The Supreme Court’s May 24, 2010 American Needle, Inc. v. National Football League et al., 560 U.S. ____ (2010), ruling has implications for associations that license intellectual property rights. The Court held that associations aggregating intellectual property are subject to antitrust scrutiny because they are not entitled per se to be treated as a single entity. American Needle emphasizes the need for careful consideration when forming joint licensing arrangements.
The Litigation Between American Needle And NFL
The NFL teams formed National Football League Properties (“NFLP”) in1963 to license their intellectual property, including trademarked team logos. Up until 2000, American Needle was one of several non-exclusive licensees manufacturing baseball style caps with NFL team logos. In December, 2000 the NFL teams authorized NFLP to grant exclusive licenses. NFLP subsequently granted an exclusive license to Reebok International, Ltd. and declined to renew American Needle’s non-exclusive license.
American Needle sued NFLP, alleging violations of § 1 of the Sherman antitrust act, which makes illegal "every contract, combination in the form of a trust or otherwise, or, conspiracy, in restraint of trade." 15 U.S.C. § 1. The first inquiry in analyzing liability under § 1 is to determine whether there has been a "contract, combination . . . or, conspiracy." Slip op. at 1. The second inquiry, upon finding that the defendant formed a "contract, combination . . . or, conspiracy" is to determine whether the defendants improperly restrained trade.
A central issue in American Needle was whether the NFLP constituted a single entity incapable of "contract, combination, or conspiring." The NFL took the position that NFLP was a single entity, independent from its member teams. American Needle contended that the NFLP embodied concerted action of the individual NFL teams, through which each team acted in restraint of trade.
Both the district court and the court of appeals held that the NFLP constituted a single entity incapable of conspiring and thus not liable under § 1 of the Sherman act. Slip op. at 3. The Supreme Court reversed and remanded, holding that the decision to collectively license separately owned trademarks to a single vendor "depriv[es] the market place of independent centers of decision making" and therefore can be actionable under § 1 if found to improperly restrain trade. Slip op. at 12.
The Test For Improper Concerted Action
To prove liability under § 1, a plaintiff must first show that the defendants engaged in improper concerted activity rather than acting independently. In its holding on this point, the Court emphasized a focus on "competitive reality" when reviewing whether separate entities engage in improper concerted action. The Court held that the test for improper concerted action is "whether there is a 'contract, combination . . . , or conspiracy' amongst 'separate economic actors pursuing separate economic interests,' such that the agreement 'deprives the marketplace of independent centers of decision making,' and therefore of 'diversity of entrepreneurial interests.'" Slip op. at 10 (internal citations omitted).
Applied to the facts in American Needle, the Court noted that NFL teams compete in the market for intellectual property and that each team is a "substantial, independently owned, and independently managed business." Slip op. at 12. The Court discounted the notion that NFL teams have a common interest for purposes of trademark licensing, noting that their "interests in licensing team trademarks are not necessarily aligned." Slip op. at 13. The Court thus reversed and remanded for further consideration of whether the NFLP improperly restrained trade. Slip op. at 20.
American Needle Increases Uncertainty For IP Licensing Consortiums
The Court's decision makes it less certain whether licensing consortiums engage in illegal restraint of trade. The functional considerations emphasized by the Court provide an uncertain test of whether there has been a concerted action and will require careful handling. Parties to IP licensing consortiums may need to consider their liability in light of the Court’s decision.For any questions relating to this decision or to the specifics of your circumstances, please contact David A. Gosse or the Fitch Even attorney with whom you regularly consult.