I. Introduction
The Supreme Court is expected to release its decision in American Needle, Inc. v. NFL in the near future after hearing oral arguments on January 13, 2010. [1] In this case, the National Football League (NFL) is arguing that its teams operate as a single-entity and therefore cannot be held in violation of anti-trust laws. Law professor Marc Edelman suggests that, “[i]f the court adopts the NFL’s single-entity concept, it would change everything.” [2] The view portrayed in Professor Edelman’s statement is shared by many as the result of this case is likely to have its impact on other major sports leagues as well. While many of the implications for the NFL have been discussed through coverage of the case, this article suggests specifically how those changes would affect fans of the National Hockey League (NHL).
II. Background
On July 29, 2009, the Supreme Court granted certiorari to hear American Needle, Inc. v. NFL. [3] Until 2000 when American Needle ended its relationship with the NFL, American Needle had made knit caps and baseball hats with NFL logos for decades. [4] This relationship ended as a result of a decision by NFL Properties, a separate corporate entity formed by the NFL teams, to “license and market both the league- and team-owned intellectual property and to advertise and promote the sport of professional football.” [5] In 2001, NFL Properties did not renew American Needle’s license to manufacture and merchandise NFL headwear. [6] Instead, NFL Properties granted an exclusive headwear license to Reebok International, Ltd. [7] As a result of this decision, American Needle, Inc. filed an anti-trust case against the NFL in claiming that the NFL “was using its monopoly powers illegally to deprive the company of its share of the market for caps and hats bearing logos of NFL teams.” [8]
Unfortunately for American Needle and sports fans, courts have not agreed with American Needle. First, the United States District Court for the Northern District of Illinois held against American Needle. [9] The court determined that the licensing agreement between the NFL and Reebok promoted NFL football. Further, by promoting the NFL through this collective licensing agreement, “the NFL teams ‘act[] as an economic unit’ in such a manner that ‘they should be deemed a single entity.’” [10] In its appeal to the United States Court of Appeals for the Seventh Circuit American Needle argued that the district court incorrectly concluded that the NFL teams constitute a single entity when collectively licensing their intellectual property. [11] American Needle’s primary argument for why NFL teams do not constitute a single was “that each team ‘could’ compete against the others in licensing their intellectual property, and that, therefore, NFL Properties functioned to deprive the marketplace of independent sources of economic power.” [12]
The Seventh Circuit, in August 2008, disagreed with American Needle’s argument and held that the NFL and its teams operate as a single entity. [13] The Seventh Circuit, decided that “NFL teams can function only as one source of economic power when collectively producing NFL football,” [14], and as one source of economic power, the NFL constituted a single entity. The court pointed to the fact that a single football team could not produce a football game by itself and therefore “the NFL teams share a vital economic interest in promoting NFL football.” [15] The court further suggests that the marketplace did provide independent sources of economic power because “the league competes with other forms of an audience of finite (if extremely large) size, and the loss of audience members to alternate forms of entertainment necessarily impacts the individual teams’ success.” [16] The significance of this is that a single entity may not conspire with itself. [17] As a single entity, the NFL would only be open to anti-trust scrutiny if the NFL joined other leagues, such as the NHL, or other providers of entertainment to set prices. [18] As a result, it would be very difficult for the NFL to violate section 1 of the Sherman Act, which prohibits concerted action that unreasonably restrains trade. [19]
In the past, football and basketball unions have used the threat of anti-trust litigation as a way to further the interests of their players. [20] Without this potential threat, unions for athletes would have far less leverage with which to negotiate. [21] Deadlocks will no longer be solved by the courts but instead by player strikes. [22] As seen in Major League Baseball (MLB) and the NHL, strikes can have disastrous effects on the players, owners, and fans. These effects include revenue losses in the absence of games and also many fans are turned off from watching millionaires complaining about enormous salaries.
It appears that this decision has already had some impact on the NHL as well. For example, the Phoenix Coyotes would like to sell their franchise through a bankruptcy proceeding. [23] However, to do so, the Coyotes must have approval of the NHL’s Board of Governors, which has refused to approve the sale the franchises preferred buyer. [24]. In the bankruptcy proceeding for the Phoenix Coyotes, the NHL used American Needle as persuasive authority to argue that the Coyotes “cannot state an anti-trust claim against the NHL” and cites to the Seventh Circuit’s decision. [25]
To prevent the possibility that the NHL will also be held to be a single entity, Paul Kelly, former NHL Players’ Association (NHLPA) Executive Director and the NHLPA hired Laurence Gold. [26] Laurence Gold is a Harvard Law School graduate and served as general counsel of the AFL-CIO. Gold joins hires by the MLB and American Needle in assembling an “all star” team of lawyers to argue against the NFL. [27]
III. Analysis – Impact on the NHL
The impact of a court’s decision in the Phoenix Coyotes bankruptcy case, seems unlikely to be felt by Phoenix Coyotes fans unless the team moves, however the changes predicted as a result of a Supreme Court decision in favor of the NFL will be felt by fans and players of all major league sports teams. As American Needle, Inc. v. NFL, deals directly with allowing one entity to retain a license for league headwear, it is certainly conceivable that a holding in favor of the NFL could allow sports leagues to similarly allow for only one source of all league apparel. Conceivably, the owners of NHL teams could work together to set the price of jerseys at $300. [28] A substantial increase from the current price, but if the NHL was the only source for the license to manufacture these jerseys, they would be the only seller and could determine any price they wanted.
As a single entity the NHL could obtain protection from other anti-trust litigation as well. For example, networks that retain the sole right to broadcast a certain game, such as the NFL network, have been the subject of controversy. [29] The NHL has recently created its own network and has recently begun to broadcast some of its games on Versus Network. This creates controversy because games that were once free to view now require fans to pay, sometimes significantly more, to view the games. [30] With anti-trust protection, the NHL could air more and more games exclusively on cable networks that require additional fees, thus making it more difficult for fans to watch hockey.
In 2004, the NFL entered into a contract with Electronic Arts giving Electronic Arts the exclusive right to use NFL players, images, teams, logos, trademarks, and statistics. [31] In recent years, Electronic Arts have been able to raise the price of its Madden NFL games in the absence of competition, while also being criticized for lacking innovation. [32] This appears to be a result of limited competition. Similarly, if the NHL exclusively licensed the right to use its players, images, teams, logos, trademarks, and statistics to a single company, it is possible that fans of the NHL will have to accept paying higher prices for lower quality video games as well.
The NHL’s Collective Bargaining Agreement ends in 2011. [33] As previously mentioned one of the major bargaining tools of players is the threat of anti-trust litigation. Without this tool on the side of the NHL’s players, the players may have to make certain concessions that in the past they had the ability to avoid, or else face the negative consequences of going on strike. For example, players will face the possibility of owners working together to place limits on salaries and restricting free agency rights. Personally, as a Chicago Blackhawks fan, this could be very significant. While the team’s core in Patrick Kane, Jonathan Toews, Duncan Keith, Marian Hossa, and Brian Campbell are all signed beyond 2012, the Blackhawks will have ten free agents heading into the summer. [34] For these ten free agents uncertainty could be on the horizon. With salary cap issues looming already for the Blackhawks, a decreased salary cap could result in these free agents looking elsewhere, and settling for a significantly lower contract than those who were lucky to sign long term deals prior to the Supreme Court’s decision. Coaches and managers, who cannot form a union as they are part of management, would face the threat of a salary schedule that could substantially limit their compensation as well. [35] This is not fair for Blackhawks coach Joel Quenneville and team president John McDonough who have helped to turn around a franchise.
IV. Analysis – Legal Impact and Recommendation
In addition to the negative anti-competitive effects classifying a sports league and its teams as a single entity could have on fans of the major sports leagues, there are also arguments against the reasoning that the Seventh Circuit used in making the holding it did. First, the Seventh Circuit’s reliance on the fact that a football team could not play a game against themselves, fails to consider that teams “could compete over the sale of apparel and thus could join hands in anticompetitive ways.” [36] Therefore, while a parent-subsidiary relationship could be considered a single-entity, as a wholly owned subsidiary lacks the ability to act independently, an individual team with a highly marketable logo may find it desirable to separately compete with the NFL’s apparel license. [37] The Seventh Circuit seemed to ignore the fact that the Dallas Cowboys successfully sued the NFL and NFL Properties to keep revenue from its merchandise rather than to share it with other NFL teams. [38] Therefore, without considering more than a single team’s reliance on other teams to make games happen, the Seventh Circuit failed to consider other factors to determine whether NFL teams actually do constitute a single economic power, and whether the NFL’s exclusive contract with Reebok negatively impacts market competition and the interests of fans. [39]
A second place where the Seventh Circuit may have overlooked how the NFL actually operates is with regards to ownership of intellectual property of the individual teams. Individual franchises retain ownership in their own intellectual property. [40] If the NFL was a single entity it would seem to follow that the NFL would own these intellectual property rights rather than the individual teams.
Perhaps the strongest argument against the Seventh Circuit’s holding is that the court seemed to pay little attention to precedent. [41]. While the circuit court is not required to follow what other courts have done, other federal circuit courts have been unwilling to hold that any other professional sports league and its franchises are a single entity. [42] It is for these reasons, I believe that the Supreme Court should find against the NFL and determine that the NFL is not a single entity.
V. Conclusion
The sports industry is an extremely successful industry. The NFL is one of the most successful sports leagues and even one of the most successful collections of business in America. [43] NFL club revenues expanded from close to $970 million in 1989 to over $6.5 billion in 2008. [44] The NHL has similarly experienced strong growth during the same period. [45] However, the NHL’s lockout and cancellation of the 2004-2005 season, resulted in significant losses in revenue and fans. In addition to another lockout being the only action the NHL’s players union could take to assert itself, the effect of the Supreme Court finding in favor of the NFL would likely cost the NHL additional fans as many will not be able to afford increases in merchandise prices and the cost to continue to see games.
[1] Lester Munson, The NFL’s Latest Legal Muscle Pose, ESPN.com Feb. 4, 2010, available at http://sports.espn.go.com/espn/commentary/news/story?page=munson/100204.
[2] Lester Munson, Anti-trust Case Could be Armageddon, ESPN.com Jul. 17, 2009, available at http://sports.espn.go.com/espn/columns/story?columnist=munson_lester&id=4336261.
[3] Steven Semeraro, Is the National Football League a “Single Entity” Incapable of Conspiring Under the Sherman Act?: The Supreme Court Will Decide, 32 T. Jefferson L. Rev. 1, 2 (2009).
[4] Munson, supra note 2.
[5] James A. Keyte, American Needle Reinvigorates the Single-Entity Debate, 23-SUM Anti-trust, 48, 49 (2009).
[6] Id.
[7] Id.
[8] Munson, supra note 2.
[9] American Needle, Inc. v. New Orleans Saints, 496 F.Supp.2d 941 (N.D. Ill. 2007).
[10] American Needle, Inc. v. National Football League, 538 F.3d 736, 740 (7th Cir. 2008).
[11] Id. at 741.
[12] Keyte, supra note 5.
[13] American Needle, Inc. v. National Football League, 538 F.3d 736 (7th Cir. 2008).
[14] Id. at 743.
[15] Id.
[16] Id.
[17] Michael. A. McCann, American Needle v. NFL: An Opportunity to Reshape Sports Law, 119 Yale L.J. 726, 728 (2010).
[18] Munson, supra note 2.
[19] Sherman Anti-trust Act § 1, 15 U.S.C. § 1 (2006).
[20] Munson, supra note 2.
[21] Id.
[22] Id.
[23] McCann, supra note 17.
[24] Id.
[25] Michael. A. McCann, American Needle v. NFL: An Opportunity to Reshape Sports Law, 119 Yale L.J. 726, 728 (2010) (citing National Hockey League’s Motion to Dismiss or in the Alternative for Summary Judgment at 3, In re Dewey Ranch Hockey, 406 B.R. 30, (No. 2:09-bk-09488-RTBP)).
[26] Munson, supra note 2.[27] Id.
[28] Id.
[29] McCann, supra note 17 at 763.
[30] Id.
[31] McCann, supra note 17 at 764.
[32] McCann, supra note 17 at 765.
[33] McCann, supra note 17 at 766 (citing Steve Zipay, Briefs, Newsday, Sept. 1, at A48).
[34] 2009-10 Player Tracker, Blackhaws.nhl.com Apr. 3, 2010, available at http://blackhawks.nhl.com/club/page.htm?id=47390.
[35] Munson, supra note 2.
[36] McCann, supra note 17 at 756.
[37] Id.
[38] Id.
[39] Id.
[40] McCann, supra note 17 at 756.
[41] Id. at 757.
[42] Id.
[43] Marc Edelman, Why the “Single Entity” Defense Can Never Apply to NFL Clubs: A Primer on Property-Rights Theory in Professional Sports, 18 Fordham Intell. Prop. Media & Ent. L.J. 891 (2008).
[44] Id.
[45] Id.