Does American Needle Case Apply To Collegiate Licensing?

Last year one of the biggest legal decisions in sports was made in American Needle, Inc. v. National Football League. (You can read about the decision in these two pieces I wrote for Forbes: Why NFL’s Supreme Court Loss Isn’t Much of a Loss(5.24.10) and American Needle vs. NFL: Looking Forward (5.26.10))

Earlier this month, cease and desist letters were sent to Collegiate Licensing Company, the nation’s top collegiate marketing and licensing company, and 27 FBS schools demanding that they stop their so-called collective effort to limit the production of merchandise with collegiate logos.

Quite a few of you have asked me about the situation, so I’ve asked my friend Beth Hutchens (Twitter: @HutchensLaw) of Hutchens Law Offices, who specializes in Intellectual Property law, to help me explain.

The real question here is whether the decision from the American Needle case applies in this situation. So, Ms. Hutchens will start with an explanation of that case and move to the situation at hand. I’ll let her take it away:

About 10 years ago, the National Football League Players’ Association (“NFLPA”) decided that they wanted Reebok (and only Reebok) to make hats with the teams’ logos on them.  American Needle, Inc., a competitor of Reebok, had been making these types of hats for the National Football League (“NFL”) for some time and, as a result of the NFLPA’s deal with Reebok, lost its contract to make said hats.  American Needle, Inc. did not have much of a sense of humor about this and sued the NFL under antitrust principles.  Long story short, American Needle Inc. argued that the NFL violated antitrust law because all 32 NFL teams worked together to freeze it out of the NFL-licensed-brand-hat-making business when they gave that exclusive right to Reebok for ten years.  The NFL asked for broad antitrust protection and argued that it was a single entity comprised of 32 different teams united under a common umbrella, hence the license wasn’t anticompetitive.   American Needle Inc. disagreed and argued that since each team retained ownership and control of its trademarks they were independent entities acting in concert.  Hilarity ensued all the way to the United States Supreme Court.

The Needle Court had to decide if the NFL was a single entity as opposed to a collection of separate entities  because §1 of the Sherman Act (the antitrust law at issue here) forbids conspiracies to restrain trade.  One cannot conspire with oneself, such as a parent and a subsidiary (the NFL’s argument), but two separate entities can, such as two competitors (American Needle, Inc.’s argument).  The relevant question, then, is if the 32 teams agreeing to grant an exclusive license for use of their independently owned marks “join[ed] together independent centers of decision making”.  This is why the NFL argued that the teams were under a single umbrella and most definitely were not separate entities.  The Supreme Court didn’t buy it and said:

Although NFL teams have common interests such as promoting the NFL brand, they are still separate, profit-maximizing entities, and their interests in licensing team trademarks are not necessarily aligned.