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SBD/Issue 176/Law & Politics
Supreme Court Makes Narrow Ruling In American Needle V. NFL Case
Published May 25, 2010
|Supreme Court Rules NFL Is Not One Entity,
But Many Questions Still Remain
The U.S. Supreme Court in its ruling in the American Needle v. NFL case "did not set a clear rule" regarding leagues' single entity status, according to David Savage of the L.A. TIMES. The court said that judges "must decide whether agreements among the independent teams are reasonable, or instead amount to an unreasonable restriction on competition." The justices "sent the case back to Chicago for judges to decide on American Needle's complaint" that the NFL's deal with Reebok in '01 "was an unreasonable restriction on competition" (L.A. TIMES, 5/25). In N.Y., Liptak & Belson note the ruling "did not resolve the lawsuit before the justices." The court said that American Needle's claims "were not barred at the outset but must rather be analyzed under a standard that antitrust lawyers call the 'rule of reason' to determine whether the league's licensing practices harmed competition." Justice John Paul Stevens in the ruling wrote that the "same standard must be applied to all antitrust challenges to collective decisions made by the league" (N.Y. TIMES, 5/25). ESPN.com's Lester Munson in a commentary on the case wrote the court "issued a narrow and highly analytical ruling that is limited to the dispute between American Needle and the league" (ESPN.com, 5/24). SCOTUSBLOG.com's Lyle Denniston wrote the concluding part of the Supreme Court's opinion "represented an attempt to narrow the scope of the ruling, suggesting that the NFL and other pro leagues may well be entitled to quite broad antitrust immunity for such joint efforts as producing and scheduling games, taking steps to maintain 'a competitive balance' between teams, and acting to ensure that the sport makes money." The opinion concluded that "each 'collective decision' a league chooses to make … is to be judged by an antitrust 'rule of reason' – a flexible standard that is keyed to particular facts and circumstances" (SCOTUSBLOG.com, 5/24). FORBES.com's Kristi Dosh wrote the ruling is "technically a loss for the NFL, but the NFL didn't have much to lose to begin with." The NFL was "hoping for broader antitrust law protection, but the result is not surprising" (FORBES.com, 5/24).
WHAT'S NEXT FOR CASE: ESPN.com's Munson noted the case in Chicago "may result in a rare look at the inner world of NFL and team finances, but the NFL's attorneys will attempt to keep all inside information away from public view" (ESPN.com, 5/24). SI.com's Michael McCann noted the two parties "could settle out of court before any judicial hearing occurs." The NFL "could still prevail on the narrow issue of whether the exclusive licensing contract with Reebok is legal." The league "could also argue that a single licensing contract provides the league with better control over licensed products, which in turn means better quality NFL products for consumers" (SI.com, 5/24). Indiana Univ. School of Law-Indianapolis Dean Gary Roberts said that the chances "'are about 90 percent' that the NFL and American Needle will settle the case." But some lawyers said that it "could be years before the case is resolved on the merits." In Indianapolis, John Russell writes the NFL in the meantime "might need to carefully review any joint licensing deals with an eye on possible antitrust issues" (INDIANAPOLIS STAR, 5/25). FORBES.com's Dosh wrote as a result of the ruling, the NFL is "back where they began" in regard to the case. Dosh: "Personally, I'd be shocked if American Needle prevailed. Exclusive agreements are entered in sports, and in business, all the time. The NFL should be able to make a strong case that the exclusive agreement with Reebok was entered into without violating antitrust laws" (FORBES.com, 5/24). N.Y.-based licensing agency Beanstalk Chief Legal Officer Oliver Herzfeld said the ruling was a "very narrow ruling and doesn't impact the entire licensing business." But he added, "It does mean that major sports leagues cannot automatically assume that they can grant licenses for the entire league and escape exposure to antitrust claims" (MEDIAPOST.com, 5/24).
|Writer Says Stevens Left
Breathing Room For NFL
RULING'S IMPACT: YAHOO SPORTS' Doug Farrar wrote Stevens in the ruling "ended with a bit of breathing room for the league, espousing the 'rule of reason' and avoiding a total clampdown on any act in concert between two or more teams," such as the "negotiation of a TV contract." The message was still "clear," as Stevens "basically said that the Supreme Court, and any other Court, would test function rather than form and avoid absolute impingement of any collective activity taken on by the teams." But "any act in concert with an eye on the evasion of antitrust law would not be allowed or exempted" (SPORTS.YAHOO.com, 5/24). In Boston, Charles Pierce wrote the ruling "could be the single most monumental defeat in court that any professional sports league ever has been dealt, and that it came unanimously from the most nakedly pro-corporate Supreme Court since J.P. Morgan was running amok makes the NFL's defeat here even more profound" (BOSTON.com, 5/24). In N.Y., Kaja Whitehouse writes the 9-0 decision "does more to pop the league's dream of gaining an iron grip on its control of everything from marketing deals to labor pacts than actual financial damage." The ruling's winners "could include the owners of some of the larger-market teams -- who may be able to ink their own licensing deals and keep all of the revenue they generate -- and fans, who may see the price of merchandise fall as competition heats up" (N.Y. POST, 5/25). Tulane Univ. Sports Law Program Dir Gabe Feldman called the ruling a "sweeping defeat for the league." Feldman: "Every agreement they make, with a TV network, an apparel maker or a sponsor, will get scrutinized under the rule of reason. When it has to do with the game itself, they will get more deference, but they will still get scrutiny." Feldman also said the ruling is a "victory for all potential plaintiffs and players, because it gives them the ability to sue the NFL." But he added, "It won't lead to a flood. This won't open the floodgates. It will just keep the doors open." NFL Senior VP/PR Greg Aiello in an e-mail said the court noted "that the NFL teams' shared interest in making the league successful and cooperating to produce NFL football provide 'a perfectly sensible justification for making a host of collective decisions'" (N.Y. TIMES, 5/25).
OTHER LEAGUES AFFECTED: AMERICAN LAWYER DAILY's Zach Lowe wrote the next battle will "involve the broader impact of the American Needle ruling" on other sports leagues. Attorney Daniel Glazer said the "ultimate impact of the case will depend [on how] lower courts interpret it." Glazer: "They could … extend it broadly, or it could end up having a very limited impact" (AMLAWDAILY.com, 5/24). The L.A. TIMES' Savage wrote the ruling was a "setback to sports leagues that seek to closely control the marketing of their teams and their spin-off merchandise." It "leaves the owners of most pro sports teams subject to being sued if they agree among themselves to restrict competition between the teams over the sale of merchandise" (L.A. TIMES, 5/25). SI.com's McCann wrote the decision "sends a message to similar professional sports leagues, namely the NBA and NHL, that their own aspirations for single entity recognition are just as unlikely to materialize -- at least through the legal system." If the leagues "would like to avoid Section 1 scrutiny, they can still turn to Congress for Section 1 exemptions," but the case "won't go through the Supreme Court" (SI.com, 5/24).
NEED TO BE CAREFUL: ESPN.com's Munson wrote the ruling means that other leagues "must be very careful" as they make licensing deals. Many licensing contracts "are leaguewide arrangements that could run afoul of the ruling in the American Needle case," as if a company "feels it has been unfairly barred from a fraction of a paraphernalia contract, it now can file its antitrust lawsuit and put the league at the wrong end of expensive and lengthy litigation" (ESPN.com, 5/24). Axinn, Veltrop & Harkrider LLP Partner Michael Keeley said, "I think that the other leagues are going to maintain a large degree of flexibility in terms of how they license their insignias and their logos in all sorts of apparel and other areas. That being said, they're going to need to prove in court that they're not limiting competition unduly" ("Power Lunch," CNBC, 5/24).
EXPERTS WEIGH IN: Bryan Cave LLP Partner James Smith said that the NFL "may still be able to make collective decisions without making itself vulnerable to US antitrust watchdogs or other league action." But he added, "If they start talking (collectively) about ticket prices, or other intellectual property, they are going to be subject to antitrust scrutiny." Antitrust attorney John Taladay said that a question raised by the ruling "was how the court would view the NFL's collective negotiation of television rights." Taladay: "If that question gets opened up, there are some very big dollars at stake. If the teams should be free to individually negotiate licensing their trademark, why would a different standard apply for television broadcast rights?" But Momentum Worldwide Chair & CEO Chris Weil said it will be "business as usual" in the wake of the ruling. Weil: "From a sponsor standpoint, if you're doing a broad based deal with NFL at a national level, you can still do local deals. From a licensing standpoint, those decisions tend to be made at a local level" (FINANCIAL TIMES, 5/25).
LABOR TRICKLEDOWN: In N.Y., Bart Hubbuch writes the ruling denied the NFL "the chance to unilaterally limit salaries for its players and even its coaches." As a result, the league "could be prodded back to the bargaining table to jump-start stalled talks" on a new CBA. NFL attorney Jeff Pash said that the league "has some talks planned soon with the union." Pash added, "This case was never about labor. We never, ever argued that this has to do with labor, and I think the court's opinion doesn't address labor" (N.Y. POST, 5/25). NATIONAL FOOTBALL POST's Andrew Brandt wrote the NFL "does not have this trump card of antitrust immunity to wield over the NFL Players Association," as the league could have had "all the advantages of labor law combined with antitrust protection, a powerful concoction to forge a favorable agreement." Brandt: "Conversely, the NFLPA can now at least have the appearance of negotiating leverage with the possibility of decertification, meaning that they would cease to be a union in order to pursue antitrust claims in court" (NATIONALFOOTBALLPOST.com, 5/24). Bryan Cave's Smith said the NFLPA as a result of the ruling "still has that viable option of decertifying, if push comes to shove during labor talks, and they can sue on antitrust grounds." But Pash said that it was "not clear" that the ruling "ensured the union could decertify." He added of the CBA negotiations, "If the decision was 9-0 in our favor, we'd be just as willing to negotiate a fair deal as we are now" (USA TODAY, 5/25). ESPN.com's Munson wrote the ruling makes the possibility of an NFL lockout in '11 "less likely but clearly does not eliminate it." The owners "face the prospect of antitrust attacks on any lockout, with the prospect of injunctions and treble damages" (ESPN.com, 5/24).