Is the National Football League a 'Single Entity' Incapable of Conspiring Under
the Sherman Act?: The Supreme Court will Decide
20 Pages Posted: 15 Dec 2009
Date Written: December 13, 2009
In American Needle v. National Football League, a sports clothing manufacturer (American Needle) sued the National Football League (NFL) alleging that an exclusive agreement between the NFL and Reebok to manufacturer caps with team logos constituted a concerted refusal to deal among the teams in the league. American Needle alleged that this violated the Sherman Act, which prohibits conspiracies in restraint of trade. The district court granted summary judgment in favor of the NFL and the Seventh Circuit affirmed. Both courts found that the NFL constitutes a single business entity, and therefore the individual teams were incapable of conspiring under the Sherman Act. Put simply, the lower courts held that you cannot conspire with yourself.
This decision's significance is hard to overstate. Antitrust challenges to the conduct of sports leagues are quite common. The NFL, despite its victory in the lower court, supported U.S. Supreme Court review in an effort to ensure that the American Needle analysis would apply nationwide. The National Basketball Association (NBA) and the National Hockey League (NHL) also concurred in American Needle's petition for certiorari to the U.S. Supreme Court. Even Major League Baseball (MLB), which is generally exempt from antitrust scrutiny, recently cited the Seventh Circuit's decision to justify its new exclusive license with the Topps baseball card company. This new deal will end a quarter century of open competition among trading card producers. Despite the Solicitor General’s recommendation against hearing the case, the Supreme Court granted certiorari on July 29, 2009.
This article evaluates the single-entity defense and concludes that the Seventh Circuit wrongly decided the American Needle case, and that the Supreme Court should thus reverse and remand for a full trial under the rule of reason, a test requiring the court to determine whether the challenged agreement restrains or enhances competition. Although the NFL functions as a single entity for some purposes, the sale of logo caps is not one of them. Individual teams can meaningfully compete to sell caps and other items bearing team logos, and consumers would benefit from this competition. There is no reason to believe that this form of competition would detract from the overall success of the NFL in competing with other forms of entertainment.
Part I of this article reviews the circuit court case law on the single-entity defense prior to American Needle. Part II summarizes the American Needle litigation. Part III critiques the Seventh Circuit's opinion and provides an alternative framework of analysis. The article concludes that the NFL should not be treated as a single entity for the purpose of licensing team logos and that the case should be remanded and the lower court instructed to assess the exclusive license under the rule of reason.
Keywords: antitrust, Sherman Act, restraint of trade, conspiracy, single entity, single business entity, professional sports, sports leagues, National Football League, National Hockey League, National Basketball Association, Major League Baseball
JEL Classification: K12, K21
Suggested Citation: Suggested Citation