Wednesday, June 23, 2010

American Needle and the Boundaries of the Firm in Antitrust Law

Posted by D. Daniel Sokol

Herb Hovenkamp (Iowa Law)  provides some analysis on the recent Supreme Court decision in American Needle and the Boundaries of the Firm in Antitrust Law.

ABSTRACT: In American Needle the Supreme Court unanimously held that for the practice at issue the NFL should be treated as a “combination” of its teams rather than a single entity. However, the arrangement must be assessed under the rule of reason. The opinion, written by Justice Stevens, was almost certainly his last opinion for the Court in an antitrust case; Justice Stevens had been a dissenter in the Supreme Court’s Copperweld decision 25 years earlier, which held that a parent corporation and its wholly owned subsidiary constituted a single “firm” for antitrust purposes. The Sherman Act speaks to this issue but is not very helpful. Its §6 defines the word “person” to “include corporations and associations existing under or authorized by” law, but gives no particulars.

When antitrust tribunals decide if associations should be considered a single firm or a combination two factors stand out. One is whether the members remain as separate, significant economic actors in the marketplace. The ordinary corporation's shareholders do not and are thus unlike the members of a trade association, sports league, or the like. The second key factor is whether the challenged act controls or affects the individual market behavior of the members. In American Needle the conduct was exclusive licensing of the individually held trademark rights of each of the NFL’s member teams. These rights had been consolidated into a single holding company controlled by the NFL and then licensed exclusively to Reebok, thus ousting the plaintiff.

While American Needle is important, its significance for that case should not be exaggerated. If the NFL were a single entity the case would be characterized as exclusive dealing, or more properly an output contract, in which the NFL licensed to Reebok and no one else. Such agreements are analyzed under the rule of reason and their illegality usually depends on a “foreclosure” analysis in which illegality depends on the extent to which the plaintiff has been denied access to a properly defined relevant market. Also significant is that American Needle involves a trademark license, and the justification for restricted licensing of trademarks can be weighty, particularly if issues of origin or quality control are present. Even if exclusive trademark licenses are desirable, however, each separate NFL team could have granted its own individual exclusive licenses, and apparel manufacturers could then compete for one or more of these contracts.

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