Academic journal article Sport Marketing Quarterly

American Needle V. National Football League and the Future of Collective Licensing Agreements in Sport

Academic journal article Sport Marketing Quarterly

American Needle V. National Football League and the Future of Collective Licensing Agreements in Sport

Article excerpt

The U.S. Supreme Court's recent decision in American Needle v. National Football League is not the "death knell" of collective licensing agreements in sports, but it will hold the NFL and other professional sports entities1 to a higher level of antitrust scrutiny than they had hoped. The issue in American Needle v. National Football League was whether the NFL's collective licensing arm, NFL Properties, LLC (NFLP), was a single entity, and therefore, exempt from antitrust liability under Section 1 of the Sherman Antitrust Act. Section 1 deems "[e]very contract, combination in the form of a trust or otherwise, or, conspiracy, in restraint of trade" illegal (Sherman Act, 2006). By ruling that the NFLP is not a single entity, but rather, a unit comprised of the 32 teams in the NFL, the Supreme Court took away the opportunity for the NFLP to operate exempt from Section 1 of the Sherman Antitrust Act. As a result, the NFLP's collective licensing activities will be evaluated under a rule of reason analysis, meaning that it will have to show the pro-competitive reasons for their exclusive apparel license with Reebok outweigh any anti-competitive impacts on the market.

Case History

From its founding in 1920 until 1963, individual teams in the NFL engaged in their own licensing of their team insignia (trademarks, logos, and colors) for apparel. In 1963, the NFLP was created to develop, license, and market their intellectual property. Between 1963 and 2000, NFLP granted non-exclusive licenses to numerous vendors to manufacture apparel with team marks, logos, and colors. In 2000, the NFL teams voted to allow NFLP to grant exclusive licenses. Embarking on the new exclusive rights strategy, the NFLP awarded Reebok a 10-year exclusive license for consumer headwear and clothing decorated with team logos and trademarks. The teams agreed amongst themselves and with Reebok, pursuant to this agreement that they would not compete with each other in the licensing of the headwear and clothing and that they would not permit any licenses to be granted to Reebok's competitors for the 10-year period. American Needle, a former headwear licensee for over 20 years, found itself out of the NFL market for a decade.

American Needle filed suit against the NFL and Reebok, alleging the exclusive licensing arrangement violated Section 1 of the Sherman Act. It was American Needle's contention that the NFL should be prohibited from granting an exclusive product license as such an agreement between its member teams constitutes a "combination, contract or conspiracy" in restraint of trade, with the net effect for the consumer being a reduction in choice and increase in price for leaguebranded apparel. The NFL argued it was immune from suit as a single entity. The district court looked to the Supreme Court's rejection of the concept of intraenterprise conspiracy in Copperweld Corp. v. Independence Tube Corp. (1984). In Copperweld, the Court ruled that a corporation and its wholly owned subsidiary are incapable of conspiring with each other under Section 1 of the Sherman Act. In doing so, Copperweld emphasized that function, not form, controlled. The district court opined that the proper analysis of Copperweld to a league situation might be that league-wide activities in all areas but labor relations are actions of a single entity; however, the district court did not want to go that far. Instead it looked to the Seventh Circuit's decision in Chicago Professional Sports Ltd. v. National Basketball Association (1996) ("Bulls II") and adopted a facet-by-facet analysis of league decision making to evaluate if the NFL was a single entity. Despite American Needle's best efforts to conduct broad discovery for documentation to disprove the NFL was a single entity, the District Court for the Northern District of Illinois granted summary judgment in favor of the NFLP, concluding that the NFL was a single entity, rather than a joint venture (American Needle v. …

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