Roger Goodell, Aerosmith, and the Great Big Antitrust Ball of Judgment
This is a guest post by Dogburt. Dogburt is a recent law school graduate longing for his days as a long-winded sports writer. Dogburt so graciously offered to breakdown the significance of yesterday’s Supreme Court Ruling for us.
On May 24, 2010, our gallant nine Supreme Court Justices in a 9-0 decision rejected the NFL’s request for broad antitrust protection. You may have come across this story in the general AP newswire or on the venerable World Wide Leader and then quickly clicked away because it was really freaking long. Well, that’s the way lawyers roll sometimes. If you want to get a more in-depth analysis of the NFL’s tete a tete with a small apparel company, feel free to google it. If you just want a snapshot of what happened over the course of the last year, well, at least I can boast for brevity.
Who started this?
Way back in the forgotten decade we call the 1990’s, a small apparel company called American Needle really enjoyed selling hats bearing NFL trademarks to the dedicated fan bases. However, the NFL decided that it wanted to end the relationship, so it terminated the arrangement with American Needle, ignored the other competitors seeking to secure apparel licenses, and instead moved into an exclusive agreement with Reebok. Reebok therefore became the exclusive distributor for all NFL teams’ apparel.
American Needle was not happy.
Why were they fighting?
So like any red blooded American company, American Needle decided to sue the NFL on anticompetitive grounds under Section I of the Sherman Act. Specifically, the company claimed that when the NFL agreed to an exclusive deal with Reebok, operating on behalf of all 32 NFL teams, the NFL was using its monopoly powers to illegally keep American Needle (as well as other competitors) out of the market for the manufacture of items bearing the NFL logo. Because the NFL is comprised of 32 teams, American Needle argued that the NFL should not be able to deprive companies other than Reebok from attempting to secure licensing agreements with individual teams. Nor, should each team be precluded from securing its own licensing agreement. Rather, each team should be able to negotiate on its own.
The NFL argued rather that they were not 32 individual teams, but rather a “single entity,” and that the NFL had broad discretion in its ability to negotiate apparel deals with the ability to bind the 32 teams to exclusive contracts.
Goliath. They rolled through the trial court and court of appeals like Ray Rice rolls through…ok, I’ll avoid tenuous sports analogies. But they crushed it.
So the NFL won, big deal. Wait, what?
Because of the decisive nature of the lower courts’ decisions, the NFL assumed that American Needle, just like every other company that tried to sue the NFL on antitrust grounds, would fade away in to the sweet good night. However, American Needle still had a bit of fight left in them, so they appealed their case to the Supreme Court – those nine dapper judges of which most enthusiastic Americans could name maybe three.
Here’s where things got interesting – the NFL endorsed American Needle’s appeal to SCOTUS. The natural question is, why would they do that? They won!
The NFL was willing to take 3 points off the board to try for the TD.
What the NFL really wanted was for the highest court in the land to rule conclusively that the NFL was not a collection of 32 individual companies, but a “single entity” that simply was comprised of 32 regional branches. Winning the American Needle case was nice and all, but what the NFL REALLY wanted was legal precedent. If they were to win on the “single entity” notion, then there would be no way for any future party to sue them on antitrust grounds (unless of course they somehow colluded with MLB or the NBA, for example). They could preclude any party from litigation on this point going forward, and would be free to do a number of things with impunity.
What was at risk:
Here’s a quick run-down of a few things that the NFL could potentially do with “single entity” status:
* Permanent immunity from all future antitrust cases.
* Unique control over all pricing structures that are employed by each team- the NFL would effectively be a cartel.
* Owners, which would essentially be regional branch managers, would have the ability to control free agency movement. Because if teams aren’t competing against each other for players, the players lose the ability to effectively negotiate their contracts.
* Coaches and managers would also lose the ability to negotiate their own contracts. They would also lose the ability to form their own labor union, since under labor law management cannot unionize.
* There would be the risk of centralization of all advertising, paraphernalia, TV contracts, and general communication.
* The NFL Player’s Union would lose much of their negotiating power. Their lone hammer in the toolbox would be the ability to strike. Ask MLB how effective that formula works for the long term.
* Ticket prices will go up.
* Most important, it would the legal template for all other pro leagues to follow.
Did a current US Supreme Court nominee play a role?
Indeed – Elena Kagan, then the Solicitor General for the federal government, urged the US Supreme Court to display caution in how to proceed in taking this case. The ramifications for the construction of major league pro sports was potentially Armageddonish. Armageddon-like. The unbreakable Bruce Willis would not be able to save the day. Since, you know, he’s an actor and all, not a lawyer.
Was there a wise Latina involved?
The newest US Supreme Court justice Sonia Sotomayor had a few brushes with pro sports in the past. In 1995, during the MLB work stoppage, she ruled in favor of the baseball players. Also, in 2004, it was Sotomayor’s ruling in the Maurice Clarett case that further empowered the NFL players union to set the standards by which NFL candidates could enter the NFL draft.
Which brings us back to what happened today:
It really wasn’t even close. The NFL gambled that today’s conservative Supreme Court would be sympathetic to their “single entity” argument. The NFL chose…poorly. It was a unanimous decision that held that the NFL and its 32 independent teams were subject to the Sherman Act’s anti-competitive provision in Section I. It is not difficult to see how teams compete directly with each other for all kinds of assets, be they coaches, players, advertising dollars, and TV contracts.
A hat is a hat is a hat. Unless of course one hat bears a Fleur de Lis and another bears a poor facsimile of a bison. Teams will continue to compete with each other not only over which hat a person will buy, but how much to charge them for it.
The money quotes:
Kagan’s (probably) predecessor, the retiring John Paul Stevens, wrote in the opinion that, “Although NFL teams have common interests such as promoting the NFL brand, they are still separate, profit-maximizing entities, and their interests in licensing team trademarks are not necessarily aligned…”
“Decisions by NFL teams to license their separately owned trademarks collectively and to only one vendor are decisions that ‘deprive the marketplace of independent centers of decision making … and therefore of actual or potential competition.”
So what now?
From a legal standpoint, the case gets remanded back to the lower court to decide on whether or not American Needle was excluded from the competitive markets over NFL apparel. However, the big issue over the notion of “single entity” is decided, both for the NFL as well as the rest of the pro leagues.
So what does this mean for the Ravens (which is probably all you care about)?
Very little, most likely. For the Ravens as well as the rest of the franchises, they will continue to do business and wear the same apparel that they always have. Even if American Needle wins damages for being excluded from the NFL apparel market, it will likely make little difference as to Reebok’s contract with the league. It would only be if a team pushed to negotiate on its own behalf, and be willing to take it to the courts, that things could get interesting.
Could that happen?
Not likely; the NFL owners are a pretty homogenized group. Rarely do they seek to ruffle feathers, although in 1995 Cowboys owner Jerry Jones sued his fellow owners because he didn’t want to participate in revenue sharing, but rather to be able to enter into his own licensing contracts. The owners counter-sued him. It didn’t go anywhere, and soon they were back to playing nice over pina coladas and rounds of expensive golf.
Well, so much for brevity.