The U.S. Supreme Court in American Needle, Inc. v. National Football League, et. al. has held the NFL is not a single enterprise for purposes of Section 1 of the Sherman Act and thus, its licensing of the intellectual property of its member football teams constitutes concerted action.  The court; however, did not address the question of whether the action unreasonably restrains trade, but determined the legality of that concerted action must be judged under the Rule of Reason. 

American Needle filed this action after the NFL’s licensing arm, NFL Properties, declined to renew its nonexclusive license to manufacture and sell apparel bearing team insignias.  Instead, the NFL granted to Reebok International Ltd. an exclusive 10-year license to manufacture and all trademarked headwear for all 32 teams.  The defendants responded that the teams, NFL, and NFLP were incapable of conspiring because they are a single economic enterprise.  The district court agreed and concluded the NFL and its teams in the exploitation of intellectual property rights “have so integrated their operations that they should be deemed a single entity rather than joint ventures cooperating for a common purpose”. 

The U.S. Court of Appeals for the Seventh Circuit affirmed and held Section 1 did not apply.  The circuit court limited its inquiry to the licensing of teams’ intellectual property and agreed with the petitioner that when making a single-entity determination, courts must examine whether the conduct in question deprives the marketplace of the independent sources of economic control.  The court discounted the significance of potential competition among the teams regarding the use of their intellectual property because the teams can function only as one source of economic power when collectively producing NFL football.  The circuit court reasoned that because football itself can be carried out only jointly and the teams share a vital economic interest in collectively promoting NFL football to compete with other forms of entertainment, only one source of economic power controls the promotion of NFL football and it makes little sense to assert that each individual team has the authority to promote the jointly produced NFL football.

On review, the Supreme Court focused less on whether the parties involved are legally distinct entities and more on how the parties actually operate.  It determined the inquiry is one of competitive reality–whether the agreement joins independent centers of decision-making.  If it does, then the entities are capable of conspiring under Section 1 and the unreasonableness of the restraint of trade must be determined.

The Court found the NFL teams do not possess a unitary decisionmaking quality or the single aggregation of economic power characteristics of independent action.  They compete with one another, not only on the playing field, but also to attract fans, for gate receipts, and for contracts with managerial and playing personnel.  It concluded that decisions by NFL teams to license their separately owned trademarks collectively and to only one vendor are decisions that deprive the marketplace of independent centers of decision making and thus of competition. 

In addition, the Court contrasted agreements within a single firm with the agreement of the 32 teams to have licensing decisions made by the NFLP.  Although the NFLP is a separate corporation with its own management and shares most of its revenues among the teams on an equal basis, the Court said the 32 potential competitors, each of whom actually owns its share of the jointly managed assets, make NFLP’s licensing decisions.  The Court concluded that apart from the teams’ agreement to cooperate in exploiting those assets, including their decisions as the NFLP, there would be nothing to prevent each of the teams from making its own market decisions relating to purchases of apparel and headwear and to granting licenses to use its trademarks.  In contrast, the Court said agreements within a single firm are treated as independent action on the presumption that the components of the firm will act to maximize that firm’s profits.  The 32 teams operating independently through the vehicle of the NFLP are not like the components of a single firm that act to maximize the firm’s profits.  The teams remain separately controlled, potential competitors with economic interest that are distinct from NFLP’s financial well being.  The Court determined that competitors cannot avoid antitrust liability simply by acting through a joint venture or third party intermediary.  It concluded that decisions by the NFLP regarding the teams’ separately owned intellectual property constitute concerted action. 

The Court, however, did not decide whether the concerted action is reasonable.  It instead remanded the case to the Court of Appeals to apply the Rule of Reason to the collective decisions made by the teams.