Wednesday, January 13, 2010

The Supreme Court is scheduled to hear a case Wednesday that legal experts say could bring sweeping changes to some of America’s most profitable groups of businesses: professional sports leagues.

American Needle, an Illinois apparel maker, is suing the National Football League, claiming it violated antitrust law by making a deal that gives Reebok the exclusive right to sell all team-labeled and league-logoed clothing and uniforms in every venue — even the head coaches’ sideline apparel.

The legal issue at hand is the NFL’s claim that it is a “single entity,” which would give it greater latitude in its business dealings and narrow the application of antitrust law. A decision is expected in early summer.

Depending on its scope, a victory for the NFL could give the league, rather than individual teams, the right to decide franchise relocation, ticket prices, intellectual property licensing, players’ and coaches’ salaries, free-agency rules and other issues. The other major U.S. sports leagues also could seize on the case as precedent to expand their own powers.

The case “might fundamentally change professional sports and rewrite sports antitrust law,” said Gabriel Feldman, director of the Sports Law Program at Tulane University in New Orleans.

In 2004, American Needle sued Reebok, the league, its 32 teams, and the league’s licensing arm, National Football League Properties Inc., saying their exclusive headgear deal violated the Sherman Anti-Trust Act. American Needle was one of many firms that had contracted with the various teams to make caps bearing the teams’ official insignia. But in 2001 the league decided to grant an exclusive 10-year license, worth $250 million, to Reebok.

Lower courts sided with the NFL, finding the Sherman Act was not meant to apply to parent-subsidiary relationships, such as that between the league and its individual teams, and noting the teams have a common economic interest in licensing their intellectual property.

American Needle appealed to the Supreme Court, and in a highly unusual move the NFL endorsed the review rather than urge the court to simply let its lower-court win stand. The league is going double or nothing, legal experts say, gambling that the court will set a single-entity precedent and open the door to greater autonomy.

The antitrust argument hinges on whether the NFL is 32 companies competing against each other or a single entity competing against other sports leagues and sources of entertainment.

If the high court declares it a single entity, the NFL would escape scrutiny under Section 1 of the Sherman Act and the Reebok deal would stand. If the court decides the NFL is multiple entities, and thus acting in a conspiratorial restraint of trade, then Sherman’s Section 2 would come into play. Another court would then have to weigh the Reebok deal’s effects on competition and decide on a response, which could include upholding the deal on the merits.

“For the NFL, there is much to gain and very little to lose,” says Marc Edelman, a sports and antitrust expert at Barry University’s law school in Orlando.

The case is especially important for 2011, when the NFL’s collective bargaining agreement that sets player salaries and free-agency rules will expire. Labor deals in the NBA, NHL and MLB expire around the same time. In a brief filed with the court, the NFL Players Association said its leverage in collective bargaining is based on antitrust law applying to the NFL and urged the court not to declare the league a single entity.

“The NFL owners’ appeal in this case is a Trojan horse designed to free sports team owners from Section 1 scrutiny so they can restrain competition with impunity in the market for player services,” the players’ amicus brief says.

But maverick owners could also be limited by a pro-NFL ruling, lawyers say. In 1995, Jerry Jones of the Dallas Cowboys sued the NFL over the licensing rights for his team’s goods. That case was settled out of court, and the league excused the Cowboys from the deal now before the Supreme Court.

Gregg Levy, lead counsel for the NFL, declined to comment. But in its brief, the league argues that “member clubs of the NFL have no independent value, no purpose, indeed no meaningful reason for existence but for their participation in the league itself.”

The NFL raised the single-entity defense in seven legal cases between 1982 and 2006 — and lost every time, according to Mr. Edelman.

But in their high court brief, the players unions for the NFL, NBA, NHL and MLB argued that teams do not share profits, losses, or risks, and they compete “vigorously against one another” in numerous markets, for player services, fans, franchise territories, and licensing.

Mr. Edelman says he expects Justices John G. Roberts Jr., Antonin Scalia and Clarence Thomas to side with the NFL because they have been “pushing back” antitrust review for some time. Justices Ruth Bader Ginsburg and John Paul Stevens likely will side with American Needle, leaving Justices Samuel A. Alito Jr., Steven G. Breyer, Anthony M. Kennedy and Sonia Sotomayor in the middle and “unpredictable,” Mr. Edelman says.

Michael McCann, a sports law and antitrust scholar at Vermont Law School, says it is “very unlikely” the NFL will win in a “sweeping way,” but it “could win in a limited way,” such as gaining single entity status for apparel sales only.

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