A Crushing Tackle by the Supreme Court: Why the NFL's Dreams of Antitrust Exemption Were Shattered

By Vlad Vidaeff *

1922. This was the year the Supreme Court of the United States ruled that Major League Baseball (“MLB”) was not subject to the provisions of the Sherman Antitrust Act.  Baseball’s antitrust exemption essentially meant that each team, such as the Boston Red Sox or the New York Yankees, was part of a single entity—MLB.  Due to baseball’s antitrust exemption, MLB is able to engage in practices that would often be illegal in other businesses.  After this monumental ruling, common sense dictated that the antitrust exemption would soon be extended to other professional sports leagues such as the National Football League (NFL), the National Basketball Association (NBA), and the National Hockey League (NHL).

However, since the Federal Baseball decision, the Supreme Court has repeatedly refused to extend this antitrust exemption to other sport leagues.  Another opportunity for possible antitrust exemption presented itself in the Supreme Court’s recent decision on May 24, 2010. The NFL, the most popular professional sports league in the U.S., displayed much confidence in its chances for success in the suit.  According to Greg Aiello, NFL spokesman, the NFL was looking forward to explaining why the Court should extend antitrust exemption to the unique structure of a sports league.  Unfortunately, at least from the NFL’s point of view, the Supreme Court unanimously held for American Needle in a 9-0 decision. To put this decision in perspective, it is the first time in eight years that a big corporate defendant has lost in a high-court antitrust case.

The case centers on the NFL’s actions in licensing and marketing its intellectual property.  National Football League Properties (“NFLP”) was established by the teams in the NFL in 1963 to jointly market, develop, and license their intellectual property. Between 1963 and 2000, NFLP proceeded to grant several nonexclusive licenses to apparel companies, such as American Needle.  With these licenses, the companies involved were able to manufacture and sell NFL apparel bearing NFL trademarks such as logos.  Things changed in 2000 when the NFLP decided to grant an exclusive license to Reebok. As a result, American Needle lost its license to manufacture NFL headgear.

Bringing suit under antitrust law, the main issue in this case concerned whether the NFL constituted a single entity or whether the NFL consisted of 32 separate entities.  If the NFL had been deemed a single entity, it would not be subject to the restrictions of the Sherman Act, which prohibits any unreasonable interference with the ordinary pricing of the open market in interstate trade.  § 1 of the Sherman Act prohibits concerted action, which only applies when more than one business is involved.  A corporation may refuse to do business with whomever it wants, as long as it is acting independently.  However, when several corporations agree to do business with only some and not others, this constitutes concerted action and may violate the Sherman Act.  In an opinion written by the soon retiring Justice Stevens, the Court strongly rejected the NFL’s argument that it was a single entity, explaining that even though the teams in the NFL share a common goal in the league’s success, the actions of the NFL are not exempt from antitrust scrutiny under the Sherman Act .

It is important to note that the Court’s holding was limited to the NFL’s antitrust status with respect to intellectual property and not the business as a whole.  In fact, the NFL was given some limited antitrust protections in the 1960s, concerning television contracts among others.  When it comes to intellectual property, on the other hand, the 32 teams in the NFL are seen as separate entities.  Justice Stevens explained that the necessity of cooperation among the teams in the NFL regarding issues such as scheduling does not change concerted action into independent action.  Stevens analogized to a nut and bolt which can only operate together, but an agreement between a nut and bolt producer is still subject to § 1 scrutiny.

How will the Court’s ruling affect parties such as the NFL, American Needle, athletes, and other professional sports organizations? Even though the Court sided with American Needle, it remanded the case back to the district court to determine whether the NFL’s actions violated the Rule of Reason.  The Rule of Reason is a doctrine used to determine whether a party’s actions are an unreasonable restraint of trade, which is required to prove an antitrust violation.  Under this doctrine, it is quite possible that American Needle could lose at the lower level.  Proponents of the Supreme Court’s decision included DeMaurice Smith, executive director of the NFL Player’s Association, who welcomed the ruling with open arms and called the decision “not only a win for players past, present and future, but a win for the fans.”  Others have been less optimistic. Gabriel Feldman, the director of the sports law program at Tulane University Law School, stated that all the NFL lost was an absolute exemption to antitrust issues.  The NFL absolutely still has the power to justify its actions on a case by case basis.  While agreeing that the decision is a victory for players, Professor Feldman declared that he believes the ruling will not lead to the proverbial opening of the floodgates in increased litigation against the NFL.  There is one thing we can all agree on: baseball’s antitrust exemption is simply an aberration or a quirk of history.  With a strong unanimous decision, the Supreme Court made it clear that it will not be extending a total antitrust exemption to any other professional sports leagues, at least not anytime soon.

 

 

*Vlad Vidaeff is a second-year law student at Wake Forest University School of Law and is Vice President of the International Law Society.  He holds a Bachelor of Arts in Sport Management and a minor in French from the University of Michigan.  Upon graduation in May 2012, Mr. Vidaeff intends to either practice intellectual property law, international law, or sports and entertainment law.