By  on May 25, 2010

WASHINGTON — The U.S. Supreme Court ruled Monday that the National Football League does not operate as a single business exempt from federal antitrust laws in the licensing of branded apparel and accessories.

The 9-0 decision reversed a decision by the Seventh Circuit Court of Appeals in Chicago and reinstated an antitrust lawsuit filed by American Needle Inc., which lost the right to use NFL logos on its caps and hats when Reebok International got an exclusive, 10-year, licensing deal in 2001 to produce gear with NFL team logos.

The high court agreed with the argument of American Needle, saying that the 32 NFL teams operate as a group of independently owned businesses subject to antitrust laws that prohibit price fixing and monopolies in the licensing of branded apparel and accessories. The implications for licensing arrangements with the major sports leagues could be far reaching.

“Although NFL teams have common interests such as promoting the NFL brand, they are still separate, profit-maximizing entities and their interests in licensing team trademarks are not necessarily aligned,” Justice John Paul Stevens wrote in the decision. “To a firm making hats, the Saints and the Colts are two potentially competing suppliers of valuable trademarks. When each NFL team licenses its intellectual property, it is not pursuing the ‘common interest of the whole’ league, but is instead pursuing interests of each ‘corporation itself.’”

The justices did not rule on the merits of the case, in terms of whether the NFL’s exclusive licensing deals actually violate antitrust laws, but in putting to rest the issue of whether the NFL’s licensing deals are immune from antitrust laws the court cleared the way for companies to pursue cases against sports leagues, under the “rule of reason” standard.

Under a “rule of reason” standard, a plaintiff in an antitrust case must show that the defendant’s concerted activity is anticompetitive and results, particularly in this case, in an increase in prices for consumers.

“It is certainly a win for us because it gives us a chance to prove our case, which is all that we have been asking for and…it is a win for consumers because it says that sports leagues don’t get any special exemption from the consumer protection rule that antitrust laws make all other businesses follow,” said attorney Meir Feder, a partner with Jones Day, which represents American Needle.

Feder said American Needle plans to pursue the case in district court and is seeking unspecified damages and to have its hat licensing contract renewed with the NFL.

The NFL said that it was “confident we will ultimately prevail because the league decision about how best to promote the NFL was reasonable, pro-competitive, and entirely lawful.”

Many antitrust attorneys said the case will have an impact on apparel makers’ existing exclusive licensing deals with sports leagues, or those that are made in the future.

“This case will be brought back to the lower court and have to be evaluated in terms of whether an exclusive licensing agreement with Reebok somehow creates anticompetitive results and raises the prices for consumers,” said Matthew Cantor, an antitrust attorney with Constantine Cannon LLP. “I would think that is true and I would think if there were more licenses with the Dallas Cowboys, for example, that there would be more price competition amongst sellers and that would be better for consumers. I’m not saying that every company that wants a license with the NFL in the future will get one. It will be based on whether or not [a brand] will pay the prices the NFL sets for collective teams.”

Paolo Morante, a partner in the antitrust division for DLA Piper LLP, said American Needle will now have to prove the anticompetitive effects of the NFL’s agreement, which is a difficult standard to prove.

“Historically, cases that are subject to the rule of reason makes the plaintiff’s case more difficult…I would think it will be very difficult to prevail on the rule of reason standard,” he said. “By an anticompetitive effect, it has to be injury to competition as opposed to injury to a competitor.”

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