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Hovenkamp on the American Needle v. NFL

By Lawrence Solum

Herbert J. Hovenkamp (University of Iowa - College of Law) has posted American Needle: The Sherman Act, Conspiracy, and Exclusion (Competition Policy International Antitrust Journal, pp. 1-8, June 2010) on SSRN. Here is the abstract:

This essay, part of a colloquium in the CPI Antitrust Journal, explores the meaning and significance of the Supreme Court?s decision in American Needle v. NFL. The Supreme Court held that for purposes of the dispute at hand the NFL should be treated as a collaboration of its member teams rather than a single entity. The factors that the Supreme Court considered most important were, first, that the NFL?s member teams are individually owned profit making entities who compete with each other in at least some economic markets, such as that for the sale of apparel bearing NFL symbols. Secondly, the particular transactions at issue were one for which competition was possible and presumably desirable. As a result, the NFL was directing the conduct of its individual members with respect to their separate business. Here, the teams had given exclusive licenses to their individual team trademarks and related IP rights to an NFL subsidiary, which in turn had given an exclusive license for the production of NFL logoed headgear to Reebok, thus ousting American Needle. Clearly, a different kind of transaction, such as an NFL decision about its own trademarks or the hiring of NFL personnel, could have produced a different result.

The impact of the decision must be kept in perspective. The Court held that the rule of reason should be applied to the exclusive license. A plausible competitive justification would require that market power be shown, even if in a truncated manner, and some assessment must be made of anticompetitive effects. While the opinions of both the Seventh Circuit and the Supreme Court discussed the case as if it made important distinctions between Section 1 and Section 2 of the Sherman Act, in fact this particular dispute would have invoked Section 1 even if the NFL were treated as a single entity. The exclusive licensing agreement between the NFL and Reebok was an output contract, analogous to exclusive dealing, and clearly within the scope of Section 1, although almost certainly lawful as well when the licensor is a single entity.

Finally, this essay concludes with some observations about other forms of business organization in networks such as sports leagues, hospital boards whose members have separate practices, and bank-issued credit card ventures, and considers how they might be treated under the American Needle criteria.

Full post as published by Legal Theory Blog on June 17, 2010 (boomark / email).