If you’re a football fan, like me, you’ve probably heard about the recent antitrust case in which the NFL supposedly suffered a big loss. For those that haven’t heard, here’s the story in a nutshell. For years, NFL teams have jointly licensed their trademarks for use on products like t-shirts, baseball caps, mugs, etc through a company called National Football League Properties (NFLP). About ten years ago, the NFLP decided that only Reebok could make headwear bearing NFL logos. As a result, American Needle, Inc., a competitor of Reebok, lost its contract with NFLP. Faced with the loss of a tremendous revenue source, American Needle did what any proud American would do: it sued, claiming the NFLP was acting improperly as a monopoly and not allowing competition in the NFL headwear business. On May 24, 2010, the U.S. Supreme Court ruled that American Needle could proceed with its lawsuit.
You’ve probably seen articles (using countless bad football puns — “NFL Sacked by Supreme Court” — which we here at Law Law Land would obviously be totally above using) touting this as a big setback not only for the NFL, but for all professional sports leagues (other than Major League Baseball, which, amazingly, is a legal monopoly). But, the NFL didn’t really lose much more than this intermediate ruling in this particular lawsuit. In fact, the case doesn’t actually say the NFL did anything wrong. Think of it more like an incomplete pass than a 15 yard facemask penalty. (See? We use only good football puns.)
So, what was all the fuss about? Well, many statements by Justice Stevens in the majority opinion can be made to sound really bad for the NFL. Things like Justice Stevens’ statement that the decision by the 32 NFL teams to jointly license their separate trademarks deprives the marketplace of “actual or potential competition.” Sounds bad, right? It sure looks that way at first, but this may actually be a case for instant replay: if you keep reading the opinion, it becomes clear that this ruling may have absolutely no impact on the way the NFL does business. (Okay, okay, I’ll stop.)
Later in the opinion, Justice Stevens says that although the joint licensing activities are anticompetitive, they may not be illegal. In fact, Stevens notes that anticompetitive conduct like the joint licensing of NFL trademarks, may be necessary to make the product of NFL Football available to the public. If that’s the case, it’s perfectly legal and can continue indefinitely. This so called “Rule of Reason” plays right into the NFL’s hands — which means all that bad-sounding language may have been little more than a false start. (That was the last one, I swear.)
How could licensing NFL trademarks be necessary to enabling Peyton Manning to carve up defenses on national TV, you ask? Well, another often-overlooked statement by Justice Stevens is that maintaining competitive balance in the league is a “legitimate and important” objective that can potentially be furthered by anticompetitive conduct. As (at the risk of mixing sports metaphors) any Pittsburgh Pirates fan can tell you, when your team has a $30 million payroll, it’s pretty hard to compete with the team that has a $200 million payroll (read: Yankees). Here’s where joint licensing comes in.
The NFL, unlike the other major professional sports leagues, has historically imposed extensive revenue sharing among all teams in the league. This means that, even though the Cowboys, Redskins, and (evil) Patriots make a lot more money that the Jaguars, Rams and (awesome) Bills, the NFL spreads profits relatively equally among the franchises to ensure a relatively even playing field. As a result, the NFL does not have the disparity in payrolls like Major League Baseball or the NBA. It also means that there are usually many teams that have access to available high-priced free agents, which promotes parity.
The NFL teams have made this arrangement work because, as a general rule, they jointly license all aspects of their product. For example, teams do not have individual TV contracts like in baseball and basketball. Which sucks whenever the game you want to watch is subject to the stupid “blackout” rule, or when you’re a cable subscriber and can’t get the “Sunday Ticket” package (which is the greatest thing ever to happen to a Bills fan who lives in L.A.). But it does allow the NFL to maintain a level of parity that is good for the league and is pretty much unmatched in other sports. (I promised no more cheap football puns, not no more obvious Buffalo Bills partisanship.)
NFLP is part of this collective effort to jointly license the NFL product and share revenues. Revenues from the sales of trademarked merchandise have historically been shared equally among all 32 teams, even though NFLP surely sells more Tony Romo jerseys than Trent Edwards jerseys. (See what growing up in Western New York will do for you?) So, if the revenue from the sale of merchandise by NFLP helps ensure parity and competitive balance by distributing licensing revenue equally, it seems the arrangement, while anticompetitive, may still be perfectly legal.
As a Bills fan, I can only hope I’m right about this. Otherwise, I can just imagine the (evil) Patriots raising money to fund dozens of free agent signings by selling “Tom Brady Collectible Jerseys” that no other team shares in. Somehow, I doubt the Bills will have similar success with products such as the “Wide Right” jersey or the “O.J. Was Here” bumper sticker.