the product NFL football than who is providing the local flavor of that product. I watched Memphis over the years try to enter the NFL via litigation (WFL), expansion, and franchise relocation. The interest was always NFL football not Grizzlies football, not Colts or Eagles football or expansion team football.

However in the end the case can be determined on pro-competitive impact. Today the consumer has greater access to licensed merchandise because of the collective licensing. That collective licensing makes it possible for the Blackhawks fan in Dallas to find Blackhawk products when individual licensing might mean merchants would carry only Stars merchandise.

Consolidating pay-per-view and online video simplifies the market for the consumer and creates an efficiency that is beneficial to consumer and seller.

Blogger Mark -- 10/10/2007 10:03 AM  


Thanks for posting on this board. Just to be clear, I think your law review note is very well done, and I look forward to reading your next piece. For those not familiar with Mr. Grow's first publication, it is available on Westlaw/Lexis at 105 Mich. L. 113 (2006). I consider it a "must read."

Just to be clear, I am not saying that the "single entity" defense has absolutely no merit in certain sports markets. All I am saying is that the merits of this defense, if any, are very complex, and some of our nation's most accomplished judges (i.e. Easterbook, J.) have avoided taking a stand.

Therefore, it was capricuous for Judge Moran to decide in favor of the single-entity defense without thoroughly explaining the scope of this defense, including both the defense's economic impact on sports, and its applicability in light of existing case law.

Hopefully, if/when this issue is revisited, a court (if it choses to uphold this defense) will not simply rely on American Needle, but rather render an opinion that serves as more useful precedent.

Blogger Marc Edelman -- 10/10/2007 11:06 AM  

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