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Analysis: Obama, the hat, and the Court


During the presidential campaign, when Barack Obama went out for exercise, he was often wearing a ball cap displaying his loyalty to the Chicago White Sox. That hat, though well-worn, apparently was so dear to him that he would not cast it aside when the Sox’s board chairman, Jerry Reinsdorf, offered him a couple of new hats to take its place, the Chicago Tribune has reported.

If the hat is still around, someone should check to see who made it.  There is a fair chance it was made by Reebok.  And that may be of some legal significance.

One of Reebok’s would-be rivals in the hat business is a company in Obama’s home state, American Needle, Inc., a manufacturer of sports hats, uniforms, and other apparel.  It is based in the village of Buffalo Grove, 35 miles north of Chicago.

Now that Obama is President, his government lawyers will be weighing in — at the Supreme Court’s invitation — on a case filed at the Court by American Needle, a case that has the major pro sports leagues’ rapt attention. (The petition and other filings are linked at the bottom of this post, after the jump.)

In fact, the National Football League, the National Basketball Association, and the National Hockey League — all the big-time sports combines except baseball and soccer — have told the Court they want it to hear Amercian Needle’s case, even though it is targeted at one of them, the NFL, with a potential impact on all of them. On Feb. 23, rather than making up its mind at that time whether to hear the case, the Justices sought first to get advice from the U.S. Solicitor General.

The case raises a core question of antitrust law: what kind of joint ventures, perhaps including pro sports leagues, are immune to the Sherman Act because they may qualify as “single entities”?  To American Needle, it is all about whether it is going to be allowed to compete with Reebok International, Ltd.., to sell league-sanctioned sports apparel, like hats.

The NFL used to license American Needle to sell hats that bore the logos, the names or other insignia of pro football teams.  That was when NFL Properties was allowing various companies the right to produce goods bearing their trademarked imagery.  It was all part of an effort to build up the public exposure of pro football as an event on which the public would spend its entertainment dollars.

But, in 2000, the NFL opted to solicit bids for an exclusive license to produce caps and other headwear.  Reebok won the bidding, and in 2001 got an exclusive ten-year license.  American Needle’s license was not renewed. So it sued the NFL, all of its teams, NFL Properties, and Reebok.

American Needle’s case was thrown out by lower courts.  Most of the discussion there focused on the Sherman Act’s Section 1.  It outlaws “every contract, combination in the form of trust or otherwise, or conspiracy” that seeks to restraint commercial activity among the states.  If an entity sued is considered a single operation, though, there is no one to “combine” or “conspire” with but itself, so the Sherman Act does not apply, as a general rule.

The Seventh Circuit Court, in rejecting American Needle’s Sherman Act claims last August, focused upon a premise that clearly led to its conclusion: that is, the NFL and its 32 teams are just one entity, at least for purposes of licensing their protected images for sale on consumer goods for fans.

“Certainly,” the Circuit Court said, “the NFL teams can function only as one source of economic power when collectively producing NFL football.  Asserting that a single football team could produce a football game is less of a legal argument than it is a Zen riddle. Who wins when a football team plays itself?”

Selling identifying goods to build itself up in the entertainment market, the Circuit Court found, is part of selling its single product: pro football games.  It concluded: “The NFL teams are best described as a single source of economic power when promoting NFL football through licensing the teams’ intellectual property, and we thus cannot say that the District Court was wrong to so conclude.”

The case, from a sports perspective of law, may turn on what the Supreme Court meant in the 1957 decision in Radovitch v. NFL.  There, as American Needle notes in its petition to the Supreme Court, the Justices ruled that the NFL is subject to antitrust liability for violations of Sherman Act Section 1.  The Court declined to extend to pro football and other sports leagues the antitrust immunity that major league baseball alone has had since an idiosyncratic 1922 Supreme Court ruling.

But, for businesses beyond big-time sports, American Needle’s case may be seen as more important for what it might lead the Court to say about the present meaning of a 1984 ruling, in Copperweld Corp. v. Independence Tube Corp. There, the Court ruled that a parent corporation and its wholly-owned subsidiary can be treated as a single entity for antitrust purposes.

Lower courts have extended this approach to other arrangements, including affiliated companies involved in joint ventures.  American Needle argued that it is time for the Supreme Court to get involved again, at least as to pro sports.  It argues that the Seventh Circuit ruling not only conflicts with the Radovitch decision, but with rulings in six other federal Circuit Courts.

“The Court has stated, on more than one occasion,” American Needle asserted, “that application of the Sherman Act to professional sports teams is wholly consistent with Congressional inent.”  The Seventh Circuit, it added, “stands alone” in concluding otherwise.

Ordinarily, when everyone involved in a case, plus outsiders, agree that the Court should review it, that is quite persuasive with the Court.  But the Justices are looking for some legal advice before they act.

When the Court asks the Solicitor General for the government’s legal views on a case, it often takes months for that office to respond.  The Court does not set deadlines for such briefs.  The new leaders of the Solicitor General’s office in the Obama Administration will determine what schedule they plan to keep.

With so much else on the President’s calendar, government lawyers may not want to bother to involve him in this case even though Obama is a committed fan of sports — and, of course, is a consumer of some of its merchandise (perhaps with a Reebok label).