WASHINGTON (CN) - The Supreme Court heard arguments Wednesday over whether the National Football League violated antitrust laws when it gave exclusive rights to produce logo-adorned headwear of all its teams, an issue that has long pestered the league. "You are seeking through this ruling what you haven't gotten from Congress: an absolute bar to an antitrust claim," Justice Sonia Sotomayor said to the NFL lawyer.
The NFL is composed of independently owned teams, but they share costs and revenue. Although each team owns the rights to its intellectual property, the league controls their colors and mascots, and establishes game rules and schedules.
Reebok bought the exclusive rights to produce headwear with team logos -- breaking the pattern of having many licensed vendors -- and American Needle, a 20-year vendor, sued the NFL, all 32 of the member teams and Reebok after its license was accordingly not renewed.
The Sherman Act of 1890 bars companies from creating any "contract, combination or conspiracy in restraint of trade." Debate centered on whether the NFL is a group of conspiring enterprises, or whether it is a single entity immune to antitrust laws, because a single entity cannot make an agreement with itself.
The district court ruled that NFL teams constitute a single entity in licensing their intellectual property, holding that the purpose of the exclusive licensing was to promote the NFL as a whole. The 7th Circuit affirmed.
Glen Nager of Jones Day, representing American Needle, argued that the teams are separate profit-making enterprises that have entered into agreements, so any agreement between them is subject to antitrust laws.
Justice Ruth Bader Ginsburg appeared critical of Nager's broad application of antitrust law. She asked if everything the NFL does would be subject to antitrust scrutiny. "Because everything is subject to agreement," she said, "it's all concerted action."
Justice Anthony Kennedy also appeared concerned about the reach of a decision against the NFL. To illustrate his point, he said it was like the NFL passing rules that gave the passer more protection, thereby hurting some teams that prefer to run the ball instead of passing it. "They are liable for a conspiracy," he said. "I mean, this is serious stuff."
Justice Stephen Breyer, approaching from a different angle, appeared skeptical that the NFL was the intended target of antitrust legislation. He was critical that granting exclusive production rights of all the team logos would harm competition among vendors. "I don't know a Red Sox fan who would take a Yankees sweatshirt if you gave it away," he said. "I know baseball better," he added, to laughter.
The NFL's attorney, Gregg Levy with Covington & Burling, said the joint venture's decisions and actions to promote league paraphernalia are made by the group, not by its members, and that the teams form a single entity. He added that the licensing promotes the game and stipulated that the teams are not independent economic powers in producing that game.
Breyer noted that the case of whether the teams are a joint venture is not clear-cut and asked why immunity to antitrust claims here is necessary. "Why shouldn't they have their shot?" he asked in reference to American Needle. "You might well win, but they want to make that claim."
He acknowledged that playing football is a joint venture, but questioned whether the teams should be considered an entity in promoting their logos.
Sotomayor followed up, attacking the argument that the teams cooperated in selling paraphernalia simply to promote their joint venture games. "I can very much see a counter-argument that promoting T-shirts is only to make money," she said. "And once you fix prices for making money, that's a Sherman Act violation."
Justice Antonin Scalia likewise seemed to have trouble swallowing the same argument. "The purpose is to make money," he said. "I don't think that they care whether the sale of the helmet or the T-shirt promotes the game."
Levy replied that the trademarks don't have any value independent from the game, that they are a tool to promote loyalty.
"Single-entity status has long been the NFL's holy grail," Willamette University Law Professor Jeffrey Standen wrote in a paper distributed by the court. "Antitrust law has been a thorn in the NFL's side throughout its existence."
He said that if the Supreme Court rules that the NFL is a single entity, it will effectively be immune from antitrust liability.
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