Sports Law Blog

Sports Law Blog

All things legal relating
to the sports world...

Monday, June 29, 2009

More on American Needle

As Mike noted below, the Supreme Court granted cert today in American Needle v. NFL and will review the Seventh Circuit’s holding that the NFL and its teams act as single entity when promoting NFL football through licensing teams’ intellectual property. We have been tracking and discussing this case since the district court ruled for the NFL back in October 2007 (and then debating it in the Tulane Mardi Gras Moot Court Competition), and I wanted to emphasize one point as we continue to follow this case through the Supreme Court: The NFL—and other professional sports leagues in the U.S.—have a tremendous amount to gain from the Supreme Court’s decision, but not much to lose.

First, let’s start with a little background. The Seventh Circuit’s opinion is an outlier. Until American Needle, every appellate court (and virtually every court) to address the issue held that professional sports leagues are not single entities and are thus subject to scrutiny under Section 1 of the Sherman Act. The Seventh Circuit went against the grain, stating in American Needle that the single entity status of sports leagues “should be addressed…one facet of a league at a time,” and concluding that the NFL acts as a single entity when collectively licensing NFL teams’ intellectual property.

Both American Needle and the NFL then filed petitions for cert with the U.S. Supreme Court. American Needle’s argument is simple—the Supreme Court should hear the case and reverse it because the Seventh Circuit’s holding conflicts with over 50 years of case law in other circuits. The NFL’s argument is more complex. Because it won the case before the Seventh Circuit, the NFL is seeking an expansion, not a reversal, of the decision. The NFL is thus arguing that professional sports leagues are single entities for all purposes, and thus should be completely exempt from Section 1 scrutiny. In the alternative, the NFL claims that professional sports leagues should be deemed single entities with respect to all of their “core venture functions.” Of course, the NFL will then claim that virtually every decision they make constitutes a “core venture function.”

I will address the merits of the underlying arguments over the next few months, but let’s get back to my original point. An expansion of the Seventh Circuit’s holding would be a huge win for professional sports leagues. Depending on the scope of the Supreme Court’s decision, leagues could be free to make decisions regarding the location and ownership of teams, contraction of franchises, television restrictions, intellectual property licensing, etc., without fear of attack under Section 1 of the Sherman Act. Taken to its most unlikely extreme, the Supreme Court could extend the single entity protection to cover all decisions made by a league, including salary caps, player drafts, free agency rules, and other player restraints.

Despite what some are saying, however, a reversal of the Seventh Circuit’s decision would not be a catastrophic loss for the NFL. Over at profootballtalk.com, Mike Florio claims that

the stakes are high. If the Supreme Court rules that the league and its teams do not constitute a single entity for antitrust purposes, then all exclusive marketing arrangements likely would be scuttled. For example, EA would likely lose exclusive rights to the team names and logos for the Madden video game — and the league would lose the extra money that comes from exclusivity.

I think Mike does great work over there, but his observation on this one is a bit misleading (but, Marc Edelman has a great comment in that post). The issue before the Supreme Court is not whether the NFL’s exclusive licensing arrangement is legal under the antitrust laws. The issue is whether the licensing arrangement should even be subject to scrutiny under the antitrust laws. If the NFL wins, they escape Section 1 scrutiny. If the NFL loses, their arrangement will then be analyzed under the rule of reason, where a court will weigh the procompetitive benefits of the agreement versus its anticompetitive effects.

There is no reason to believe that the Supreme Court’s rejection of the single entity argument makes it any more (or less) likely that American Needle would prevail in the underlying antitrust case (or that a suit against the exclusive deal with EA would be successful). Rather, it only subjects the NFL to the same antitrust scrutiny they have been subjected to for the last 50 years. American Needle could win the underlying case, but only if it could prove that the anticompetitive effects of the NFL’s exclusive apparel licensing deal outweighed its procompetitive benefits.

Thus, while a win for the NFL in the Supreme Court would have significant implications, a loss merely gets us back to the way we were before the Seventh Circuit’s outlier in American Needle.

-- Posted by Gabe Feldman @ 6/29/2009 03:50:00 PM -- Comments (6) -- Post a Comment

6 Comments:

Nice post, Gabe. I agree completely that the NFL, NBA, and NHL have little to lose and (potentially) much to gain at the Supreme Court.

However, while the Seventh Circuit's opinion in American Needle is certainly in the minority, I wouldn’t characterize it as a complete outlier. Other appellate courts have previously indicated some receptiveness to the sports leagues’ single entity argument prior to American Needle. Indeed, the Seventh Circuit itself previously considered the single entity issue in the 1996 case of Chicago Professional Sports Limited Partnership v. National Basketball Association, and while not going as far as American Needle, did acknowledge that the leagues' single entity argument may have merit in some cases, with Judge Easterbrook advocating an analysis considering the single entity issue "one league at a time - and perhaps one facet of a league at a time."

The Third Circuit also expressed some receptiveness to the NFL’s single entity argument in the 1983 case of Mid-South Grizzlies v. National Football League. That court appeared to accept the NFL’s argument that no intra-league competition occurs between member-teams in most league markets. However, the court did express concern over potential, hypothetical competition between two teams located in the same geographic market (say, New York City), and on that basis resisted a categorical declaration that the NFL was a single entity. The Mid-South Grizzlies court suggested, however, that the single entity analysis may vary depending on the facts before the court, therefore seemingly leaving the door open for future sports league defendants to reassert the single entity defense in that circuit. Thus, while American Needle certainly is in the minority, I don’t believe it is a complete outlier.

At the end of the day, by my count the scorecard reflects that the First, Second, Ninth, and D.C. Circuits have rejected the single entity argument, with the Seventh and perhaps Third Circuits being more receptive to the leagues’ argument, at least in certain contexts. Considering the fact that three of the majority circuits (the Second, Ninth, and D.C.) ruled prior to the Supreme Court’s opinion in Copperweld, I have previously argued that reliance on these precedents is dubious (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1373067). Regardless, I believe that a strong argument can be made that the prior decisions rejecting the NFL’s single entity defense were wrongly decided (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1373065).

In any event, today's grant of cert by the Supreme Court sets up a fun year ahead for sports law enthusiasts.

Nathaniel -- 6/29/2009 5:52 PM

Hi Gabe,

Great post as always. You make the job of us non-antitrust experts alot easier.

I have a question/comment. While it is true that a "loss" for the NFL would maintain the status quo with regard to antitrust scrutiny, but would subject the league to expensive antitrust litigation, which it would like to avoid (did anyone say "Raiders?"). I would think that all the "traditional" pro sports league would love to have the antitrust albatross off their backs.

Mark Conrad -- 6/29/2009 6:52 PM

Nathaniel:

Great to hear from you, and congratulations on your professorship at Georgia Business School. It's great to have more sports law voices weighing in on these issues.

I am on board with most of what you say about the circuit split (in other words, that our Solicitor General was wrong). However, with respect to the Second Circuit, take a look at some of the language from Madison Square Garden v. Nat'l Hockey League. In my mind, that case seems to indicate that the Second Circuit will continue to adhere to its view in NASL v. NFL.

Also with respect to the Third Circuit opinion in Seabury, I'm sure Gabe will chime in shortly. Gabe had a great post a few months back, where he discusses why he didn't think that case was on point. I tend to agree with him; however, I would be interested to hear why you disagree.

All the best.
Marc

Marc Edelman -- 6/29/2009 6:57 PM

Really interesting in's and out's to that issue. I tend to think in light of the scruitiny under anti trust laws its easy to think of them as a single issue because they would be in competition with the NBA MLS and so on. But I am not sure. Keep us posted Good article!

Mike

TOPEKA ATTORNEY

Mikethelawstudent -- 6/29/2009 9:43 PM

Thanks Marc. Good point about the MSG v. NHL case. I didn't mean to suggest that district courts in the Second Circuit should disregard the prior NASL opinion (although I personally disagree with the outcome of the decision), as it remains binding authority until overturned, but rather that I don't believe that the NASL opinion or the Ninth Circuit's opinion in the Los Angeles Memorial Coliseum Commission should be given much deference outside of each respective circuit due to the fact they were decided before Copperweld. For instance, the First Circuit in Sullivan relied on both NASL and Los Angeles Memorial Coliseum Commission as persuasive authority in 1994, even though neither prior opinion considered the NFL's single entity defense in light of the relevant factors identified by the Supreme Court in Copperweld.

As for the Third Circuit case, I was referring to the Mid-South Grizzlies v. NFL case from 1983, in which the court briefly considered the NFL's single entity defense. I believe you are thinking of Seabury v. PGA, which I believe was decided by the 4th Circuit. I agree that the Seabury opinion (holding that the PGA and a related regional entity constituted a single entity) is not particularly relevant given the many organizational differences between the PGA and the NFL/NBA/NHL.

Nathaniel -- 6/29/2009 10:21 PM

Professor Chris Sagers has posted his thoughts about the Supreme Court's grant of certiorari in American Needle, including an initial handicap of how he believes each justice will rule in the case, over at the Antitrust and Competition Policy Blog:

http://lawprofessors.typepad.com/antitrustprof_blog/2009/06/am-needle-cert-granted-some-initial-thoughts.html

Nathaniel -- 6/30/2009 2:33 PM