U.S. Supreme Court holds licensing activities of NFL teams were joint conduct subject to § 1 Sherman Act

On 24 May 2010 the U.S. Supreme Court held that teams of the National Football League (“NFL”) engaged in concerted action subject to Section 1 Sherman Act when licensing their intellectual property rights such as brands and logos through an entity called the National Football League Properties (“NFLP”). Lower courts had considered that the teams were acting as a single entity incapable of conspiring under Section 1 (see Newsletter 5/2009 p. 3 and Newsletter 4/2009 p. 4 for background).

In its opinion, the Court emphasized that the inquiry into whether firms act jointly (instead of independently) should focus on the substance of the activities concerned rather than their form such as whether a single legal entity is or legally distinct entities are concerned. Decisive in determining whether concerted action is present is whether the arrangement, by joining together separate economic actors pursuing separate economic interests, deprives the marketplace from independent decision-making and thus of actual or potential competition. The Court explained that only concerted action is subject to Section 1 of the Sherman Act because, in comparison to independent conduct exclusively subject to Section 2, it inherently carries a higher anti-competitive risk and subjecting only discrete agreements to Section 1 lowers the risk of deterring firms’ necessary conduct.
Applying these principles to the present case, the Court considered that while the NFL teams have shared interests in producing football and promoting the NFL brand, the teams nonetheless remain separate and have potentially competing interests as to many of their functions. In particular, the teams compete as suppliers in the market for intellectual property. The activities of the teams, also to the extent undertaken through the separate licensing entity NFLP, therefore constitute concerted action subject to Section 1 of the Sherman Act. The Court, however, explained that Rule of Reason should generally apply to the NFL activities in which cooperation is necessary. [Juha Vesala]