(Follow-Up) American Needle, Inc. v. National Football League: The Sky Appears To Still Be Intact

[See original post here for background info]

Oral arguments were held Wednesday in American Needle, Inc. v. National Football League.  While we won't have an actual ruling handed down for a while -- I still think this will be a last-day-of-the-term decision if the NFL wins on any but the narrowest grounds (which is looking less likely, in this guy's humble opinion) -- the general consensus seems to be that the Court was not buying the single-entity argument.  After reading through the argument transcript, a few things seem noteworthy:

  • Some of the current members of the Supreme Court watch football about as often as they watch full solar eclipses.  Justices Sotomayor and Breyer openly admitted to not really knowing much about the game in terms of which teams play one another, etc.  (Breyer's attempt to name a rival of the Patriots -- how about "playing by the rules?" ZING! -- was particularly entertaining as he could not name one and instead just used Yankess and Red Sox as an analogy.) 
  • Attorney for American Needle Glen D. Nager really struggled defining the issue(s) the Court was to consider.  This is never a good thing when you are the plaintiff, obviously, who has the burden of proving that the Court should reverse the lower court, which becomes exponentially more difficult if the Court is not even totally clear on what you are arguing.
  • While the questioning initially went all over the place trying to pin down exactly what American Needle was arguing, it is important to remember that American Needle is appealing from a grant of summary judgment in favor of the NFL.  Thus, regardless of their specific arguments, at the end of the day, American Needle has to demonstrate, not that they should have (or would have) won or should have been granted summary judgment in their favor, but rather that there is an issue of material fact (which they must show substantial evidence of) and that they should have been allowed to at least go to trial and prove their case against the NFL.  That is, American Needle's goal here is not for the court to say, "ok, you win" and force the NFL to sell more licenses, but for the court to find that there are "material issues" that should have been resolved through a trial.  I feel like I failed to really clarify this part in the original post. 
  • One other procedural note:  the Supreme Court reviews a lower court's decision to grant summary judgment under the de novo standard, meaning that the lower court's determinations on issues are given no deference; the Court makes its own decisions on everything.
  • American Needle's argument, once it became clear through the questioning, is that they should have been allowed to complete discovery on the issue of whether the NFL was a joint venture, the lower courts' limitation of discovery to the single-entity issue and decision that there was no issue of material fact as to whether the NFL was a single-entity was therefore in error, and the case should be remanded to the lower court for discovery and trial on the joint venture question under the "rule of reason."
  • Briefly:  The Court has held that the antitrust act only prohibits agreements that "unreasonably restrain trade."  They have subsequently fashioned the "rule of reason," which is a flexible standard applied to actions that are not illegal on their face.  In applying the rule of reason, courts look at a number of factors to decide whether the particular restraint unreasonably restricts competition, and they look at both pro-competition and anti-competition effects of the restraint. Factors the court considers when applying the rule include the composition of the industry, the defendants' positions within that industry, the ability of the defendants' competitors to respond to the challenged practice, and the actual purpose in adopting the restraint.
  • At the district court level, American Needle argued that the market that was affected by the licensing agreement was not sales of all sports paraphernalia, but only sales of NFL logos and apparel.  The district court agreed that this was a legally permissible argument.  Justice Stevens seemed doubtful that this was the proper scope, but the issue was never really fleshed out.
  • The United States, through the Solicitor General, is nominally on the side of American Needle, in that the S.G. thinks the summary judgment should be overturned and the case remanded for discovery and further litigation if necessary.  However, the U.S. is not totally behind American Needle because they do not really agree with American Needle's theory in the case.  Instead the S.G. proposed a test to be applied on remand, the details of which are not worth discussing here, that none of the Justices really seemed to be interested in adopting.  Still, the fact that the S.G.'s office is pushing for remand makes that result considerably more likely in my opinion.
  • Justice Breyer makes a comment similar to the one I made in the original post about Copperweld being distorted and mis-applied by lower courts.  I really have no point in mentioning this other than to toot my own horn.
  • The other important nugget from the S.G.'s argument is their extrapolation of the logical conclusion to the NFL's argument -- that if the NFL is a single entity collectively under Copperweld, then each of the teams may legally take actions individually or in smaller collectives that would normally be prohibited under antitrust scrutiny.
  • NFL attorney Gregg H. Levy spelled out the NFL's position as, basically, if American Needle is not challenging some part of the formation of the joint venture (i.e. the creation of the league), then licensing of a product produced by the venture (in this case, logos for use on apparel) cannot be an issue because it is venture business rather than concerted acts of each individual member.  This is the position that the S.G. claimed would fail when taken to its logical conclusion.
  • The NFL is, of course, latching on to the Seventh Circuit's use of Copperweld by claiming that the individual NFL clubs are like separate sections of a department store that should not be required or expected to compete with one another, rather than a joint venture as it is traditionally understood. This distinction is because, according to the NFL, no team can produce a game on its own. Therefore, something like selling NFL-logoed hats is promoting the joint venture (the NFL) rather than each each team.
  • This argument prompted one of the best lines from the whole transcript.  In response to the part about apparel promoting the game, Justice Breyer asked, "What does the game have to do with this? I thought we were talking about T-shirts and helmets, and I thought it's the simplest thing in the world. You pick up the phone and say 'Hello, Shanghai, do you have a helmet?'"  How droll!
  • The biggest clue, in my opinion, that suggests there is no chance the Court will give the broad ruling the NFL seeks is the statement by Justice Sotomayor that the NFL is "seeking through this ruling what [they] haven't gotten from Congress: An absolute bar to an antitrust claim."  Mr. Levy quickly tried to re-phrase his position, but that the Court recognizes the role of Congress historically in carving out these broad exemptions makes me think the Court is not going to suddenly create one itself in this case. 
  • A key difference in the positions of the two parties, which really only gets developed in the last few minutes of Mr. Levy's testimony, is that the NFL claims that selling logoed apparel is part-and-parcel of promoting the joint venture, while American Needle is saying that deciding to sell hats with team logos is no different than if the league decided to sell houses and tractors.  That is, the NFL is saying the exclusive license is just part of promoting the league, while American Needle says selling hats is a completely separate activity from the main purpose of the joint venture.
  • Justice Sotomayor asked Mr. Levy why, if he was claiming that the rule of reason would clearly protect the exclusive license agreement as a permissible activity of this joint venture, did the court need to deal with the single-entity question at all rather than remand so that the joint venture question could be tried?  In what was either an odd attempt to persuade fiscally minded Justices or a momentary lapse in sanity, Mr. Levy responded that defending such claims requires "tens of millions of dollars" and "thousands of hours of time."  Really?  Because it will cost you a lot, you shouldn't have to let American Needle even present their case?  
  • Mr. Levy claimed more than once that the logo/trademarks of the teams and the league have no intrinsic value apart from the game, that they are merely tools teams use to identify their players on the field and encourage fan loyalty.  I'm not solid enough in IP law to know for sure, but this seems like a pretty weak argument.
  • Justice Scalia took this "no intrinsic value" argument and ran with it a bit, asking, if the logo is worthless apart from the game, doesn't that same rationale apply to the individual teams such that each team was worthless outside the context of the league?  If so, couldn't the league set fixed prices for the sale of a team?  Mr. Levy answered that, yes, he thought they could, prompting Justice Scalia to quip "I thought I was reducing it to the absurd."
  • I assume Clarence Thomas was in attendance.  Not that you would ever be able to answer such questions from an oral argument transcript.
After reading the transcript twice, I am more and more confident that the Court is going to reverse and remand for trial on the issue of joint venture and rule of reason as applied to the license agreement.  It may be that the NFL wins on this argument at trial, but I think everyone but the NFL wants the league to prove the license agreement can survive some legal scrutiny.  I would set the current odds at: Reverse/Remand -- 3:1, Affirm Lower Court on Narrow Grounds -- 5:1, Affirm on broad grounds sought by NFL -- 100:1.  As for the Court breakdown, I'd put the odds at: 6-3 decision -- 3:1, 5-4 decision -- 5:1, 7-2 decision -- 8:1, unanimous decision -- 25:1, and 8-1 decision -- 50:1.
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