For almost a decade, Reebok International has had an exclusive license to sell headwear with the National Football League's team logos, but perhaps not for much longer. A unanimous Supreme Court just ruled that the NFL's 32 teams are not automatically exempt from antitrust rules, and one of the times when they weren't exempt was when they acted together to grant Reebok that exclusive license.
American Needle was one of the companies that made licensed headwear before the Reebok deal, and it sued when the Reebok license was granted in 2001. Until Monday's decision, the NFL had successfully fended off American Needle by claiming that all 32 teams, particularly when acting as "National Football League Properties," a company the teams created to market their intellectual property, essentially functioned as one and as such were exempt from antitrust rules. Noting that unlike other areas where the teams must cooperate to produce the product that is "NFL Football," the justices pointed out that each team's economic interest in licensing revenues is not inherently aligned with other teams', and thus a categorical exemption isn't warranted.
Monday's decision holds something for both sides. American Needle can now go back to the trial court and perhaps break the license with Reebok as an illegal "restraint of trade", gaining triple damages, and litigation costs including attorneys' fees. The 32 teams of the NFL won recognition from the court that in many situations, the teams' interests can be so aligned that when acting together, they are in fact exempt from antitrust rules. But the determination of when that applies must now occur on a case-by-case "rule of reason" basis: The categorical protection sought by the teams is gone. (The court did reassure the teams that in many cases, a detailed analysis won't be necessary to find the teams' cooperation OK under the rule of reason, but said that licensing of intellectual property wasn't one of those types of cooperation.)
An Impact Far Beyond NFL Logo Hats
While the issue in the case seems rather small, the scope of the antitrust exemption for the NFL is a very big issue. First, it has ramifications for the other major sports leagues (except baseball which has an unique antitrust exemption). The National Basketball Association and the National Hockey League both filed briefs supporting the NFL's claim of antitrust exemption, reasoning that what applies to the NFL will apply to them too, and they're likely right.
Second, it's not just about hats: Video game makers might now want to challenge the NFL's exclusive license with Electronic Arts, for example. Any exclusive licensing deal involving team logos is now subject to suit. Finally, the court has made clear that the rule of reason applies generally to the teams' collective decisions, so more suits challenging other types of league decisions may follow.
Managing your Portfolio
Keeping your portfolio and financial life fit!View Course »