Analysis

If the National Football League, and other pro sports leagues, want to combine their efforts in commercial activity, they probably are going to have to justify that in federal court, in perhaps prolonged trials focusing on whether any such action is really for the good of the game, or is aimed only at making more money.  Just one trip to the Supreme Court to avoid that, it appears, will not be enough.  That prospect loomed on Wednesday as the Justices weighed the NFL’s broad claim to antitrust immunity for joint operations, a claim that the other pro sports leagues similarly make.

The Court heard 70 minutes of oral argument in American Needle v. NFL (08-661), a case that supposedly was to focus on a single, simple question: is the NFL, along with its 32 teams, a “single entity” and therefore immune to the Sherman Antitrust Act when they act jointly in a business effort? But Justice after Justice insisted strenuously that that is not really the issue, and that the case probably needs to go back to the lower courts for a potentially penetrating inquiry into what kinds of commerce are closely enough related to pro football itself that they escape antitrust liability.

The specific kind of activity under legal attack in the case is the joint effort of the NFL and its teams to sell, through only one dealer, hats, jerseys, and other fan gear displaying the teams’ trademarked logos.  While the NFL insists that that is crucial to promoting the popularity of the games on the field, it did not appear that any Justice was firmly convinced — right now — of that.  From the bench, for example, came the question of whether the NFL could escape antitrust liability if it decided, jointly, to build houses.  While the NFL’s lawyer said that would not promote the game, Chief Justice John G. Roberts, Jr., shot back, reciting the other side’s contention that selling trademarked goods was closer to selling houses than it was to promoting football games.  And that, it seems, is precisely the issue that would dominate a subsequent trial on the legality of joint selling of fan goods.

While some of the Justices did seem sympathetic to the notion that it could be very costly, in court and legal fees, to pursue an inquiry into the necessity of a joint economic project by a sports combine, they did not appear to be saying that the expense would be enough to head off that inquiry entirely, especially if some way could be found to settle the issue without a full-scale trial.  It was not clear what such a short-cut procedure might be, however.  The Chief Justice at one point seemed to be saying that it would not be easy to simplify or narrow down a rule-of-reason inquiry

One issue that did not seem to be in the case when it reached the Court did make an appearance during the argument: whether forcing the NFL to justify joint activity by it and its teams would extend to collective writing and enforcing the playing rules.  Justice Anthony M. Kennedy, for example, wondered if changes that might benefit teams with one style of play — such as a rule to give quarterbacks more protection — might be open to an antitrust challenge that it would harm other teams with different game plans, and thus did not benefit all of the league.  It was not clear that the Court would allow such claims to go forward, but it also was not clear that a ruling in the case against the NFL’s immunity claim would foreclose that kind of challenge.   The lawyer for the NFL’s challenger, American Needle, Inc., Glen D. Nager, suggested that such a claim might be made, but could be fairly easy for the NFL to defeat.

The content of the entire argument strongly suggested that there was not now a majority either to uphold broad immunity for pro sports leagues’ joint commercial enterprises, or to make everything the league and its teams do jointly open to antitrust challenge.  What most of the Justices seemed to be tempted by was a middle-ground approach, with each specific joint effort tested under a “rule of reason” analysis to determine whether it was essential to the success of the sporting enterprise.  Justice Kennedy, for example, said the degree of antitrust liability was “serious stuff,” including the prospect for tripled damages verdicts, and thus he sought guidance on “a zone where we are sure a rule-of-reason inquiry would be inappropriate?”

But if the outcome of this case is to mandate some rule-of-reason inquiry, even that would amount to a significant tactical loss for pro sports. The NFL, clearly representing the views of all pro sports leagues and teams, wants the Court to establish firmly that the teams have no independent economic power, so their joint efforts make them a legally immune “single entity.”

Justice Stephen G. Breyer, in particular, strove throughout the hearing to frame the kind of inquiry that would have to be made to test the legality of joint commercial enterprises, at least in the sports industry.  Although at one point Justice Antonin Scalia, who seemed intent on simplifying the case, succeeded in driving Breyer into silence with his complex inquiries on antitrust process, Breyer did not remain silent for long.  It was clear, by the end of the argument, that other Justices, like Breyer, were trying to figure out what’s next on joint economic activity by independently owned enterprises, especially in pro sports.

Justice Scalia’s approach appeared to be for the Court to directly address, now, the granted question — whether the NFL and its teams comprise a “single-entity” — and then, if the finding is that they are not, send the case back for a specific inquiry into the legality of joint marketing of fan goods.  But Scalia did not propose a line of inquiry that would determine when, in fact, a single entity did exist, apparently assuming that that would occur to the Justices as they moved toward a decision.

Measuring the intensity of the probing by the Justices, it was apparent that the NFL’s lawyer, Gregg M. Levy, was under more pressurer than American Needle’s counsel.  He had a simpler argument, repeatedly storessing that NFL individual teams have no economic power of their own, but that was an argument largely confined to the single-entity question.  He had significant difficulty, it seemed, navigating through the Justices’ questions on how legally to justify the cap-selling monopoly the NFL and its teams had awarded to Reebok International and how to show that that approach was crucial to the success of staging pro football games.

Posted in American Needle v. NFL, Merits Cases