American Needle & the NFL Settled, & My Antitrust Heart is Sad
American Needle's antitrust lawsuit against the NFL has been ongoing since 2004. The buildup has accelerated since 2010 after the Supreme Court of the United States unanimously voiced its opinion on the matter. Much to my nerdy "sports law-" and economic-loving brain's disappointment, the buildup that was over a decade in the making died on February 16 once the two parties agreed to a settlement in principle. Currently, the settlement terms are undisclosed, but it is safe to say that the terms involve the NFL paying American Needle (AN) a pretty large sum of money to avoid trial.
The section below goes through the timeline, giving the essential facts and judicial stages for your understanding. Antitrust law intimidates a lot of people, but the purpose boils down to a simple concept: Congress passed the Sherman Act to protect against unfair trade, and courts interpret it as making unreasonable restraints on trade illegal. Once you understand the facts and judicial rulings, you will understand why my heart, which has been longing for answers to questions concerning collective licensing practices in sports generally, wants to grab a massive dark chocolate bar and watch Scandal as if a guy just dumped me.
- 1963: NFL teams stopped marketing their intellectual property individually because National Football League Properties (NFLP), the entity responsible for licensing NFL marks, was formed.
- December 2000 - The Cause of Action: The teams voted for NFLP to switch gears with its licensing practices. With that authorization, NFLP went from granting nonexclusive licenses to manufacturers and retailers to produce and sell apparel with all 32 NFL team marks and logos, which the group did for almost four decades, to granting exclusive licenses. Reebok got an exclusive apparel license as a result. AN, who held a nonexclusive license for before this occurred, tried to renew its license, but NFLP declined. In other words, AN is one of many former licensees who got left behind with this exclusive licensing deal because Reebok became the only entity that has permission to use the marks.
- 2004 - The Gloves Come Out: AN filed suit against the NFL and Reebok in an Illinois district court alleging that the defendants' exclusive agreement violates section 1 of the Sherman Act. Specifically, AN argued that because each NFL team individually owns its marks, the collective agreement to allow NFLP to grant Reebok an exclusive license is an illegal conspiracy to restrict other parties from obtaining such intellectual property. In short, the district court held that the NFL is a single entity comprised of 32 teams that competed on the football field but not in business and, thus, is not subject to the Sherman Act.
- 2008: The Seventh Circuit affirmed the District Court ruling in favor of the NFL. Note: The Seventh Circuit is the only circuit where the "single entity" argument is still alive! All other circuits have dismissed the argument that a sports league is a single entity. Of all places a court could have had jurisdiction over the NFL, AN chose the absolute worst place to file its claim.
- May 2010: The Supreme Court unanimously reversed & remanded the Seventh Circuit decision with a powerful 9-0 vote. The Court rejected the NFL's argument that it was a single entity operating with unitary decisionmaking and common objectives and, therefore, its actions could not be considered "concerted activity." According to the Court, the NFLP's collective licensing practices is 32 entities' concerted activity - after all, it found that the NFL is NOT a single entity - and is covered by section 1 of the Sherman Act. The Court remanded the case to district court for a ruling on the merits in light of the Court's opinion to determine whether the exclusive licensing agreement violates antitrust law. Additionally, the Court stated that the "rule of reason" was the appropriate antitrust standard of review because the teams must make some decisions collectively in order to have its product. So, the question is not whether the agreement is covered as concerted activity restraining trade but whether the restraint on trade is unreasonable and illegal. A court would weigh the procompetitive benefits against the anticompetitive effects.
2010 - February 2015: The parties filed various motions and went through intense discovery in preparation of trial back in district court. In April 2014, the Illinois district judge for the Northern District of Illinois rejected the NFL's motion for summary judgment. When a party files this motion, they are stating that there is no genuine issue as to any material fact and that they are entitled to judgment as a matter of law. The judge denied this motion, setting the tone for trial to take place. Judge Sharon Johnson Coleman reasoning was that "American Needle has presented [sufficient] evidence that shortly following the execution of the exclusive arrangement between Reebok and NFL Properties, wholesale prices of licensed hats rose by a significant degree while output of those items dropped." The settlement ended all the anticipation on an anticlimactic note.
No Trial Drama, No Answer (Yet), but At Least We Have Our Product
I think that the procompetitive effects outweigh the anticompetitive effects here. Trying to create competitive balance by distributing power to entities who are too many degrees of separation away from the core interest (here, the business of operating a professional football league) could actually destroy competitive balance when an agreement does not unreasonably restrain trade. I am not a judge, nor do I ever plan on tackling that role, and while I hope that judges answer one way when the question is presented to them, I secretly would indulge in the drama if these actions violate antitrust law.
It was not just the lawyers in the sports industry, the NFL and its employees, and the actual and prospective retail licensees who carried an interest in this pending trial. The implications would pan across all areas of collective licensing in the sports industry, such as online broadcasting and television blackout practices for all leagues. If teams are forced to market their intellectual property individually due to a judicial holding, it is possible that the overall market value of the NFL could deplete. Some markets may flourish while others may not, and benefits like revenues could be hoarded by a few franchises rather than being distributed evenly as they are now. Not every team would have the monetary means to be competitive, and reputations could be skewed either way.
The Question: Can the NFL's collective licensing trademark practices pass the Sherman Act's full antitrust scrutiny?
The Answer: A big shrug of the shoulders, though there is probably enough legal support for a court to hold that this is not an antitrust violation. There needs to be a final decision on the merits that sports leagues' collective licensing practices violate section 1 of the Sherman Act before leagues modify their practices, despite the Court's ruling nearly five years ago. For now, the NFL will continue its centralized licensing practices, fans can continue to support their teams, the 32 teams can split the licensing revenues equally, and that is how we want it. Right?