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Analysis: No antitrust “Trojan horse”


As the Supreme Court moved in to referee a major dispute over pro sports leagues and their plea for antitrust immunity, the labor unions that represent the players in those leagues warned the Justices not to allow team owners to send a “Trojan horse” into that arena.  Whether or not that was a valid fear, the Court with Monday’s decision clearly did not give team owners a free pass to carry on a wide range of joint activity to promote their sport with American consumers.   But neither did the Court add much of anything new to antitrust law in general.

The National Football League’s owners had won a major exemption from Sherman Act liability in the Seventh Circuit Court for themselves and for the owners in other pro leagues.  They won a new right to agree among themselves that only a single outlet could sell hats, sweatshirts and other gear bearing the teams identifying logos and names.  But the bigger part of the victory was that the Circuit Court made a significant leap in the reasoning behind that exemption.  It ruled that, if a sports league seeks to promote its “brand” or its “product,” it must do so, as a matter of economic reality, through a joint venture, with no one competing with anyone else.

By itself, that was no small thing, in dollars and cents.  Fan loyalty often expresses itself in the purchasing and wearing of identifying team gear; President Obama, for example, is so devoted to his hometown Chicago White Sox that he actually wore his Sox cap as he threw the first pitch for another baseball team’s opening game.   That was commonly taken to be a sacrilege.

How much further beyond trademark licensing this exemption might have gone, no one could be quite sure.  The players’ unions, in their expressed fear of a “Trojan horse,” speculated that the leagues would next argue that “promoting” the game also meant a joint, anti-competitive deal on players’ salaries and selection.  And the coaches, in turn, worried about an anti-competitive approach to hiring and paying the on-the-field managers. And so on.

The Supreme Court, ruling unanimously in American Needle v. NFL (08-661), put at least a temporary end to the speculation — at least to this extent: a claim that joint action is the only way to promote the “brand” of “NFL football” was simply but firmly rejected.   Justice John Paul Stevens wrote that “defining the product as ‘NFL football’ puts the cart before the horse.  Of course, the NFL produces NFL football, but that does not mean that cooperation amongst NFL teams is immune from [Sherman Act] scrutiny.  Members of any cartel could insist that their cooperation is necessary to produce the ‘cartel product’ and compete with other products.”

If promoting pro football with the consuming public is the economic goal, “there would be nothing to prevent each of the teams from making its own market decisions relating to purchases of apparel and headwear, to the sale of such items, and to the granting of licenses to use its trademarks,” Stevens said.  “Competitors,” he added, quoting colleague Justice Sonia Sotomayor when she was a judge on the Second Circuit Court, ” ‘cannot simply get around’ antitrust liability by acting ‘through a third-party intermediary or ‘joint venture.’ ”

The concluding part of the opinion represented an attempt to narrow the scope of the ruling, suggesting that the NFL and other pro leagues may well be entitled to quite broad antitrust immunity for such joint efforts as producing and scheduling games, taking steps to maintain “a competitive balance” between teams, and acting to ensure that the sport makes money.  The actual legality of any joint practice, the Court made clear, was not being decided in this case — including the specific tactic of joint marketing of the right to use team trademarks.  Each “collective decision” a league chooses to make, the opinion concluded, is to be judged by an antitrust “rule of reason” — a flexible standard that is keyed to particular facts and circumstances.

The trademark licensing case now returns to the Seventh Circuit, and very likely back to District Court, for a trial on whether that scheme is, in fact, an “unreasonable restraint of trade” in the way that it actually operates.   The outcome was not foreordained by Monday’s ruling.

While the American Needle case always had the potential to produce a significant new statement from the Court on the Sherman Act’s application to commercial “joint ventures” in general, in the end it did not do so.   Much of Justice Stevens’ opinion is simply a reiteration of past rulings on such collective activity, and, indeed, did not mark any deviation from the main precedent on the subject, the Court’s 1984 decision in Copperweld Corp. v. Independence Tube Corp. Stevens was an entirely faithful follower of that decision — even though he had dissented when it was issued.