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May 24, 2010 1:38 PM

SCOTUS Sacks Covington, Spikes NFL's Antitrust Case

Posted by Zach Lowe

When we first read the U.S. Supreme Court opinion issued today in American Needle v. National Football League, we thought we were reading a very, very decisive opinion that would affect not just the NFL but also the other sports leagues that had supported the NFL in the case. While there's no question the Court's 9-to-0 opinion--authored by retiring justice John Paul Stevens--hurts the NFL, the decision's broader impact remains to be seen, according to experts we spoke with today.

Our colleague Tony Mauro at sibling publication The National Journal notes, the decision marked a rare plaintiffs' win in an antitrust case--and a clear win at that. For the purposes of licensing apparel, the Court ruled, the NFL is not a so-called single entity with a blanket exemption to the federal Sherman Act. That's a clear victory for American Needle (and the clothing maker's counsel at Jones Day), which maintains that the NFL has operated in violation of the  antitrust laws for nearly a decade, since granting Reebok an exclusive license to market apparel linked to all NFL teams in 2001.

American Needle claims the 32 NFL franchises should be considered separate, competitive entities that can strike individual licensing deals with any apparel company. The NFL (represented by Covington & Burling, its longtime counsel) has countered by claiming that since its teams cannot exist without one another, the league itself is a single entity exempt from antitrust restrictions when it comes to licensing apparel. 

Antitrust exemptions in sports are unusual, experts have told us. Major League Baseball was long ago awarded a broad antitrust exemption, but courts have granted the NFL a more limited exemption for licensing its broadcasting rights, according to our prior reporting. 

Two lower courts, including the U.S. Court of Appeals for the Seventh Circuit, had ruled in favor of the league in the American Needle case, effectively extending its antitrust exemption into the apparel arena. American Needle asked the Supreme Court to hear the case, and, in an unusual move, the NFL seconded that request. A Supreme Court victory for the league would have set a landscape-altering precedent that could have helped the NFL and all sports leagues push toward a broader single-entity status for antitrust purposes, says Daniel Glazer, a Patterson Belknap Webb & Tyler partner who attended the American Needle oral arguments January and specializes in intellectual property issues in sports. (Indeed, several other sports leagues, including the National Hockey League and the National Basketball Association, filed amicus papers backing the NFL's position.)

But the Court instead delivered an emphatic victory for American Needle. Stevens's opinion declares that sports leagues cannot be considered single entities for the purposes of licensing apparel. "Thirty-two teams operating independently...are not like the components of a single firm that act to maximize the firm's profits," Stevens wrote. "The teams remain separately controlled, potential competitors." 

Glen Nager, the Jones Day partner who handles the case, was traveling and unavailable for comment. Covington attorneys referred us to the league. 

Glazer cautioned against reading the case as a huge defeat for the NFL. In essence, the 9-to-0 ruling maintains the status quo, under which the NFL has to defend against antitrust complaints on a case-by-case basis in lower courts, Glazer says. The league, to use a baseball reference, was swinging for the fences at the Supreme Court, hoping a favorable ruling would give it a single-entity defense that would preempt all antitrust challenges related to apparel licensing. Absent such a ruling, the NFL must now fight those cases based on the nuts and bolts of the Sherman Act--just as they do now, Glazer says. 

The next battle, of course, will involve the broader impact of the American Needle ruling. Other sports leagues will surely argue that the case applies only to a narrow subject--the NFL's apparel licensing--and not to other leagues or other business agreements, Glazer says. Companies who deal with sports leagues and teams will argue that the ruling sets a broader precedent, he says. "The ultimate impact of the case will depend how on lower courts interpret it," Glazer tells us. "They could extend it broadly, or it could end up having a very limited impact."

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