After months of hype, the Supreme Court finally heard oral arguments in the American Needle case on Wednesday. While we wait for the Court to rule, here are a few things we learned from the argument:
Some of the things we don't know:
1) How the court will rule. We can speculate all we want (as I will do below), but any prediction as to the result of the case will only be a guess. Some Justices tipped their hands more than others, but the Justices were providing questions, not answers. We'll have to wait until June to see the final decision.
2) What Justice Breyer does on Sunday afternoons. It's pretty clear that he is not watching the NFL. In arguing that NFL rivals do not compete with each other for the sale of logoed apparel, Justice Breyer--who posed the most revealing questions and provided the most comic relief throughout the hearing--struggled to identify a rival of the New England Patriots. He first chose the New Orleans Saints, then the Boston Red Sox, and then conceded: "I know baseball better." If Justice Breyer ends up authoring the opinion, I doubt we'll see anything resembling Justice Blackmun's ode to baseball from the Curt Flood case.
Some of the things we do know:
1) The NFL wants this case to be about more than hats and t-shirts. Although the lower courts only held that the NFL is a single entity when licensing its intellectual property for use on apparel, the NFL appealed their own victory to try to get a broader ruling from the Supreme Court. The NFL does not just want to be considered a single entity when it sells its logos to Reebok, it wants to be considered a single entity for everything it does. In other words, it wants complete immunity from Section 1. If the NFL gets that immunity, it does not necessarily mean that the NFL teams will suddenly eliminate free agency and pay their players pennies (the NFL Players Association and the labor laws would prevent that from happening), but it does mean that the players would be unable to use the antitrust laws to attack those decisions. Although the breadth of NFL's argument seemed fairly clear from its briefs, Justice Scalia was taken aback (he literally exclaimed, "Oooooh") when Gregg Levy, counsel for the NFL, explained that the NFL was actually arguing for complete immunity under Section 1.
2) Chief Justice Roberts and Justices Scalia, Breyer, and Sotomayor seemed unconvinced by the NFL's broad single entity argument. The NFL's basic argument is that the NFL is a product that can only be created by a series of agreements among its teams. The NFL defines this product as more than just a game between two NFL teams--it is a season of games played between relatively evenly matched teams that leads to a playoffs that eventually leads to a Super Bowl Champion. The NFL argues that no individual team can produce this product on its own. The teams must cooperate and reach a number of different agreements, ranging from rules of the game to player restraints to franchise location rules. As Levy argued repeatedly during the hearing, because of this need for cooperation, the teams have no value without the league, thus the teams and the league should be considered one entity.
There are two flaws with the NFL's basic argument. First, as Justice Breyer emphasized, the NFL failed to explain why the teams' need for cooperation should transform the individual, separately owned teams into a single entity. The Supreme Court has decided a number of cases where a group of individual competitors needed to collaborate and cooperate to form a joint venture and produce a unique product. In each of these cases, the Supreme Court held that despite their interdependence, the individual competitors constituted multiple entities capable of entering into agreements that harm competition and violate Section 1. The NFL is no different. The league is comprised of individual competitors that collaborate and cooperate to produce NFL football. Agreements made by the individual teams, whether they relate to apparel sales or player salaries, have the potential to harm competition. During the hearing, Chief Justice Roberts and Justices Scalia, Breyer, and Sotomayor, all seemed unconvinced that the NFL's need for cooperation distinguished it from other similar joint venture, and all appeared unconvinced to grant the NFL broad Section 1 immunity.
The second flaw with the NFL's basic argument is that its underlying premise is incorrect. The NFL's argument assumes that individual teams cannot exist without the league, yet the NFL itself was formed by a group of already-existing teams in the 1920s. And, the NFL's brief to the Supreme Court concedes that teams (like the Harlem Globetrotters) can exist without a league by barnstorming and playing other individual teams. Granted, a barnstorming professional football team may have less value than an NFL team, but they both have value and both exist as individual entities.
3) Chief Justice Roberts and Justices Stevens, Ginsburg, Kennedy, and Alito suggested that a narrow exemption for the NFL might be appropriate. While never embracing the NFL's broad single entity argument, these Justices questioned whether every NFL agreement--including rules of the game and number of games in the NFL schedule--should be scrutinized under Section 1, given how expensive and lengthy antitrust trials can be. These Justices seemed to be searching for a line to draw--perhaps the line drawn by the Government's submission-- that would immunize some of the NFL's basic rules. Glen Nager, counsel for American Needle, responded that all agreements, even rules of the game, should be subject to review under Section 1, but added that these challenges would be dismissed quickly because they had no anticompetitive effect. Chief Justice Roberts did not seem persuaded, stating: "There are some things that it just seems odd to subject to a rule of reason analysis. And you yourself have said: Well, that is going to be an easy case under the rule of reason. Why doesn't it make sense to sort of carve those out at the outset, rather than at the end of the case?"
We only have clues as to the final outcome of this case, but I'll go ahead and set the line as a "pick'em" on this one. It's unlikely that the NFL will win a huge victory, but the final result is too close to call.
Follow Gabriel A. Feldman on Twitter: www.twitter.com/GabeFeldman
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