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In American Needle v. NFL, the United States Supreme Court considered whether the NFL’s business organization was properly classified as a single-entity with thirty-two franchises, similar to other franchise businesses like Taco Bell or McDonald’s. American Needle contended that the NFL was more properly classified as thirty-two individual organizations that operate independently, but toward a common goal.

Under the NFL’s business model, NFL Properties was created to develop and promote the NFL brand. Part of this marketing strategy included a new merchandizing agreement and, in 2000, the NFL signed a ten-year licensing agreement with Reebok, giving them exclusive rights to all manufacturing and sales of the sport’s paraphernalia for all thirty-two teams in the NFL. As part of the agreement, the thirty-two teams were prohibited from competing with each other in the licensing of merchandise and were not to contract with any Reebok competitors for that period of time. American Needle was a company that made apparel for the NFL before the exclusive contract with Reebok was signed, and brought suit against the NFL for violation of Section 1 of the Sherman Antitrust Act, claiming the agreement unreasonably restrained competition.

As Casey McLaughlin explains, in defense of American Needle’s claims, the NFL claimed that its organization was not a collection of thirty-two individual businesses, but was a single business entity that was comprised of thirty-two teams; these teams act collectively, not combatively, in promoting the NFL brand and competing against products of other sports and entertainment organizations like the MLB and NBA. If such a classification were to be successful in court, the NFL would be exempt from the Sherman Antitrust Act.

While the Seventh Circuit accepted this business model, holding that the teams act as a single source of economic and promotional power for the NFL through the licensing, the Supreme Court disagreed. Justice Stevens, writing for a unanimous court, found that while the teams as a collective whole have a common interest in promoting the NFL brand, “they are still separate, profit-maximizing entities, and their interests in licensing team trademarks are not necessarily aligned.” The Court determined that because each individual team competed in the market for intellectual property, a manufacturing company would find each individual team to be “potentially competing suppliers of valuable trademarks.”

However, as Kristi Dosh affirms, the Supreme Court did not decide the merits of the case as to whether the NFL teams colluded to exclude American Needle from manufacturing NFL merchandise, creating unfair competition under Section 1 of the Sherman Antitrust Act. A lower court will again take up this issue, evaluating the NFL’s business organization based on the Supreme Court’s findings. The lower court will have to discern whether the any anticompetitive behavior by the NFL is outweighed by business justifications. The NFL has some strong arguments in its favor here, including a showing of evidence that “they garner greater bargaining power when all [thirty-two] teams join together to license their trademarks.” In Justice Stevens’ opinion, he noted that there would be certain times, conditions, and decisions in which collective action might be justified. Additionally, Dosh contends that the bidding process for the exclusive manufacturing contract was a seemingly fair one and was simply awarded to the highest bidder.

Ultimately, American Needle’s win at the Supreme Court does not necessarily foretell a win on remand to determine the underlying issues of the case. However, the Supreme Court’s decision does offer some insight into how the collective commercial efforts of other professional leagues like the NFL may be considered by the Court (excluding MLB, which has specifically been exempt from antitrust laws since 1922), according to Lyle Denniston.

See SCOTUSblog and SCOTUSwiki for more details and analysis of this case, and all recent U.S. Supreme Court cases.

(image source: United States Supreme Court)