On May 24, 2010, the United States Supreme Court issued a unanimous decision that may ultimately change the way pro sports teams and leagues can license team-owned intellectual property for merchandise and apparel items. The Supreme Court’s ruling in American Needle, Inc. v. National Football League et al., case number 08-66, struck a significant blow to the long-standing joint venture between the National Football League (NFL) and its 32 member teams to license and market team-owned trademarks through a single entity. The case stems from a licensing agreement the NFL made with Reebok International Ltd. in 2000 to be the exclusive manufacturer and marketer of hats bearing NFL team trademarks.
The NFL is an unincorporated association of 32 separately owned professional football teams. Each team owns its own name, colors, logo, trademarks, and related intellectual property, each of which is distinctive and well known to millions of sports fans. Prior to 1963, the teams made their own arrangements for licensing their intellectual property and marketing trademarked items such as caps and jerseys. In 1963, the teams formed a separate legal entity – National Football League Properties (NFLP) – to develop, license, and market their intellectual property.
Between 1963 and 2000 NFLP granted non-exclusive licenses to a number of vendors to manufacture and sell team-labeled apparel. In December of 2000 the teams voted to authorize NFLP to grant Reebok an exclusive 10-year license to produce and sell trademarked headwear for all 32 teams. When NFLP failed to renew its license with headwear manufacturer American Needle, Inc., the apparel company filed a lawsuit in the Northern District of Illinois, alleging that the agreements between the NFL, its teams, NFLP, and Reebok violated Sections of the Sherman Antitrust Act, which, inter alia, makes “[e]very contract, combination…or, conspiracy, in restraint of trade” illegal.
In defense of the NFLP licensing venture and exclusive license deal with Reebok, the NFL and its teams argued that they were incapable of “conspiring” with respect to exploitation of intellectual property rights because the NFL and its 32 teams act as a “single entity” and, therefore, are immune from antitrust laws. Under antitrust laws, a “single entity” cannot conspire with itself, because more than one distinct entity needs to exist in order for there to be a conspiracy. For example, the Supreme Court has held that a parent corporation and its subsidiary are not capable of an illegal conspiracy under the Sherman Antitrust Act. See Copperweld Corp. v. Independence Tube Corp. (1984) 467 U.S. 752. As an oversimplification of the issue, the Court needed to decide whether the NFL and its teams were a de facto “single entity,” akin to a parent/subsidiary relationship, or whether the NFL’s licensing venture actually joined together economic competitors causing a restraint of trade in the market for the teams’ intellectual property.
The Supreme Court’s inquiry was limited to the particular conduct at issue, licensing of teams’ intellectual property. The Supreme Court did not agree with the lower courts’ previous rulings in this context, which found that the NFL acted as a single entity for intellectual property licensing. Directly relevant to this issue, the Court found that the teams in fact compete in the market for intellectual property:
To a firm making hats, the Saints and the Colts are two potentially competing suppliers of valuable trademarks. When each NFL team licenses its intellectual property, it is not pursuing the “common interests of the whole” league but is instead pursuing interests of each corporation itself; teams are acting as separate economic actors pursuing separate economic interests. Decisions by NFL teams to license their separately owned trademarks collectively and to only one vendor are decisions that deprive the marketplace of independent decisionmaking and therefore of actual or potential competition.
The Court further found that although NFL teams have common interests such as promoting the NFL brand, they are still separate, profit-maximizing entities, and their interests in licensing team trademarks are not necessarily aligned. “While common interests in the NFL brand partially unite the economic interests of the parent firms,” the Court found that “the teams still have distinct, potentially competing interests” and that each of the teams is a substantial, independently owned, and independently managed business whose general corporate actions are guided or determined by separate corporate consciousnesses, and that their objectives are not common since the teams compete with one another, not only on the playing field, but to attract fans for gate receipts and for contracts with managerial and playing personnel.
The broad potential implications of the Court’s ruling in this case have already been widely speculated in legal and sports industry circles. As for the intellectual property licensing implications, the Court’s ruling means that the 32 NFL teams’ joint venture to license and market teams’ individually owned intellectual property through a single entity may not be a viable business model much longer. The Supreme Court remanded the case back to the lower courts to decide whether the licensing venture and corresponding restraint of trade is reasonable, such that it actually promotes competition rather than suppresses it.
Matt Massari is a corporate and intellectual property transactions attorney at Weintraub Genshlea Chediak Tobin & Tobin and represents various clients in the sports, media and entertainment industries.