American Needle pt. 3: "I Got Yer 'Single Entity' Right Here!"

(For more extensive background info on this case, see here and here.  No, really, go ahead and read those.  We'll all sit here and wait while YOU catch up.  Everyone is on YOUR schedule, I guess.)

On Monday, the Supreme Court handed down its decision in American Needle, Inc. v. National Football League, et. al, 560 U.S. ___ (2010).  In that decision, a unanimous court reversed the Seventh Circuit decision that had found the NFL to be a "single entity" for purposes of anti-trust law, and it remanded the case to the Seventh Circuit for further proceedings on the remaining issues.

After the jump, we'll take a look at the decision, see how it compares with what we (read: I) thought a few months ago, and probably make fun of some other people along the way.  It'll be fun, I promise.

Back in January, I attempted to summarize the single-entity argument being made by the NFL:

It is probably an understatement to say that courts have had a hard time uniformly applying antitrust laws to professional sports leagues.  In 1922, Major League Baseball was granted a blanket exemption to antitrust laws (which was scaled back slightly by the Curt Flood Act of 1998, at least vis-a-vis employment rights of baseball players).  Both the NFL and NBA subsequently sought the same exemption, only to see the Court rule that the exemption (a) probably wouldn't have been granted to baseball if they could do it all over again and (b) regardless, the exemption applied only to MLB.  (For a relevant NFL case, see Radovich v. NFL, 352 U.S. 445 (1957).)

However, because they have recognized that NFL teams (and other pro sports teams) have a unique relationship with one another -- one team cannot stage its own games, for example -- courts have refused to find every agreement between teams per se illegal, even where the agreements would likely be illegal under antitrust laws if they were made in a different industry.  Instead, courts have focused on whether an agreement is, in fact, an unreasonable restraint on competition.

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Perhaps emboldened by the Seventh Circuit's ruling in Chicago Professional Sports Limited Partnership v. NBA, in American Needle (Bulls II), the NFL latched on to the unique relationship between teams, arguing that no team "can produce even a single unit of production—one football game—on its own; only through their collective actions can the member clubs produce the full season of games, including the playoff and Super Bowl games, that make NFL Football a unique and valuable product."  Thus, the argument goes, no single team has a tangible economic value outside the confines of its place in the league as a whole, and the league must therefore be seen as a single entity. 

In rejecting the NFL's arguments, the unanimous opinion said, basically, five things:

1. Section 1 of the Sherman Antitrust Act treats concerted action (i.e., 32 teams in an agreement) more strictly than unilateral action (i.e., NFL as a single entity).


2. There is no hard and fast test that the Court will apply to determine whether something is a concerted action; they have found concerted action in previous cases even where the company in question was a legal single entity where the entity was really just a front for competitors working jointly.


3. What is important, then, is not whether the NFL is a single entity in some broad we-can't-play-games-by-ourselves sense, but whether the agreement re: licensing agreements for apparel joins together "separate economic actors pursuing separate economic interests" to the extent that it "deprives the marketplace of independent centers of decisionmaking."


4. While the 32 teams may, at times, have common interests that are represented by the NFLP, they remain competitors with different leaders, different business models, different decisionmakers, etc.  Therefore, actions by the NFLP to license the teams' separately owned intellectual property are concerted actions under the meaning of Section 1 just as they would be if the 32 teams took the action as a group.


5. The NFL obviously has to have cooperation among the teams to a certain extent to play games and to generally promote the league, so some restraints on trade might be necessary, in which case courts should apply the Rule of Reason.  In this case, however, section 1 applies.

SO...yeah.  What does this holding actually mean?  Not much other than the Seventh Circuit now has to decide whether the NFLP licensing agreement with Reebok unreasonably restrains trade.  The NFL "lost" this decision, but only in the sense that they didn't get to keep the sweet, sweet single-entity status that they have coveted for so long.  It is still possible that the Seventh Circuit will decide that the agreement with Reebok is fine (though I would say that is unlikely).

Had the court not included the caveat in #5 above, this ruling would be far more important, as it would more directly apply to the current CBA stuff.  Quoting myself again:

The class action settlement agreement in White v. National Football League addressed the application of the nonstatutory labor exemption. In the event that a majority of the players choose union representation and the NFL and the players' union execute a CBA embodying terms of the settlement agreement, the labor exemption would cover those terms. After CBA expiration, the settlement agreement prohibits asserting claims of antitrust violations until after the parties have either bargained to impasse or six months have elapsed since expiration of a CBA, whichever is later. At that time, "the Parties shall be free to make any available argument that any provision or practice authorized by this Agreement . . . is or is not then entitled to any labor exemption." (emphasis added)

This provision basically imposes general principles of contract law in an effort to settle the otherwise confusing issue of when the protections of the nonstatutory exemption cease. The labor exemption provision essentially delays -- either for six months or until the parties reach impasse -- the need to raise the issue of the exemption's proper length. During this period, presumably the parties may be able to resolve their differences on their own.

Translation: If the CBA expires and a new one is not reached within six months, if the negotiations fall apart, the league becomes theoretically vulnerable to antitrust lawsuits.  There is also an issue of labor laws allowing the NFL to set new payscales, etc., on their own if they claim impasse prior to the six-month deadline, but that's a whole separate can of worms.

So, without #5, the odds of the NFL being able to claim single-entity status and completely avoid antitrust liability in the event of a negotiations breakdown would be nil. Instead, we get the hedging language, which at least leaves open a possibility that the NFL still be able to avoid such liability by claiming that this was one of the areas where the "NFL obviously has to have cooperation among the teams." It's a weak argument, no doubt, but weaker arguments have won in the past. And, with Stevens leaving the Court, one of the stronger pro-player votes leaves with him.

So, to summarize: Court says, "No, you're not a single entity. Go back and try again." Ruling has only minimal impact on the CBA issue down the road. The End?