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May242010

NFL Loses Legal Battle, But Still Looks To Win $4 Billion Licensing War

May 24, 2010: The NFL has lost a battle it believed it would win, not on the playing field but in the Supreme Court. But some analysts believe that the NFL will not lose the war itself.

The Supreme Court on May 24 ruled that the NFL could not have broad protection from antitrust lawsuits because it is 32 separate businesses and not a single entity when it comes to licensing. The 9-0 ruling was the result of a lawsuit filed in 2004 against the NFL by American Needle of Buffalo Grove, Ill., which had made and sold NFL-logo caps for more than 40 years. That deal came to an end in 2000 when the league signed an exclusive 10-year, $250 million licensing agreement with adidas division Reebok to produce NFL caps and apparel.

Sales of NFL licensed products is about $4 billion, according to industry analysts.

The ruling sends the case back to a district court, where legal experts said that American Needle has to prove that the NFL-Reebok deal was harmful to consumers either by creating higher prices for goods, by not allowing them to purchase the highest quality goods or other factors that could negatively impact NFL fans and others.

Using Super Bowl XLIV participants as an example, Justice John Paul Stevens wrote, "Directly relevant to this case, the teams compete in the market for intellectual property.  To a firm making hats, the [New Orleans] Saints and the [Indianapolis] Colts are two potentially competing suppliers of valuable trademarks.  When each NFL team licenses its intellectual property, it is not pursuing the 'common interests of the whole' league but is instead pursuing interests of each 'corporation itself . . . '"

The NFL had supported American Needle's decision to appeal to the Supreme Court two earlier lower court rulings that went in favor of the league, taking the strategy that a victory for the league in the nation's highest court would potentially lead to wins other antitrust lawsuits and also potentially reduce the number of future lawsuits. Major League Baseball is the only pro sports in the U.S. has antitrust status, but is still subject to lawsuits that take on a ruling was established by the Supreme Court in 1922.

American Needle has been in business since 1918 and first manufactured a hat for a Major League Baseball club in 1946 when it signed a deal with the Chicago Cubs. It still has a licensing deal with MLB and also manufactures hats for colleges, Tad Davis tennis and 85 of the world's top 100 golf clubs, per the company.

According to court papers, support for the NFL included Nascar, the NBA, NHL, NCAA and Major League Soccer. Players' associations in the NBA, NHL and Major League Baseball, as well as the NFL, were with American Needle. MLB itself did not commit official support for either side.

According to Justice Stevens, "The NFL teams do not possess either the unitary decision making quality or the single aggregation of economic power characteristic of independent action. Each of them is a substantial, independently owned, independently managed business, whose 'general corporate actions are guided or determined' by “separate corporate consciousness,' and whose 'objectives are' not 'common.' They compete with one another, not only on the playing field, but to attract fans, for gate receipts, and for contracts with managerial and playing personnel."

"[NFL teams] compete with one another, not only on the playing field, but to attract fans, for gate receipts, and for contracts with managerial and playing personnel."

Justice Stevens further wrote, "Directly relevant here, the teams are potentially competing suppliers in the market for intellectual property. When teams license such property, they are not pursuing the “common interests of the whole” league, but, instead, the interests of each 'corporation itself.'"

At least one analyst sees the NFL as taking this sack and making adjustments to move on.

"American Needle v. National Football League isn't a tenth as important as everyone is going to be telling you over the next few days," wrote Ted Frank, editor for PointofLaw.com. "Not only does it solely affect three or four sports entities, but nothing prevents those sports entities from reorganizing their structures to avoid the antitrust implications of this particular decision. For example, American Needle is suing the NFL because the latter (as it has done since 1963) pooled the 32 separate trademarks, owned by separate teams, into a single licensing deal."

Moving foward, according to Frank, "The NFL will face annoying litigation in the interim to defend this arrangement under the 'Rule of Reason,' but nothing prevents it from requiring teams from transferring ownership of team trademarks to the league as a condition of the franchise, and achieving the same economic result."

NFL Seeks Anti-Trust Licensing Ruling In Supreme Court

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Reader Comments (1)

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March 15, 2011 | Unregistered CommenterCell phone

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