Letter from AmeriKat I - American Needle v NFL (Part 1 of 2)

This week the AmeriKat has yet again been battling further biblical drama at home. A few weeks ago she was swimming through her flat after a neighbor's pipe burst (flood). This week she is battling a troop of ants that have built a transport highway from her kitchen to the patio (swarm). Ants are not particularly fun for Kats to play with - they are too tiny and have a habit of becoming stuck in one's paw pads. (picture, left - the AmeriKat watching the Ants Marching in) Despite her distaste for ants inside the home, she still has respect for the tiny creatures in nature. Ants organize themselves in complex social structures each equipped with a predetermined role to help maintain the colony. Although a colony may be comprised of a plurality of thousands of ants, they only operate together as one entity - the colony. (Note - this post is split into two parts)

American Needle (9) - NFL (0) - Full Time

A plurality of teams that have been held by the Supreme Court as not operating as one entity is the National Football League (NFL) in this week's decision in American Needle v NFL (see previous reports here). Delivering the unanimous majority opinion the soon-to-be retiree, Justice Stevens, declared that despite common interests that ran through the NFL brand, the teams are "still separate, profit-maximizing entities, and their interests in licensing team trade marks are not necessarily aligned."

The NFL is an unincorporated association that includes 32 separately owned professional football teams, such as the Denver Broncos or Seattle Seahawks, each with their own team logo, colors, mascot and other IP. Prior to the formation of National Football League Properties (NFLP) in 1963, the teams entered into their own separate IP licences for team merchandise. After 1963, NFLP developed, licensed and marketed the teams IP itself. Up until 2000, NFLP granted non-exclusive licences to a number of companies to permit them to manufacture and sell apparel with NFL team logos, including to American Needle. However, in December 2000, the teams authorized NFLP to grant an exclusive licence to Reebok International for the right to manufacture and sell trade mark head wear for all 32 NFL teams for 10 years.

The previous non-exclusive licences were therefore not renewed prompting American Needle to file their claim in Illinois federal court alleging that NFLP violated sections 1 and 2 of the Sherman Act. The NFLP said that their actions fell outside these sections as they were a "single economic enterprise" and therefore fell foul of the plurality requirement. The Illinois District Court then granted summary judgment in favor of the NFL holding that that all 32 teams were a single entity because their operations were so integrated, more so than "joint ventures cooperating for a common purpose." The Court of Appeals for the Seventh Circuit affirmed the lower court's decision declaring that "NFL teams share a vital economic interest in collective promoting NFL football...[i]t thus follows that only one source of economic power controls the promotion of NFL football." American Needle then filed their writ of certiorari which was granted by the Supreme Court last year.

The question the Supreme Court had to decide was this: Whether the alleged activity by the NFL "must be viewed as that of a single enterprise for purposes of section 1 of the Sherman Act." Section 1 provides that

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.

Section 1 only applies to concerted action that restrains trade. Section 2 apples to both concerted and independent action if that action monopolizes or threatens to monopolize trade. Section 1 behavior is treated more strictly because concerted behavior, without independent action, is more at risk of being anti-competitive. Justice Stevens reiterated that in considering whether conduct is concerted the Court is not merely concerned with whether the parties are formally legally distinct entities, but instead examine the functions of how the parties operate- the "substance over form" distinction.(Copperweld Corp v Independence Tube Corp (1984)). The question therefore is whether there is a "contract, combination.., or conspiracy" amongst "separate economic actors pursuing separate economic interests" such that the agreement "deprives the market place of independent centers of decision-making and therefore of "diversity of entrepreneurial interests" and potential and actual competition.

Applying this criteria the Supreme Court held that

"The NFL teams do not possess either the unitary decisionmaking quality of the single aggregation of economic power characteristic of independent action. Each of the teams is a substantial, independently owned, and independently managed business. '[T]heir general corporate actions are guided or determined' by 'separate corporate consciousnesses' and '[t]heir objectives are' not 'common'" (Copperweld; North American Soccer League v NFL (1982))

........continued in Part II..........