WASHINGTON — Exclusive licensing agreements between apparel makers and professional sports leagues were put to the test on Wednesday as the Supreme Court considered arguments in an antitrust case that could have significant ramifications for the industry.

This story first appeared in the January 14, 2010 issue of WWD. Subscribe Today.

The crux of the case before the high court is whether the National Football League acts as a single entity that can collectively enter into exclusive licensing deals for apparel products and is immune from antitrust laws or whether it is a collection of independently owned businesses and therefore subject to antitrust laws that prohibit price fixing and monopolies.

The case involves American Needle Inc., a manufacturer based in Buffalo Grove, Ill., which sued the NFL, National Football League Properties, 30 of its 32 teams and Reebok International in 2004 alleging a violation of antitrust laws when the NFL entered into an exclusive, 10-year licensing deal with the activewear firm to produce headwear with NFL team logos in 2001.

Last year, the Seventh Circuit Court of Appeals in Chicago ruled in favor of the NFL and threw out the suit by American Needle, upholding a similar dismissal by the lower courts. American Needle appealed the dismissal to the Supreme Court and the NFL also appealed, seeking to get protection from antitrust lawsuits.

During arguments Wednesday, Supreme Court justices appeared skeptical about the NFL’s argument that it acts as a single entity in licensing branded apparel to manufacturers. That skepticism had many court watchers proclaiming the high court does not seem inclined to shield the NFL from antitrust laws.

American Needles’ lawyer, Glen Nager, argued that, “The 32 teams of the National Football League are separately owned and controlled profit-making enterprises. The fact of the matter is there is a long-standing consensus, judicial and legislative, that agreements among sports teams about whether and how they will participate in the marketplace is subject to scrutiny under the Sherman Act.”

Gregg Levy, the NFL’s lawyer, argued: “[The NFL teams] are not an independent source of economic power because none of them can produce the product of the venture on their own. No NFL club can produce a single unit of production, a single game…”

Justice Stephen Breyer said, “The question is: Should they be permitted to join their centers of economic power into one when they promote and sell their T-shirts, sweatshirts, etc.?”

Several justices, including Sonia Sotomayor, Antonin Scalia and Chief Justice John Roberts Jr., expressed disbelief at Levy’s assertion that the NFL’s licensing was solely for the promotion of the league.

“The purpose is to make money,” said Scalia. “I don’t think they care whether the sale of the helmet or the T-shirt promotes the game. They sell it to make money from the sale.”

Scalia said, “Don’t tell me that…absent this [licensing agreement with Reebok] there would not be an independent, individual incentive for each of the teams to sell as many of its own…shirts and helmets as possible.”

Sotomayor said to Levy: “I’m very swayed by your arguments, but I can very much see a counterargument that promoting T-shirts is only to make money. It doesn’t really promote the game. It promotes the making of money. And once you fix prices for making money, that’s a Sherman Act violation.”

Most of the justices appeared to agree that American Needle should have the ability to try to win its antitrust suit against the NFL. If the high court rules in favor of American Needle, the hat maker would still have to prove, in the lower courts in a separate trial, that the NFL’s licensing deal with Reebok was anticompetitive and hurt consumers.

The ruling could have far-reaching implications for apparel companies that already have or might make bids on licensing deals with major sports leagues.

Underscoring the stakes for apparel manufacturers, Reebok, a named defendant in the case, and VF Imagewear Inc., a subsidiary of VF Corp., which submitted an amicus brief in support of the NFL, laid out the positive benefits of having the NFL act as a single entity and the downside to dealing with 32 separate teams.

“From Reebok’s perspective, the ability to transact with the NFL respondents as a single entity rather than having to deal separately with 32 teams provided significant efficiencies and pro-competitive benefits,” the company said in its brief.

Conversely, Reebok argued that if the NFL teams were treated as 32 individual entities, “the only apparel manufacturers authorized to manufacture championship wear would be those lucky enough to have been licensed by winning teams. While tight contests and uncertain outcomes on the field help to make the NFL an exciting and popular spectator sport, it makes no economic sense to tie the manufacture and sale of NFL consumer goods to unpredictable athletic contests.”

VF Licensed Sports Group has been a licensee of NFL Properties LLC for more than 20 years and holds a five-year apparel license for T-shirts, fleeces, tops, bottoms, fashion knits, polos, sweatshirts and other apparel products sold through retail channels, according to its brief.

“The VF Licensed Sports Group believes that the current NFL centralized licensing model is economically efficient and ultimately results in a higher quality product to the consumer,” said Jim Pisani, president of VF Licensed Sports Group.

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