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Abstract:
Later this term, the Supreme Court will hear American Needle v. National Football League, a case that might fundamentally change professional sports and rewrite sports antitrust law. In American Needle, the Seventh Circuit held that the National Football League (NFL) acts as a single entity when licensing its intellectual property and thus is immune from scrutiny under Section 1of the Sherman Act. Although the Seventh Circuit is the first circuit court to hold that a sports league is a single entity, the argument that leagues act as single entities has persisted for decades. Leagues view the single entity defense as the antitrust “holy grail,” because it shields them from Section 1 attack and costly antitrust litigation. Section 1 explicitly requires an agreement, and an agreement requires more than one entity. Thus, as a matter of law, a single entity cannot violate Section 1.

This Article argues that a single entity classification for sports leagues divorces antitrust immunity from the fundamental purpose of the antitrust laws and is theoretically unsupportable. Antitrust law is designed to act as a gatekeeper, filtering out net anticompetitive conduct. The Seventh Circuit’s single entity approach ignores the competitive effects of league conduct and distorts the basic rationale for distinguishing between single and multiple entity conduct. In doing so, it vests sports leagues with virtually free rein to engage in anticompetitive behavior. This Article also brings to light evidence of actual economic competition between NFL teams that proves that the Seventh Circuit’s single entity analysis in American Needle is factually unsupportable. This Article thus concludes that the Supreme Court should definitively put an end to the single entity defense for professional sports leagues. The Article also proposes a model for streamlining the rule of reason analysis and reducing the litigation burden on sports leagues.

American Needle, Antitrust, Sherman Act, National Football League, Single entity, restraint of trade, professonal sports leagues

Abstract:
The rule of reason articulated by the Supreme Court in 1918 in Chicago Board of Trade has long been the target of scorn and ridicule by scholars and judges. The rule, which is used to determine the legality of restraints under Section 1 of the Sherman Act, instructs courts to identify and balance a restraint's competitive effects - restraints that are net procompetitive are legal. Critics argue that the rule is easy to state but impossible to apply, as it asks courts to identify the unidentifiable and balance the unbalanceable. Despite the steady criticism, the rule has remained the exclusive rule of reason approach of the Supreme Court for nearly a century.

Yet, perhaps in an attempt to improve the test, each of the federal circuits has incorporated the less restrictive alternative inquiry as an independent and dispositive prong of the rule of reason. Under this newly created test, a restraint that achieves a net procompetitive benefit - and thus is legal under the Supreme Court standard - is illegal if the procompetitive benefits could have been attained by a less restrictive alternative. Surprisingly, the new test has not only avoided much criticism, but has received widespread support from scholars across the ideological spectrum.

Rather than improve the rule of reason, however, use of the less restrictive alternative inquiry as a dispositive factor transforms an already difficult analysis into a virtually unworkable multi-tiered balancing adventure. It adds a new level of confusion and opacity to Section 1 analysis and threatens to change the role of antitrust law from an ex ante deterrent of net anticompetitive behavior to an ex post regulator of net procompetitive business decisions.

This Article examines the historical use of the less restrictive alternative inquiry and its emergence in the modern rule of reason analysis. The Article argues that use of the inquiry in the modern rule of reason is both theoretically and practically flawed. The Article concludes that proof of less restrictive alternatives should be used solely as proof of anticompetitive intent, which in turn should only be used as one factor to aid courts in balancing the competitive effects of a restraint of trade. Such use of the search for less restrictive alternatives is consistent with nearly one hundred years of Supreme Court precedent and maintains the proper focus of the antitrust laws on the competitive impact of the restraint.

antitrust, rule of reason, less restrictive alternative, intent, ancillary restraints