May 24 (Bloomberg) -- The U.S. Supreme Court exposed professional sports leagues to greater antitrust scrutiny, reviving a suit over the National Football League’s agreement with Adidas AG’s Reebok to sell clothing bearing team insignias.
The justices unanimously ruled that the league should be treated for antitrust purposes as 32 separate teams, rather than as a group, in the way it licenses its trademark rights. Group treatment would have insulated the league from suits claiming its licensing practices thwarted competition and raised prices.
“The teams compete in the market for intellectual property,” Justice John Paul Stevens wrote for the court. “To a firm making hats, the Saints and the Colts are two potentially competing suppliers of valuable trademarks.”
The ruling is a blow to pro sports leagues, which had sought to win a broad shield from antitrust claims over video-game licenses, television rights, franchise relocation and even player salaries. Only Major League Baseball is exempt from antitrust laws now.
A victory in the case might have bolstered the NFL’s leverage in contract negotiations with its players’ union. The two sides are aiming to avoid a work stoppage after next season.
“Had the NFL won this decision, it would have taken away the union’s option to decertify and bring an antitrust suit against the league,” said Gary Roberts, dean of the Indiana University School of Law in Indianapolis and co-author of a sports law casebook. “The threat of that changes the bargaining a little bit.”
Greg Aiello, a spokesman for the NFL, said the decision “has no bearing on collective bargaining, which is governed by labor law.” He said the NFL is optimistic about winning the apparel lawsuit because the league’s collective licensing approach is “reasonable, pro-competitive and entirely lawful.”
DeMaurice Smith, executive director of the NFL Players Association, said the ruling “is not only a win for the players past, present and future, but a win for the fans.”
The decision might give the highest-profile teams, including the Dallas Cowboys and Washington Redskins, more freedom to strike their own licensing deals -- or demand a higher share of the league’s apparel revenue.
Exploiting the Decision
“The teams that have the stronger brands have the potential for exploiting this decision to enter into their own licensing arrangements,” said Steven G. Bradbury, an antitrust lawyer at Dechert LLP who was involved in a pro football antitrust case decided by the Supreme Court in 1996.
In 1995, the NFL sought to stop Cowboys team owner Jerry Jones from striking separate licensing deals. The league sued, and the Cowboys invoked the antitrust laws in a countersuit. The two sides eventually settled.
The latest case centers on a suit by American Needle Inc., which lost its right to sell team caps in 2000 when the league reached its accord with Reebok, a Massachusetts-based company later acquired by Adidas. American Needle sued the NFL, its teams, their licensing arm and Reebok.
The NFL asked the Supreme Court to declare that franchises operate as a single entity when licensing trademark rights to apparel makers and other vendors. That would have shielded the league and its teams from suits under the federal antitrust law provision that bars conspiracies to restrain trade. The league said trademark licensing helps promote that on-field product.
No Automatic Pass
American Needle, based outside Chicago, said the league structure shouldn’t exempt teams from the usual rule that independently owned businesses face antitrust scrutiny when they act in concert. The company says the Reebok agreement led to price increases.
“Ultimately, the NFL may well win the antitrust case,” said Scott Hemphill, a professor at Columbia Law School in New York. “But the ruling says, ‘We actually have to think about the merits of this case. You can’t get an automatic pass because you are a sports league.’”
The Obama administration took a middle ground in the case, arguing that the NFL is a single entity for only some of its activities.
Topping $3.2 Billion
Retail sales of NFL-licensed merchandise in the U.S. and Canada topped $3.2 billion in 2007, according to the Licensing Letter’s Sports Licensing Report, published by EPM Communications Inc. in New York. Sales of pro football, baseball, basketball, hockey and soccer products combined were more than $9 billion.
Justice Stevens said sports teams can act as a group in other contexts, including scheduling, without risking antitrust liability. “Football teams that need to cooperate are not trapped by antitrust law,” he wrote.
At the same time, he said the antitrust laws put limits on the freedom of teams to act collectively.
“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,” Stevens said.
The ruling may also have implications beyond the sports context, limiting the ability of competitors to band together through joint ventures. Stevens said joint-venture status doesn’t necessarily translate into antitrust immunity.
“This type of ruling is applicable not just to the NFL but to many, many different kinds of joint ventures,” said Matthew Cantor, an antitrust lawyer with Constantine Cannon LLP in New York. He said the decision marks the first high court victory for antitrust plaintiffs since 1992.
The 7th U.S. Circuit Court of Appeals in Chicago threw out the American Needle suit, saying collective licensing would help teams “compete against other entertainment providers.” The NFL took the unusual step of joining American Needle in requesting Supreme Court review.
The NFL had backing from the National Basketball Association, National Hockey League, the National Collegiate Athletic Association and other leagues. Major League Baseball isn’t involved.
Electronic Arts Inc. also supported the NFL. The video-game publisher has an exclusive license to produce video games using NFL players, teams and logos.
The case is American Needle v. National Football League, 08-661.
To contact the reporter on this story: Greg Stohr in Washington at email@example.com.