Antitrust Alert: Supreme Court Limits Antitrust Immunity for Joint Conduct in Action Against NFL
Yesterday the Supreme Court ruled that agreements among the National Football League's member teams, like agreements among any other group of separately-owned businesses, are not immune from scrutiny under Section 1 of the Sherman Act. While this would not appear on the surface to be very surprising, the NFL and other sports leagues have been arguing for some time that many of their joint decisions should be treated as if they are actions of a single entity, and thus not subject to Section 1. While Section 2 (the monopolization provision) of the Sherman Act would have remained available, as a practical matter the effect of the NFL’s position, if accepted, would have been to essentially create an immunity from antitrust attack for League actions. This enormous potential benefit explains why the NFL decided to roll the dice at the Supreme Court rather than pocketing their lower-court winnings. Their bet did not pay off, and now that argument is permanently foreclosed, which means that future antitrust attacks will have to be defended on the merits.
Jones Day represented American Needle, the plaintiff and petitioner in the Supreme Court, which produced the first Supreme Court antitrust decision in favor of a private plaintiff since 1992. In addition to eliminating the "single entity" defense for the NFL (and almost certainly for other sports leagues, many of which filed amicus briefs supporting the NFL), this decision clarifies the antitrust rules that apply to joint ventures, making it clear that that joint decisions among cooperating competitors, even in the conduct of lawful joint ventures, remain subject to the antitrust laws governing agreements between competitors.
Here’s the background: The NFL had for some years jointly licensed team intellectual property, but to multiple licensees. In 2000, the NFL teams agreed to an exclusive contract with Reebok to make trademarked headwear. American Needle, which had been one of the nonexclusive licensees, challenged this action as a violation of Section 1 of the Sherman Act, which prohibits agreements in restraint of trade. The NFL teams argued they were immune from Section 1 scrutiny under the “Copperweld” doctrine, which says that actors that are part of a single enterprise cannot “agree” for purposes of Section 1. Under Copperweld, Section 1 does not apply, for example, to decisions made between parent and subsidiary corporations or among corporate officers of a single corporation.
The NFL teams argued that, because cooperation was necessary to produce NFL football, and because the team trademarks assertedly had value only because of NFL football, the NFL teams (acting through an entity established to manage this licensing activity) should be considered not to be independent sources of economic activity, but rather a single entity not subject to Section 1 attack. Their conduct in jointly licensing their intellectual property was should be seen as akin to the coordinated actions of a parent and subsidiary in Copperweld – not as joint conduct, but as the actions of a unitary enterprise, not subject to Section 1. American Needle argued that the NFL and its teams are not a single enterprise, but are separate entities that compete not only on the field but in marketing their intellectual property to licensees like American Needle. Therefore, American Needle claimed, Section 1 is fully applicable.
The district court and Seventh Circuit accepted the defendants’ argument and entered judgment for the defendants. On appeal, the Supreme Court reversed, in a unanimous decision authored by Justice Stevens.
Justice Stevens presented the key question as whether the alleged agreement "joins together separate decisionmakers" capable of making independent decisions – that is, whether the parties to the agreement are "separate economic actors pursuing separate economic interests," such that the agreement “deprives the marketplace of independent centers of decisionmaking…and thus of actual or potential competition.” Substance not form answers this question, said the Court, so it is not determinative that the parties to the alleged agreement are distinct entities nor that multiple legally distinct entities have organized themselves into a joint venture. The Court held that the NFL and its teams are not a single enterprise immune from Section 1: "NFL teams do not possess either the unitary decisionmaking quality or the single aggregation of economic power." Each team has a “separate corporate consciousness." Even off the field, the teams compete, for example, to attract fans and to market their intellectual property: "To a firm making hats, the Saints and the Colts are two potentially competing suppliers of valuable trademarks." Therefore, the agreement among the teams to jointly enter into a single exclusive trademark license is subject to antitrust scrutiny under the normal Rule of Reason standard.
American Needle makes it clear that Copperweld immunity cannot be invoked simply because independent actors are engaged in some legitimate cooperation and have common interests in promoting their lawful joint activity. In this sense, American Needle is an application of the established rule that formation of a joint venture does not immunize the joint venture or its members from the antitrust laws. Although the NFL is a lawful joint venture, and one that requires the cooperation of its members to produce the NFL product, it does not follow that the teams are free to eliminate competition between NFL members in licensing their individually-owned trademarks. Thus, the agreement jointly to license their intellectual property must be evaluated under the Rule of Reason to determine if it is a necessary part of the joint venture and, whether on balance it is procompetitive or anticompetitive. The Court returned the case to the lower courts to make those determinations.
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