Supreme Court's Decision in American Needle Turns Back the Antitrust Clock on Joint Ventures

At the ballpark, Turn-Back-the-Clock Day is fun, not least because everybody knows it's just for today--the awkward 1920s flannels or goofy 1970s double-knits (and, alas, the 25-cent hot dogs and 50-cent beers) are just for one nostalgic afternoon. But when the Supreme Court goes back in time like it did Monday in American Needle, Inc. v. National Football League, No. 08-661 (U.S. May 24, 2010), the antitrust case law clock stays turned back--and prices go up, not down.

The NFL teams formed NFL Properties (NFLP) in 1963 in order to jointly license their trademarks. For decades, licenses were nonexclusive--both by the teams to NFLP, and by NFLP to licensees like the knit-hat maker American Needle. By the late 1990s, though, the teams had licensed their marks exclusively to NFLP, and in 2000, NFLP granted Reebok a 10-year exclusive license for insignia headware, allowing American Needle's license to expire. American Needle sued, contending that Reebok's license violated Sherman Act Section 1, and that the agreement to authorize NFLP to license exclusively violated Sherman Act Section 2. The district court granted summary judgment to the defendants on both claims; the core of the Section 1 decision was that NFLP is a single entity and thus cannot agree to anything on behalf of its teams. 496 F. Supp. 2d 941, 943. The 7th Circuit affirmed, holding that NFLP was acting as a single entity because licensing serves the league's "vital economic interest" in promoting NFL football. 538 F. 3d 736, 743.

At oral argument, the Supreme Court grilled both sides, but the NFL's contention that it is immune from Section 1 across the board, including as to setting player salaries and locating franchises, seemed to provoke special doubt. Justices Stephen Breyer and Sonia Sotomayor seemed particularly skeptical about single-entity analysis, pointing out that Section 1 rule of reason analysis can intelligently analyze joint venture ancillary restraints. Their view carried the day: The court's decision not only holds that the NFL's licensing activities are concerted actions subject to Section 1, but also could be read to suggest that virtually every significant act by a joint venture constitutes concerted action by its members.

Surprisingly, the decision ignores what seems to be a directly contrary holding: Just a few years ago, in Texaco Inc. v. Dagher, 547 U.S. 1 (2006), the court held that a Shell-Texaco joint venture's retail pricing decisions for its members' gas stations were "little more than price setting by a single entity--albeit within the context of a joint venture--and not a pricing agreement between competing entities with respect to their competing products." Instead, the court relies on its widely criticized decision in United States v. Topco Associates, Inc., 405 U.S. 596 (1972), which condemned a joint venture among independent supermarkets to purchase and market private-label foods in exclusive territories as a per se Section 1 violation. Over the past three decades, courts and enforcement agencies alike have renounced Topco's approach to joint ventures. In the past 20 years, Topco hasn't been good for much besides its inspiring reminder that the antitrust laws are "the Magna Carta of free enterprise." That the court would cite it now, without even a wink, as an example of how to look at a joint venture is spine-chilling.

Even so, American Needle may leave Dagher intact. Importantly, the court distinguishes between decisions made jointly by the NFL's teams on the one hand and decisions made by NFLP, their joint-venture entity, on the other. The teams' joint decisions evidently qualify for Section 1 scrutiny every time; in contrast, the court holds only those NFLP decisions "regarding the teams' separately owned intellectual property" to be concerted action. This suggests that, unlike NFLP decisions relating to any given team's logo, its decisions relating to NFL-created trademarks, such as the right to imprint the NFL logo on a football, are not subject to Section 1. The same logic may apply to acquiring inputs for the joint venture, whether hiring NFLP employees or buying pencils for them to use.

If that's right, American Needle ultimately may not pose much of a threat to joint ventures that create something new of their own. Decisions by a joint venture (as opposed to its owners) as to what it does with products or IP rights that it developed itself (potentially including aggregations of individually-owned rights such as licenses from performing rights organizations and patent pools) could still be single-entity conduct, consistent with Dagher. But this hopeful reading will be just speculation without further litigation, in which at least one joint venture's members are forced to bear the costs of defending against a Section 1 claim that the Supreme court didn't even intend to apply to them.

It's those added litigation costs, not increased antitrust exposure, that may be this case's real legacy. As the court emphasizes, plenty of restraints on competition are justifiable when they're reasonably necessary to make a joint venture work. Here, for example, it may well turn out on remand that making NFLP the exclusive source of NFL team logos is an economically reasonable way to get them to market. The burden will be on the joint venturers, though, to justify their conduct. And until the courts clarify which joint-venture-entity decisions are concerted activity and which aren't, plaintiffs lawyers will be placing this burden, and its costs, wherever they can.

In turning back the antitrust case law clock to the days when false positives were the norm in antitrust law, American Needle adds more legal expense and uncertainty for firms to consider when evaluating joint ventures, especially ones among actual or potential competitors. Some nostalgia that is. And there's not even cheap beer as a consolation.

Christopher Kelly is an antitrust litigator and partner in the Washington, D.C., office of Mayer Brown.

Chris Kelly

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