Supreme Court Weighs NFL Merchandising Deal

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The U.S. Supreme Court turned into something of a sports czar Wednesday.

The justices heard arguments in a case testing the legality of the NFL's exclusive deal with Reebok to sell billions of dollars worth of hats, shirts and other apparel. Backed by other sports leagues, the NFL says it should be free from antitrust lawsuits for activities it undertakes as a league.

Before 2001, the NFL licensed a lot of companies to manufacture goods with NFL team logos. But then the NFL decided to award its merchandising license for all 32 teams to just one company: Reebok.

Among those frozen out was American Needle Inc., a family-owned company that until 2001 specialized in manufacturing NFL team caps. Indeed, the caps were one-quarter of its business. The company challenged the exclusive licensing deal in court, claiming it amounted to a conspiracy among the teams to fix prices, and noting that cap prices had gone way up since the deal.

But a federal appeals court ruled that the league is a single entity that operates as one business, not 32 competing businesses. And it tossed the case out of court without a trial.

Antitrust experts saw the decision as an opportunity for the NFL and other sports leagues to gain immunity from lawsuits over more than just merchandising agreements. They saw the ruling as a vehicle for sports leagues to potentially set prices for tickets, or parking at games, or fees for fantasy football.

In the Supreme Court on Wednesday, American Needle's lawyer, Glen Nager, told the justices that the NFL shouldn't be able to circumvent the nation's antitrust laws that way. He said the NFL teams are separately owned and operated businesses, and that by construing the league as a single entity, the lower court had approved a merchandising monopoly for the NFL.

Several justices asked where to draw the line. After all, you need agreement on league rules and a schedule.

Justice Stephen Breyer, noting that he knows baseball better than football, questioned the premise of apparel competition. "You want the Red Sox to compete in selling T-shirts with the Yankees?" he asked. "I don't know a Red Sox fan who would take a Yankees sweatshirt if you gave it away."

Justice John Paul Stevens suggested that the real competition for apparel is between sports — football and basketball, for instance — not between teams.

But the questioning got even more intense when the NFL's lawyer, Gregg Levy, rose to argue.

He conceded that 32 teams used to individually license their own logos. But he maintained that the purpose of the NFL exclusive deal with Reebok was not to make money, but to promote the game of football.

Justice Antonin Scalia was disdainful.

"They don't care whether the sale of the T-shirt promotes the game," he said. "They sell it to make money."

Justice Sonia Sotomayor observed that if the aim is to make money — and she said she could well see that argument — then a league agreement to fix prices would be a violation of the antitrust laws.

Sotomayor prodded further, asking what decisions could sports teams make that "would be subject to antitrust scrutiny?"

Levy replied that "the NFL clubs are not separate sources of independent power. They are a unit ... a single entity."

So, pounced Sotomayor, "You are seeking, through this ruling, what you haven't gotten from Congress: an absolute bar to an antitrust claim."

Justice Breyer analogized the situation this way: A joint venture to play football is one thing; a joint NFL venture to build houses is another.

As Chief Justice John Roberts observed, "The other side says selling logos is closer to selling houses than it is to playing football." So, Roberts said, if there is a factual dispute about whether a particular activity of the league is designed to promote the game or is designed simply to make money, then that is the sort of thing that should go to trial.

Justice Scalia then aimed his question at the NFL's assertion that trademarks and logos have no value apart from the game. "I guess you could say the same thing for each of the 32 franchises," Scalia said. "They are worthless if the NFL disappears. So does that mean they can agree to fix the price at which their franchises will be sold?"

Lawyer Levy didn't directly answer that question but contended that the NFL is much like a law firm that sets the prices charged by its lawyers.

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