American Needle, Inc. v. National Football League: Surprise! The Supreme Court Upholds an Existing Antitrust Doctrine*

[Editors’ note: This is the second in our series, What Is the Most Important U.S. Supreme Court Case in Your Area of the Law? The first installment is here. In this post, Prof. Waxman focuses on an important Supreme Court case from the last term.]

Last spring in American Needle, Inc. v. National Football League, 130 S. Ct. 2201 (2010), the United States Supreme Court reversed two lower court decisions and held that under Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984), National Football League Properties (NFLP) was not a single entity but rather a collection of different entities with “independent centers of (business and economic) decision-making.” In Copperweld, the Court held that parties within a corporate entity or closely held affiliate (e.g. a wholly owned or controlled subsidiary) are to be treated as a single entity under the antitrust laws (despite the possible treatment as separate entities under corporation law) and therefore not subject to Section 1 of the Sherman Antitrust Act. By its decision in Copperweld, the Court in effect invited parties that might otherwise be treated as more than one entity under the Sherman Act to assert that they fall under the “single entity” category. Historically, despite efforts by many sports leagues to try various business arrangements to fit under the single entity category, courts have denied regularly these assertions based on the understanding that the arrangements were really vehicles controlled by multiple parties with different corporate and economic interests.

The origin of the single entity analysis is drawn from the face of the Sherman Act itself. Section 1 of the Sherman Act states that “every contract, combination or conspiracy in restraint of trade is illegal.” Therefore, the wording of Section 1 of the Sherman Act requires that two or more parties participate in order to find illegality. In contrast to Section 1, Sherman Act Section 2 addresses monopolization (acts by one party) or conspiracy to monopolize (acts by two or more parties to reach a monopoly). Because illegal monopolization under Section 2 requires proof of an abuse of monopoly position, it can be very difficult to prove a Section 2 violation (“Section 1 treat[s] concerted behavior more strictly than unilateral behavior,” Copperweld at 768). Moreover, there are other shelters for unilateral activity beyond the monopolization issue (e.g. since the Supreme Court’s decision in United States v. Colgate & Co., 250 U.S. 300 (1919), the Court has protected absolutely the right of a manufacturer to refuse to deal with whomever it wishes as long as it acts unilaterally).

The National Football League (NFL) is an unincorporated association of 32 separately owned professional football teams. Through National Football League Properties (NFLP) the NFL develops, licenses and markets certain intellectual property owned by the NFL teams. Until December 2000, the NFLP licensed its intellectual property to many different apparel manufacturers (including American Needle). In December 2000, NFLP agreed to provide an exclusive license for the production of its apparel to a single company Reebok, International Ltd. American Needle challenged the NFLP’s use of an exclusive license as a Section 1 Sherman Act violation. In response, the NFL and NFLP asserted that NFLP is a single entity, so a claim of anticompetitive activity can only be brought under Section 2 of the Sherman Act.

The Court faced the primary question raised by the Copperweld decision: were the acts by NFLP group action (contract, combination or conspiracy in restraint of trade) or the acts of a single entity?  In American Needle, the Supreme Court observes, once again, that despite the appearance that the NFLP is a single entity or joint venture, real-world factors rather than appearance will be the basis of the Court’s analysis. In analyzing the nature of the NFLP, the Court notes that “we have repeatedly found instances in which members of a legally single entity violated Section 1 when the entity was controlled by a group of competitors and served, in essence, as a vehicle for ongoing concerted activity” (citing United States v. Sealy, Inc., 388 U.S. 350 (1967)). The Court concludes that the members of the NFL (a collection of franchises owned by separate entities) that makeup the NFLP are independent centers of (business and economic) decision-making and therefore the NFLP is not a single entity. Although the Court resolved the single entity argument in American Needle, the Court remanded the case to the lower courts to determine whether the acts of the NFL and the NFLP that were asserted as Section 1 Sherman Act violations by American Needle were anticompetitive.

The NFL raised a secondary issue in American Needle. The NFL asserted that, based on the decision in National Collegiate Athletic Ass’n v. Board of Regents, 468 U.S. 85 (1984) (NCAA) (wherein the Court applied the rule of reason even in a horizontal price-fixing case because in order to have a league at all there must be some coordination between and among the individual competitors), the NFLP’s actions were part of the approved coordination necessary to operate as a league. In response, the Court reaffirmed its holding in NCAA that some actions by a sports league require that there be coordination in order to have a league at all (e.g. rules of the game, scheduling). However, what role the NCAA decision will play, as to the rule of reason standard, is a matter to be considered on remand.

*The United States Supreme Court has overturned many of its own antitrust decisions over the past 30 years. It has done this directly (see e.g., Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36 (1977), State Oil Co. v. Khan, 522 U.S. 3 (1997)), and most recently it overturned an almost 100-year-old doctrine in Leegin v. PSKS (2007). It has also done this indirectly (see, e.g., Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752 (1984)). It has set new and difficult standards of proof (see, e.g., Bell Atlantic Corp. v. Twombly, 550 U.S. 554 (2006)) and even ignored administrative law doctrines (see, e.g., California Dental Ass’n v. F.T.C., 526 U.S. 756 (1999)).

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.