The Supreme Court Puts to Rest the NFL's Single Entity Defense in American Needle

05/24/2010 08:51 pm ET | Updated May 25, 2011

After months of waiting and speculating, the Supreme Court finally handed down a decision in the American Needle case (for background on the case, click here). A broad victory for the NFL threatened to rewrite sports antitrust law and change the way professional sports leagues operate. Instead, the Supreme Court unanimously ruled against the NFL, and, well, the opinion did not rewrite sports antitrust law and will not change the way professional sports leagues operate. There has already been a lot written about the case today, so I am just going to cover four of the bigger points.

1) This was a resounding defeat for the NFL on the single entity argument.
Not only did the Supreme Court Justices unanimously reject the NFL's single entity defense, but Justice Steven's opinion thoroughly rejected it. Although the case only involved the licensing of intellectual property to apparel manufacturers, Justice Stevens' holding applied to all operations of the NFL (and, by extension, the NHL and the NBA). Here is some of the key language from the opinion:

• "The teams compete with one another, not only on the playing field, but to attract fans, for gate receipts and for contracts with managerial and playing personnel...[and] in the market for intellectual property."
• "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."
• "The question whether NFLP decisions can constitute concerted activity covered by §1 is closer than whether decisions made directly by the 32 teams are covered by §1. . . . Nevertheless we think it clear that for the same reasons the 32 teams' conduct is covered by §1, NFLP's actions also are subject to §1, at least with regards to its marketing of property owned by the separate teams."

In other words, for all conceivable purposes, and after decades of litigating the issue, the single entity argument for professional sports leagues is dead.

2) The decision does not mean that the NFL's exclusive license with Reebok is illegal.
This case was always a lottery ticket for the NFL. If they had won, it would have been a significant victory that partially immunized the NFL from attack under the antitrust laws. The next American Needle--perhaps a baseball card manufacturer or a video game company--would have been unable to challenge exclusive licenses between the NFL and its competitors.

The loss, however, does not change very much for the league. This case did not open the floodgates for antitrust litigation; it only ensured that the doors did not close. The sports antitrust world now returns back to the way it was before this case was first decided and the NFL will be subjected to the same antitrust scrutiny they have been subjected to for the last 50 years. The issue before the Supreme Court was not whether the NFL's exclusive licensing arrangement is legal under the antitrust laws. The issue was only whether the licensing arrangement should even be subject to scrutiny under the antitrust laws. American Needle got a big win in front of the Supreme Court, but they have not won their lawsuit. Not even close. Now, they have to start from the very beginning and try to prove in federal district court that the NFL-Reebok deal is an unreasonable restraint of trade.

3) The NFL did get some language from the opinion that will be helpful in future cases.
There is no reason to believe that the Supreme Court's rejection of the single entity argument makes it any more likely that American Needle will prevail in the underlying antitrust case (or that a suit against the NFL's exclusive deal with EA Sports would be successful). In fact, there is language in the opinion that might help the NFL in antitrust litigation going forward. For example, Justice Stevens notes that professional sports leagues are "not trapped by antitrust law"--just because NFL teams are multiple entities capable of violating Section 1 of the Sherman Act does not mean that every agreement the teams make does violate Section 1. Instead, Justice Stevens explained that the teams "share an interest in making the entire league successful and profitable, and that they must cooperate in the production and scheduling of games." Although these common interests were not sufficient to render the multiple teams a single entity, Justice Stevens made it clear that the teams' shared interest in the success of the league and in maintaining the competitive balance of the teams in the league "may well justify a variety of collective decisions made by the teams." The American Needle opinion thus arms the NFL with a strong argument that many of their agreements are "justified" (i.e., legal) and would survive an antitrust challenge.

4) The NFL players and the union can breathe a sigh of relief.
From the beginning, the NFL argued that this case was about apparel, not labor. But, it was clear that a broad victory in this case would have had a direct impact on labor negotiations. If the NFL had been ruled a single entity for all purposes, then the players would have lost the ability to decertify and challenge player restraints under the antitrust laws (as they successfully did in the early 1990s). The decertify-and-sue tactic is a weapon of last resort for the players, but it is a powerful weapon, and the players may have lost some of their leverage at the bargaining table if Supreme Court had ruled that the NFL was immune from antitrust attack. Although it was always a long-shot that the Supreme Court would block the players from bringing antitrust claims, the owners were in no rush to begin negotiating until the case was resolved, just in case they got a sweeping victory. That obviously did not happen, but the owners are no worse off than they were before the American Needle case was filed. Now that the American Needle cloud has lifted, however, the parties might be more likely to restart CBA negotiations.