Supreme Court Further Defines Application of Antitrust Laws to Joint Ventures
Legal Alerts
8.02.10
The Supreme Court recently issued its unanimous opinion in American Needle, Inc. v. National Football League, No. 08-661, providing additional guidance on the application of the antitrust laws to joint ventures. The Court held that the NFL was not a "single entity" incapable of a conspiracy and was required to defend antitrust claims brought by a former trademark licensee. Although the decision was not a major change of direction for the Court, it permits additional scrutiny of joint venture actions and deserves attention from firms involved in, or considering, a joint venture with a competitor.
Background
In 1963, the NFL, an unincorporated association of professional football teams, formed a joint venture, the National Football League Properties (NFLP) to license and market the logos, names and other intellectual property of its member teams. The separately-owned teams retained ownership of their intellectual property, but agreed to permit NFLP to grant licenses to companies to make and sell logoed products. The firms could and did occasionally withdraw from the NFLP.
American Needle was a licensee of NFLP authorized to make and sell apparel with the team insignias. In 2000, the teams voted to permit NFLP to grant an exclusive license, and it granted Reebok International an exclusive ten-year license to make and sell trademarked headwear for all 32 teams. American Needle sued the NFL, its member teams, the NFLP and Reebok alleging violation of the antitrust laws. The District Court granted summary judgment to defendants determining that, with respect to licensing intellectual property, the NFL and its teams were a single entity incapable of conspiring in violation of Section 1 of the Sherman Act. The Seventh Circuit affirmed. The Supreme Court reversed.
Decision
The Court's decision was based on a functional analysis of how the parties actually operate to make the "basic distinction between concerted and independent action." It explained that an agreement among the parties is subject to Section 1 where the parties are "'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. The Court noted that the teams are independently owned and managed, compete with one another for contracts with managers and players, and are potentially competing suppliers of intellectual property. The Court thus concluded that "The NFL teams do not possess either the unitary decision-making quality or the single aggregation of economic power characteristic of independent action." Id. at 11-12.
The Court remanded the case for further proceedings. The Court made it very clear that the flexible Rule of Reason analysis would be employed to review the agreements involving the exclusive licensing. It stated that the "'special characteristics of this industry'" may provide a "perfectly sensible justification for making a host of collective decisions." Id. at 18.
Implications
The Court's decision is a further explanation and tightening of its 1984 decision in Copperweld Corp. v. Independence Tube Corp. Copperweld held that a corporation and its wholly-owned subsidiary constituted a "single entity" incapable of conspiring in violation of Section 1 as a matter of law, because of their unity of economic interests. The Court's rejection of the NFL's attempt to apply Copperweld to immunize its conduct vis-à-vis American Needle was not surprising and did not represent a major change in the law. An unfortunate effect of the Court's decision, however, may be an increase in antitrust suits challenging joint ventures or their conduct, with the resulting litigation expense for the venture and its participants. As the Court noted, many joint venture restraints are reasonable when needed to make the venture work; joint ventures may increasingly be required to prove that.
One example of the impact of the American Needle decision may be a change in the ability to claim the "single entity" defense for a subsidiary or joint venture where a parent owns a substantial (i.e., 80%) interest. In the past, some courts have applied Copperweld to dismiss claims of conspiracy without analysis of whether the parent exercises control over the operations of the subsidiary. Plaintiffs will argue American Needle no longer permits this eminently reasonable result, but requires an analysis of the commonality of the economic interests of the parties and the extent of actual exercise of control.
Another implication of the decision may be to encourage joint venturers to establish fully-integrated joint ventures with the venture owning the greatest amount of operating assets that makes business sense. In its 2006 decision Texaco, Inc. v. Dagher, the Court explained that a pricing decision made by an integrated joint venture "amounts to little more than price setting by a single entity." The joint venture in Dagher was very different than the NFLP: in Dagher, the production assets of the two parents were owned by the joint venture and the decisions appeared to be those of an independent business. In order to increase the likelihood of "single entity" treatment, parties may wish to consider contributing operating assets to the joint venture and increasing the power of joint venture management to achieve what the Court in Dagher referred to as a "lawful, economically integrated joint venture."
To learn more about the implications of this decision, read the full alert and/or contact Stephen Bolerjack or Aleksandra Miziolek, members of Dykema’s Antitrust & Trade Regulation practice, or your Dykema relationship attorney.
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