Legal Issues and Colts and Intellectual property and Pro Sports and NFL and Law and Sports Business

NFL must face antitrust suits, U.S. high court rules

May 24, 2010

The U.S. Supreme Court opened the way for greater antitrust scrutiny of professional sports leagues, reviving a suit over the National Football League’s agreement with Adidas AG’s Reebok to sell clothing emblazoned with team insignias.

The justices, unanimously overturning a lower court ruling, said the NFL and its franchises aren’t automatically entitled to act as a group in licensing their trademark rights. The majority said judges instead should consider on a case-by-case basis how the league’s business practices affect competition.

“The teams compete in the market for intellectual property,” Justice John Paul Stevens wrote for the court. “To a firm making hats, the Saints and the Colts are two potentially competing suppliers of valuable trademarks.”

The ruling is a blow to pro sports leagues, which had sought to win a broad shield from antitrust claims over video-game licenses, television rights, franchise relocation and even player salaries. Only Major League Baseball is exempt from antitrust laws now. The decision may reduce the NFL’s leverage as it tries to negotiate a new contract with its players’ union and avoid a work stoppage after next season.

The case centers on a suit by American Needle Inc., which lost its right to sell team caps in 2000 when the league reached its accord with Reebok, a Massachusetts-based company later acquired by Adidas. American Needle sued the NFL, its teams, their licensing arm and Reebok.

Reebok employs 950 people at a manufacturing plant on the east side of Indianapolis. The facility manufactures and distributes apparel for the National Football League, National Basketball Association, National Hockey League, Major League Baseball and the NCAA.

Retail sales of NFL-licensed merchandise in the U.S. and Canada topped $3.2 billion in 2007, according to the Licensing Letter’s Sports Licensing Report, published by EPM Communications Inc. in New York. Sales of pro football, baseball, basketball, hockey and soccer products combined were more than $9 billion.

The NFL asked the Supreme Court to declare that franchises operate as a single entity when licensing trademark rights to apparel makers and other vendors. That would have shielded the league and its teams from suits under the federal antitrust law provision that bars conspiracies to restrain trade. The league said trademark licensing helps promote that on-field product.

American Needle, based outside Chicago, said the league structure shouldn’t exempt teams from the usual rule that independently owned businesses face antitrust scrutiny when they act in concert. The company says the Reebok agreement led to price increases.

The Obama administration took a middle ground, saying the NFL is a single entity for only some of its activities.

The 7th U.S. Circuit Court of Appeals in Chicago threw out the suit, saying collective licensing would help teams “compete against other entertainment providers.” The NFL took the unusual step of joining American Needle in requesting Supreme Court review.

The NFL had backing from the National Basketball Association, National Hockey League, the National Collegiate Athletic Association and other leagues. Major League Baseball isn’t involved.

Electronic Arts Inc. also supported the NFL. The video-game publisher has an exclusive license to produce video games using NFL players, teams and logos.

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