Am. Needle, Inc. v. Nat'l Football League

• Court: U.S. Supreme Court
• Writing for the Court: Justice STEVENS delivered the opinion of the Court.
• Citation: Am. Needle, Inc. v. Nat'l Football League, 130 S. Ct. 2201, 176 L.Ed.2d 947, 560 U.S. 183 (2010)
• Decision Date: 24 May 2010
• Docket Number: No. 08–661.,08–661.
• Parties: AMERICAN NEEDLE, INC., Petitioner, v. NATIONAL FOOTBALL LEAGUE et al.

560 U.S. 183

130 S.Ct. 2201

176 L.Ed.2d 947

AMERICAN NEEDLE, INC., Petitioner,

v.NATIONAL FOOTBALL LEAGUE et al.

No. 08–661.

Supreme Court of the United States

Argued Jan. 13, 2010.

Decided May 24, 2010.

Glen D. Nager, Washington, DC, for petitioner.

Malcolm L. Stewart, for the United States as amicus curiae, by special leave of the Court, supporting neither party.

Gregg H. Levy, Washington, DC, for respondents.

Meir Feder, Andrew D. Bradt, David M. Cooper, Jones Day, New York, NY, Jeffrey M. Carey, Northfield, IL, Glen D. Nager, Counsel of Record, Joe Sims, Jones Day, Washington, DC, for petitioner.

Lori Alvino McGill, Latham & Watkins LLP, Washington, DC, Timothy B. Hardwicke, Counsel of Record, Latham & Watkins LLP, Chicago, IL, for Respondent Reebok International Ltd.

Eugene E. Gozdecki, Gozdecki, Del Giudice, Americus & Farkas LLP, Chicago, IL, Gregg H. Levy, Counsel of Record, Derek Ludwin, Leah E. Pogoriler, Covington & Burling LLP, Washington, DC, for NFL Respondents.

Opinion

Justice STEVENS delivered the opinion of the Court.

“Every contract, combination in the form of a trust or otherwise, or, conspiracy, in restraint of trade” is made illegal by § 1 of the Sherman Act, ch. 647, 26 Stat. 209, as amended, 15 U.S.C. § 1. The question whether an arrangement is a contract, combination, or conspiracy is different from and antecedent to the question whether it unreasonably restrains trade. This case raises that antecedent question about the business of the 32 teams in the National Football League (NFL) and a corporate entity that they formed to manage their intellectual property. We conclude that the NFL's licensing activities constitute concerted action that is not categorically beyond the coverage of § 1. The legality of that concerted action must be judged under the Rule of Reason.

I

Originally organized in 1920, the NFL is an unincorporated association that now includes 32 separately owned professional football teams.¹ Each team has its own name, colors, and logo, and owns related intellectual property. Like each of the other teams in the league, the New Orleans Saints and the Indianapolis Colts, for example, have their own distinctive names, colors, and marks that are well known to millions of sports fans.

Prior to 1963, the teams made their own arrangements for licensing their intellectual property and marketing trademarked items such as caps and jerseys. In 1963, the teams formed National Football League Properties (NFLP) to develop, license, and market their intellectual property. Most, but not all, of the substantial revenues generated by NFLP have either been given to charity or shared equally among the teams. However, the teams are able to and have at times sought to withdraw from this arrangement.

Between 1963 and 2000, NFLP granted nonexclusive licenses to a number of vendors, permitting them to manufacture and sell apparel bearing team insignias. Petitioner, American Needle, Inc., was one of those licensees. In December 2000, the teams voted to authorize NFLP to grant exclusive licenses, and NFLP granted Reebok International Ltd. an exclusive 10–year license to manufacture and sell trademarked headwear for all 32 teams. It thereafter declined to renew American Needle's nonexclusive license.

American Needle filed this action in the Northern District of Illinois, alleging that the agreements between the NFL, its teams, NFLP, and Reebok violated §§ 1 and 2 of the Sherman Act. In their answer to the complaint, the defendants averred that the teams, NFL, and NFLP were incapable of conspiring within the meaning of § 1 “because they are a single economic enterprise, at least with respect to the conduct challenged.” App. 99. After limited discovery, the District Court granted summary judgment on the question “whether, with regard to the facet of their operations respecting exploitation of intellectual property rights, the NFL and its 32 teams are, in the jargon of antitrust law, acting as a single entity.” American Needle, Inc. v. New Orleans La. Saints, 496 F.Supp.2d 941, 943 (2007). The court concluded “that in that facet of their operations they have so integrated their operations that they should be deemed a single entity rather than joint ventures cooperating for a common purpose.” Ibid.

The Court of Appeals for the Seventh Circuit affirmed. The panel observed that “in some contexts, a league seems more aptly described as a single entity immune from antitrust scrutiny, while in others a league appears to be a joint venture between independently owned teams that is subject to review under § 1.” 538 F.3d, 736, 741 (2008). Relying on Circuit precedent, the court limited its inquiry to the particular conduct at issue, licensing of teams' intellectual property. The panel agreed with petitioner that “when making a single-entity determination, courts must examine whether the conduct in question deprives the marketplace of the independent sources of economic control that competition assumes.” Id., at 742. The court, however, discounted the significance of potential competition among the teams regarding the use of their intellectual property because the teams “can function only as one source of economic power when collectively producing NFL football.” Id., at 743. The court noted that football itself can only be carried out jointly. See ibid. (“Asserting that a single football team could produce a football game ... is a Zen riddle: Who wins when a football team plays itself ”). Moreover, “NFL teams share a vital economic interest in collectively promoting NFL football ... [to] compet[e] with other forms of entertainment.” Ibid. “It thus follows,” the court found, “that only one source of economic power controls the promotion of NFL football,” and “it makes little sense to assert that each individual team has the authority, if not the responsibility, to promote the jointly produced NFL football.” Ibid. Recognizing that NFL teams have “license[d] their intellectual property collectively” since 1963, the court held that § 1 did not apply. Id., at 744.

We granted certiorari. 557 U.S. 933, 129 S.Ct. 2859, 174 L.Ed.2d 575 (2009).

II

As the case comes to us, we have only a narrow issue to decide: whether the NFL respondents are capable of engaging in a “contract, combination ..., or conspiracy” as defined by § 1 of the Sherman Act, 15 U.S.C. § 1, or, as we have sometimes phrased it, whether the alleged activity by the NFL respondents “must be viewed as that of a single enterprise for purposes of § 1.” Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 771, 104 S.Ct. 2731, 81 L.Ed.2d 628 (1984).

Taken literally, the applicability of § 1 to “every contract, combination ... or conspiracy” could be understood to cover every conceivable agreement, whether it be a group of competing firms fixing prices or a single firm's chief executive telling her subordinate how to price their company's product. But even though, “read literally,” § 1 would address “the entire body of private contract,” that is not what the statute means. National Soc. of Professional Engineers v. United States, 435 U.S. 679, 688, 98 S.Ct. 1355, 55 L.Ed.2d 637 (1978); see also Texaco Inc. v. Dagher, 547 U.S. 1, 5, 126 S.Ct. 1276, 164 L.Ed.2d 1 (2006) (“This Court has not taken a literal approach to this language”); cf. Board of Trade of Chicago v. United States, 246 U.S. 231, 238, 38 S.Ct. 242, 62 L.Ed. 683 (1918) (reasoning that the term “restraint of trade” in § 1 cannot possibly refer to any restraint on competition because “[e]very agreement concerning trade, every regulation of trade, restrains. To bind, to restrain, is of their very essence”). Not every instance of cooperation between two people is a potential “contract, combination ..., or conspiracy, in restraint of trade.” 15 U.S.C. § 1.

The meaning of the term “contract, combination ... or conspiracy” is informed by the “ ‘basic distinction’ ” in the Sherman Act “ ‘between concerted and independent action’ ” that distinguishes § 1 of the Sherman Act from § 2. Copperweld, 467 U.S., at 767, 104 S.Ct. 2731 (quoting Monsanto Co. v. Spray–Rite Service Corp., 465 U.S. 752, 761, 104 S.Ct. 1464, 79 L.Ed.2d 775 (1984)). Section 1 applies only to concerted action that restrains trade. Section 2, by contrast, covers both concerted and independent action, but only if that action “monopolize[s],” 15 U.S.C. § 2, or “threatens actual monopolization,” Copperweld, 467 U.S., at 767, 104 S.Ct. 2731, a category that is narrower than restraint of trade.

Monopoly power may be equally harmful whether it is the product of joint action or individual action.

Congress used this distinction between concerted and independent action to deter anticompetitive conduct and compensate its victims, without chilling vigorous competition through ordinary business operations. The distinction also avoids judicial scrutiny of routine, internal business decisions.

Thus, in § 1 Congress “treated concerted behavior more strictly than unilateral behavior.” Id., at 768, 104 S.Ct. 2731. This is so because unlike independent action, “[c]oncerted activity inherently is fraught with anticompetitive risk” insofar as it “deprives the marketplace of independent centers of decisionmaking that competition assumes and demands.” Id., at 768–769, 104 S.Ct. 2731. And because concerted action is discrete and distinct, a limit on such activity leaves untouched a vast amount of business conduct. As a result, there is less risk of deterring a firm's necessary conduct; courts need only examine discrete agreements; and such conduct may be remedied simply through prohibition.² See Areeda & Hovenkamp ¶ 1464c, at 206. Concerted activity is thus “judged more sternly than unilateral activity under § 2,” Copperweld, 467 U.S., at 768, 104 S.Ct. 2731. For these reasons, § 1 prohibits any concerted action “in restraint of trade or commerce,” even if the action does not “ threate[n] monopolization,” Ibid. And therefore, an arrangement must embody concerted action...