NFL Aims for Antitrust Shield at U.S. Supreme Court

January 13, 2010

The U.S. Supreme Court will turn to the world of professional football Wednesday and hear a case that deals with the NFL's exclusive licensing deal for selling billions of dollars worth of hats, jerseys, sweatshirts and other apparel.
The court's eventual ruling will either leave intact — or jeopardize — most of the professional and even collegiate deals that are in place now, not only in football but also in basketball, hockey and other sports.
Reebok's Windfall
It used to be that lots of different companies had NFL licenses to sell items with NFL team logos. But since 2000, it's been all Reebok, all the time. That's the year the NFL decided it wanted to award its merchandising license for all 32 teams to just one company — Reebok.
Among those frozen out was American Needle Inc., a family-owned company based in Illinois that specializes in head wear. The company went to court, claiming that the 32 teams, operating though the NFL, had conspired to give Reebok a monopoly in violation of the federal antitrust laws. The NFL countered that the league is a single entity that operates as one business, not 32 competing businesses.
A federal appeals court agreed with the NFL, and American Needle appealed to the Supreme Court.
NFL: Single Business Or Umbrella Organization?
On Wednesday, American Needle lawyers will tell the justices that the Reebok exclusive license deal is a classic antitrust violation.
javascript:void(0);<!-- END CLASS="ENLARGE_MEASURE" -->
American Needle's Dan Parenti works at his office last year. A hat can be a small thing, but a Supreme Court battle over who gets to make official NFL headgear could end up having a very large effect not only on the future of professional sports but also the landscape of business in the United States.

<!-- END CLASS="ENLARGE_HTML" -->
"By doing that, they eliminated all the price competition that existed among the existing licensees," says Jeff Carey, American Needle's general counsel, "with the result that they caused the prices to rise, and they collected more royalties."
He says that immediately after the Reebok deal eliminated competitors, the price of a high-end fitted cap jumped to $30 from $19.
Reebok and the NFL counter that there can be many explanations for such a jump in price, including a better-quality product. And the league argues that a single licensee, among other things, is better able to fill orders quickly at the time of playoff and championship games.
But the crux of the case centers on whether the NFL is a single business or an umbrella organization for 32 competing businesses.
Team Support Vs. League Support
Nobody from the NFL would speak on the record, but lawyers for other big sports leagues were less reticent. Jeff Mishkin filed a brief on behalf of the NBA. Football, he notes, can only be produced through the cooperation of the teams. And when it comes to merchandising agreements, the competition is not between the teams but between the NFL and other sports and entertainment.
"NFL football competes against NBA basketball, Major League Baseball, the National Hockey League — lots of other entertainment products," says Mishkin.
So the price competition for a hat, he argues, is not between the teams but between a football hat and a hat for basketball, hockey, baseball or even a rock group. If the price of a football hat gets too high, he maintains, the consumer will buy a hat for another sport.
Carey finds that theory laughable. People who want a Washington Redskins hat aren't going to be satisfied with a Washington Nationals hat, he says. A hat is not an NFL hat, it's a team hat.
At a recent Atlanta Falcons game, a sampling of tailgaters showed a lot of team loyalty and no talk about the league. Ivan Mann said the price of jerseys and hats is "a little high." But he said, "It's a worthwhile investment — we're supporting the team."
Roy Irby was also all about the Falcons, noting that he was wearing a Michael Turner jersey because he is a Michael Turner and Falcons fan.
None of the gamegoers NPR interviewed knew about Reebok's exclusive deal with the NFL, but everyone in the sports business knows. While few experts expect a broad ruling in favor of the NFL, if the league is declared a single entity, that could allow it to set higher prices for tickets, concessions, parking at games, and even fees to join fantasy football leagues.

Justices Skeptical of N.F.L.’s Court Claim

<!-- date published --> January 14, 2010, 4:41 am <!-- date updated --> <!-- <abbr class="updated" title="2010-01-14T11:31:22-05:00">— Updated: 11:31 am</abbr> --> <!-- The Content -->
Lawyers for the National Football League and an apparel company staked out aggressive positions at a Supreme Court argument Wednesday over whether the league should be treated as a single entity or a collection of 32 independent companies for purposes of the antitrust laws, The New York Times’s Adam Liptak reported.
The company, American Needle, seemed to provide the justices with a framework that a majority of the justices could accept. The company, which used to produce hats and other merchandise bearing team logos, sued the N.F.L. after the league entered into an exclusive deal with Reebok.
Gregg H. Levy, a lawyer for the league, ran into trouble when Justice Antonin Scalia asked just how far the teams’ ability to act collectively extends.
“So does that mean they can agree to fix the price at which their franchises will be sold, by concerted agreement, because, after all, they are worthless apart from the N.F.L.?” Justice Scalia asked.
Mr. Levy said yes.
“Ooh,” Justice Scalia responded, surprised. “I thought I was reducing it to the absurd.”
Glen D. Nager, representing American Needle, refused to concede that the league was a single entity even for purposes directly related to sports competition.
Asked by Justice Anthony M. Kennedy whether an antitrust suit over a rule change giving passers more protection could be dismissed on the theory that the league is a single unit, Mr. Nager said no. But he added that the suit would probably be dismissed after it was scrutinized under other antitrust principles.
Several justices suggested that they might rule against the league on the narrow question in the case — whether it was entirely immune from antitrust scrutiny because it is a single entity.
It may well be, these justices indicated, that the league will eventually prevail in the lawsuit by showing that its licensing practices did not harm competition. But that is a different proposition from saying that an inquiry under what antitrust lawyers call the “rule of reason” ought not be undertaken at all.
“If the reasonableness of this decision, that T-shirts promote the game, is so self-evident, then why wouldn’t the rule of reason control completely?” Justice Sonia Sotomayor asked Mr. Levy. “Why do we need to even go to the single-entity question?”
A unanimous three-judge panel of the United States Court of Appeals for the Seventh Circuit, in Chicago, ruled for the N.F.L. in 2008 on the ground that the league is a single entity.
Mr. Levy, the lawyer for the league, asserted Wednesday that merchandising deals are made only to promote the sport — “to get more people interested in watching the games on television, to get more people interested in buying tickets to the game.”
That met with a skeptical response from Justice Scalia.
“The purpose is to make money,” Justice Scalia said. “I don’t think that they care whether the sale of the helmet or the T-shirt promotes the game. They sell it to make money from the sale.”
When Mr. Levy disagreed, Justice Scalia said the issue, being at least debatable, should be resolved at trial.
Justice Stephen G. Breyer also said he thought playing football games and manufacturing hats were different things. One requires two teams, the other but one. “I thought we were talking about T-shirts and helmets,” he said. “I thought it’s the simplest thing in the world. You pick up the phone and say: ‘Hello, Shanghai, do you have a helmet?’ ”
Justice Breyer probed Mr. Nager’s position with questions about another sport. (“I know baseball better,” the justice said.)
“You want the Red Sox to compete in selling T-shirts with the Yankees, is that right?” Justice Breyer asked.
Mr. Nager said yes.
That sort of competition would be pointless, Breyer responded. “I don’t know a Red Sox fan who would take a Yankees sweatshirt if you gave it away,” he said.
Go to Article from The New York Times »