Monday, February 14, 2011
Posted by D. Daniel Sokol
Alan James Devlin, U.S. District Court for the Northern District of Illinois and Michael S. Jacobs, DePaul University - College of Law offer their thoughts on Joint-Venture Analysis after American Needle.
ABSTRACT: The basic operational premise of the U.S. antitrust system posits that one can reliably demarcate business conduct into two distinct classes, specifically unilateral and concerted behavior. Professional sports leagues and other complex ventures confound this premise, engaging in arrangements that display both unilateral and concerted qualities. In 2010, the Supreme Court decided the American Needle case, which effectively asked in which category the conduct of professional sports leagues belonged. Rejecting the lower courts’ determination that the IP-licensing activities of the NFL constituted unilateral action, the Court held that much intra- and extra-league activity is concerted, and thus subject to full rule-of-reason analysis.
American Needle answered a simple question correctly, but failed to address a number of crucial issues about the permissible scope of joint-venture conduct, the nature of a “single entity,” and the application of the rule of reason to sports leagues and comparable ventures. We argue that distinguishing a sports league’s “core” activities from its other kinds of conduct is neither a workable nor a legitimate means of conducting antitrust analysis. If that distinction is unworkable for sports leagues, it is equally unworkable for other joint ventures. We offer some thoughts on how courts and scholars should interpret American Needle, and we formulate a framework within which to assess the antitrust legality of intra- and extra-league restraints. We conclude that, in analyzing the business conduct of joint ventures, courts should appeal to a hypothetical bargain that would occur ex ante between the prospective members of the relevant venture, at the time of the venture’s formation and thus under conditions of economic uncertainty. To the extent that the members would agree to adopt a particular practice to promote the effective functioning of the league, where the league faced efficiency-ensuring competition, that practice should satisfy any antitrust concerns. This approach suggests that the NFL’s exclusive licensing of its members’ IP ought to pass muster under the rule of reason.