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.