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ABA Newsletter Fall 2010 (N2192961) (2)


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Published article on quick look and reverse quick look

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ABA Newsletter Fall 2010 (N2192961) (2)

  1. 1. Fall 2010 The Trade, Sports and Professional Associations Committee Newsletter INFORMATION EXCHANGE THE TRADE, SPORTS AND PROFESSIONAL ASSOCIATIONS COMMITTEE NEWSLETTER American Bar Association Section of Antitrust Law AGENDA American Needle: A Strong Undercurrent on the Treatment Of Manifestly Pro-Competitive Re- straints under the Rule Of Reason 1 Message From the Chair 3 There is Only One National Football League 21 Canadian Needle? 31 Does American Needle Open the Door For More Competition Between Soccer Clubs in the United States? 38 Cases to Watch 43 CLE 48 In its recently-issued unanimous decision in American Needle, Inc. v. National Foot- ball League Co. et. al.,1 the United States Supreme Court addressed whether its Cop- perweld doctrine2 shielded the National Football League’s (“NFL”) decision to award an exclusive license to Reebok to produce trademarked head gear for all 32 teams from antitrust scrutiny under Section 1 of the Sherman Act. The Copperweld doctrine holds that joint decisionmaking by two or more entities does not constitute the requisite combination, conspiracy, or agreement to trigger Section 1 if those enti- ties are controlled by a single center of de- cisionmaking and constitute a single aggre- gation of economic power.3 The American Needle Court held that the NFL teams did not have either the unitary decision-making or the single aggregation of economic AMERICAN NEEDLE: A STRONG UNDERCURRENT ON THE TREATMENT OF MANIFESTLY PRO- COMPETITIVE RESTRAINTS UNDER THE RULE OF REASON EMILIO E. VARANINI* (continued on page 4)
  2. 2. Fall 2010 The Trade, Sports and Professional Associations Committee Newsletter 2 THE TRADE, SPORTS AND PROFESSIONAL ASSOCIATIONS COMMITTEE NEWSLETTER * * Leadership * * * * Editors * * David Meyer, Chair Morrison & Foerster LLP 2000 Pennsylvania Avenue, N.W., Suite 6000 Washington, D.C. 20006-1888 (202) 887-1519 Frank M. Hinman, Vice Chair Bingham McCutchen, LLP Three Embarcadero Center San Francisco, California 94111-4067 (415) 393-2462 Karin Moore, Vice Chair Wine & Spirit Wholesalers of America, Inc. 805 15th Street, N.W., Suite 430 Washington, D.C. (202) 371-9792, ext. 311 Christine Sommer, Vice Chair Crowell & Moring 1001 Pennsylvania Avenue, N.W. Washington, D.C. 20004-2595 (202) 624-2944 Dorothy Gill Raymond, Vice Chair Law Offices of Dorothy Gill Raymond 7501 Weld County Road 7 Erie, Colorado 80516 (303) 818-6563 Mark Whitener, Council Liaison Senior Counsel, Competition Law & Policy General Electric Company Washington, D.C. (202) 637-4370 Christine Sommer, Vice Chair Crowell & Moring 1001 Pennsylvania Avenue, N.W. Washington, D.C. 20004-2595 (202) 624-2944 Karin Moore, Web Page Editor Wine & Spirit Wholesalers of America, Inc. 805 15th Street, N.W., Suite 430 Washington, D.C. (202) 371-9792, ext. 311 Mark A. Cunningham, Publisher Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P. 201 St. Charles Avenue New Orleans, Louisiana 70170-5100 (504) 582-8536 _________________________ INTERESTED IN JOINING THE COMMITTEE? For more information, contact: David Meyer, Chair Morrison & Foerster LLP 2000 Pennsylvania Avenue, N.W. Suite 6000 Washington, D.C. 20006-1888 or Visit our Website at _________________________
  3. 3. Fall 2010 The Trade, Sports and Professional Associations Committee Newsletter 3 MESSAGE FROM THE CHAIR The TSPA Committee plans, for the 2010- 2011 year, to capitalize on the attention being paid to trade associations and sports leagues as a result of the American Needle decision. Like the old saying goes, “Now that we have your attention…” New Vice Chairs Karin Moore, of the Wine and Spirits Wholesalers of America [], and Christine Som- mer, of Crowell [], join returning Vice Chairs Frank Hinman, of Bingham [], and Dorothy Raymond, former general counsel of Cable Television Laboratories, Inc. [], in working with me this year. Many thanks to Jerry Swin- dell and Emilio Varanini, who made great con- tributions to the Committee’s activities last year. Following through on American Needle, this issue of our newsletter features four articles addressing different implications of the deci- sion. We also have our regular “Cases to Watch” section. Interested in seeing your name in print? Our next newsletter is targeted for February, 2011 so let me or our new editor, Christine Sommer, know if you have ideas for articles. Our Committee is co-sponsoring two programs for the 2011 Spring Meeting; one on the im- pact of American Needle and one on the role of (alleged) trade association activities in recent criminal investigations and civil litigation al- leging horizontal price fixing among industry members. We have several programs in the works, in- cluding how to preserve the attorney-client privilege in the context of trade association counseling and a nuts and bolts seminar on trade association counseling. If you have other ideas for programs, please let me know. Updating our website (http:// com=AT326000 ) is another priority for the coming year. We have links to the Ameri- can Needle decisions, the Supreme Court briefs, the oral argument transcript, and some of the commentaries. There’s more to this committee than American Needle, however, so we are striving to develop a more complete listing of resources for practitioners in this area. Karin Moore is looking for volunteers to help her keep the website up-to-date and a useful resource for our members. T h e T S P A l i s t s e r v ( A T - TA@MAIL.ABANET.ORG) is intended for use by all committee members to post information about new developments. If you haven’t subscribed, the link to do so is on the TSPA web page. If you haven’t contributed to the listserv, please feel free to share your thoughts, experiences or questions. Last but not least, we want to get all com- mittee members involved in our activities. If you have ideas for what the TSPA ought to be working on, or have needs in your law practice in this substantive area that we can help you with, we want to hear from Visit our Website at committees
  4. 4. Fall 2010 The Trade, Sports and Professional Associations Committee Newsletter 4 you. If you haven’t responded to our sur- vey asking for your input, please be sure to do so now. We are also planning a town hall/networking committee program for this fall. Finally, if you’re going to be at the Spring Meeting in Washington D.C. this year, we’ll have a table at the opening reception and look forward to seeing you there. David Meyer Chair Trade, Sports, and Professional Associations Committee Antitrust Section American Bar Association Morrison & Foerster LLP 202-887-1519 power characteristic of action by a single firm.4 This holding of American Needle is well-recognized in the main.5 However, the American Needle opinion has undercurrents that have been little dis- cussed since the decision. These undercur- rents are worth careful study by courts, an- titrust enforcers, and corporate advisers. One significant suggestion by the Court is that federal courts should consider an early reverse “quick look” analysis of restraints falling within the ambit of the rule of rea- son.6 When applying a reverse quick look analy- sis, a restraint that is plainly pro- competitive (according to the understand- ing of an observer with nothing more than a rudimentary understanding of economics) is a reasonable, and hence legal, restraint unless the plaintiff can proffer evidence that such a restraint may have an anti- competitive effect.7 Restraints that are nec- essary for a legitimate joint venture to function at all - e.g., price-setting as to the good to be produced by the joint venture - would seem to fit within this category.8 In turn, such a reverse quick look analysis could occur via an early motion for sum- mary judgment.9 Provided the lower courts are sufficiently sensitive to discovery and proof issues that may occur at such an early point in the case,10 a limited reverse “quick look” analysis might well allow the sepa- rating of the wheat from the chaff in as- sessing restraints - the very task that not only so troubled the Court in American Needle11 but has troubled the Court in other (continued from page 3) (continued from page 1)
  5. 5. Fall 2010 The Trade, Sports and Professional Associations Committee Newsletter 5 cases before it in the past few years.12 History of United States Supreme Court Precedent on Quick Look To understand how a reverse quick look analysis might work, it is first necessary to examine its inverse twin: the ordinary quick look doctrine. The ordinary quick look doc- trine first arose in National Soc. of Profes- sional Engineers v. United States.13 In Professional Engineers, the High Court addressed the question of whether the defen- dant-association’s bar on competitive bid- ding for engineering services violated Sec- tion 1 of the Sherman Act.14 The Court ob- served that, under the rule of reason inquiry applicable to Section 1 of the Sherman Act per its Standard Oil decision,15 a court could strike down a restraint as being unreasonable based either on (a) the nature and character of the restraint or (b) on surrounding circum- stances giving rise to the inference or pre- sumption that the restraint was intended to restrain trade or enhance prices.16 The Court further noted that, for restraints ancillary to lawful joint activity, it had evolved a rule of reason test that compared the pro- and anti- competitive effects of that restraint.17 Turning to the restraint at issue, the Court had no trouble finding that while the restraint was not per se illegal price-fixing, it could condemn the restraint as being anti- competitive without any elaborate industry analysis as it impeded the ordinary give and take of the market place by depriving the customer of the ability to utilize and compare prices in selecting engineering services.18 The Court further observed that the defen- dants’ argument - that competition was bad - did nothing to refute the anti-competitive purpose and effect of the agreement.19 The ordinary quick look doctrine next arose in a more substantial way in National Collegiate Athletic Assoc. v. Board of Re- gents of the University of Oklahoma et. al.20 The High Court there addressed the ques- tion of whether the National Collegiate Athletic Association (“NCAA”) infringed Section 1 of the Sherman Act by limiting live television broadcasts for all of its member teams’ football events exclusively to two television companies who agreed to follow certain rules. Those rules included fixing prices for live broadcasts solely ac- cording to the intended geographic range of the broadcast, and ensuring that each mem- ber team obtained a certain number of ap- pearances, in order to limit the effect of live television broadcasting on game atten- dance.21 Although the NCAA Court agreed that hori- zontal restrictions on price and output were per se illegal (i.e., said practices can not be excused or justified), it refused to apply a per se illegal analysis to these restraints.22 Instead, it applied a rule of reason analysis, noting that some restraints on competition were necessary for products such as league sports that needed to be produced jointly in order to be made available at all.23 However, the Court then recognized that the restraints at issue had significant anti- competitive potential: they restricted member teams from selling their own tele- vision rights and thus increasing the num- ber of games on television; raised the prices that networks had to pay for those (continued from page 4)
  6. 6. Fall 2010 The Trade, Sports and Professional Associations Committee Newsletter 6 games that they could televise; and elimi- nated competitors from the market by limit- ing the broadcasters who could bid to tele- vise games.24 It noted that these anti- competitive consequences - restricting price and output - were “apparent” and the “paradigmatic examples of restraints on trade that the Sherman Act was intended to pre- vent.”25 When the NCAA argued that these restraints could not have an anti-competitive effect be- cause it lacked market power, the Court re- jected that argument on the legal ground that, “where there is an agreement not to compete in terms of price or output, no elaborate in- dustry analysis is required to demonstrate the anti-competitive character of such an agree- ment.”26 In a footnote, the Court then ob- served that the ability for firms to impose lawful restraints such as joint buying and selling did not impede the courts from being able to enjoin without a trial an agreement between the then two biggest car manufactur- ers to employ a single joint seller as that agreement would impede important price competition and could hardly be justified.27 The Court thereupon concluded this footnote by observing that “the essential point is that the rule of reason can sometimes be applied in the twinkling of an eye.”28 The NCAA Court next observed that “these hallmarks of anti-competitive behavior place upon petitioner a heavy burden of establish- ing an affirmative defense which competi- tively justifies this apparent deviation from the operations of a free market.”29 Although the NCAA proffered a number of pro- competitive justifications, the Court summa- rily rejected all of them.30 The United States Supreme Court next ap- plied the quick look doctrine in Federal Trade Commission v. Indiana Federation of Dentists.31 Here, the United States Su- preme Court addressed the question of whether the policy of the organization of dentists to withhold the x-rays of patients from dental insurers violated Section 1 of the Sherman Act where the joint policy had the effect of limiting the ability of insurers to have dentists compete for the business of those patients covered by those insurers.32 While the Court recognized that this prac- tice resembled group boycotts that it had previously adjudged to be per se illegal, it refused to accord per se treatment here for three reasons: (a) it had backed away from according per se treatment to group boy- cotts; (b) it was reluctant to condemn rules adopted by professional organizations as unreasonable per se; and (c) it was also re- luctant to extend per se analysis to re- straints imposed in the context of certain types of joint relationships where the eco- nomic effects of those restraints in the con- text of those relationships may not be “immediately obvious.”33 Nonetheless, the Court found no great dif- ficulty in adjudging the restraint to be ille- gal under a quick look rule of reason analy- sis. It reasoned that a joint agreement to withhold information desired by customers, while not price-fixing, did not require an elaborate industry analysis in order to find it to be anti-competitive.34 The Court re- jected the notion that, with such a “naked” restraint, the FTC nonetheless should have been required to show market power.35 It further rejected the notion that the FTC should have been required to show that the (continued from page 5)
  7. 7. Fall 2010 The Trade, Sports and Professional Associations Committee Newsletter 7 restraint resulted in higher prices (or, to be more precise, the purchase of higher-priced services).36 Quite to the contrary, because an agreement on its face limited customer choice by impeding “the ordinary give and take of the marketplace,” the Court immedi- ately placed on the defendant the burden of demonstrating a precompetitive virtue such as “the creation of efficiencies in the opera- tion of a market” or the “provision of goods and services.”37 The defendant-association offered no evidence of any such redeeming pro-competitive virtues.38 Finally, in California Dental Association v. FTC,39 the United States Supreme Court elaborated on the circumstances under which a quick look analysis could be employed. The Cal. Dental Ass’n. Court addressed the issue of whether the dental association’s re- stricting price advertising, particularly dis- count fees, and quality of service advertising on the ground that such advertising could be misleading advertising violated Section 1 of the Sherman Act.40 In deciding whether the lower court’s appli- cation of quick look was appropriate,41 the High Court first summarized its previous cases as involving a judicial inquiry into whether “an observer with even a rudimen- tary understanding of economics could con- clude that the arrangements in question would have an anti-competitive effect on customers and markets.”42 However, the Court, in a 5-4 decision, then contrasted the instant case with those previous cases in which it had applied quick look analysis in finding that the likelihood of anti- competitive effects was not “comparably ob- vious.”43 The majority noted that, even if the view of the dissent were correct that bans on truth- ful and verifiable price advertising were prima facie anti-competitive, the bans on advertising here were “designed to avoid false or deceptive advertising in a market characterized by striking disparities be- tween the information available to the pro- fessional and the patient.”44 In reaching this conclusion, the Court placed heavy emphasis on various economic studies and articles, both legal and economic, analyz- ing markets for complex professional ser- vices or medical services.45 The majority conceded that it could turn out, on a fuller analysis, that the restric- tions in question might have no competi- tive effect, or even an anti-competitive ef- fect.46 It further conceded that the dissent’s “through-going de novo antitrust analysis” had “much to impress on its own merits” and that the lower court’s opinion might have been sustained had it engaged in the same analysis as the dissent.47 However, “the plausibility of competing claims about the effects of the professional advertising restrictions rule[d] out the indulgently ab- breviated review to which the [FTC’s] or- der was treated” by the lower court.48 In its final analysis, the majority cautioned that “[s]aying here that the Court of Ap- peal’s conclusion at least required a more extended examination of the possible fac- tual underpinnings than it received is not necessarily to call for the fullest market analysis.”49 It reasoned that even if a case were not subject to quick look analysis, it did not follow that it must automatically be subject to plenary market examination.50 It (continued from page 6)
  8. 8. Fall 2010 The Trade, Sports and Professional Associations Committee Newsletter 8 then elaborated on this point as follows: Indeed, the scholar who enriched anti- trust law with the metaphor of “the twinkling of an eye” for the most con- densed rule-of-reason analysis him- self cautioned against the risk of mis- leading even in speaking of a “spectrum” of adequate reasonable- ness analysis for passing upon anti- trust claims: “There is always some- thing of a sliding scale in appraising reasonableness, but the sliding scale formula deceptively suggests greater precision than we can hope for.... Nevertheless, the quality of proof re- quired should vary with the circum- stances.” P. AREEDA, ANTITRUST LAW ¶ 1507, p. 402 (1986). [Footnote omitted.] At the same time, Professor Areeda also emphasized the neces- sity, particularly great in the quasi- common-law realm of antitrust, that courts explain the logic of their con- clusions. “By exposing their reason- ing, judges ... are subjected to others' critical analyses, which in turn can lead to better understanding for the future.” Id., ¶ 1500, at 364. As the circumstances here demonstrate, there is generally no categorical line to be drawn between restraints that give rise to an intuitively obvious infer- ence of anticompetitive effect and those that call for more detailed treat- ment. What is required, rather, is an enquiry meet [sic] for the case, look- ing to the circumstances, details, and logic of a restraint. The object is to see whether the experience of the market has been so clear, or neces- sarily will be, that a confident con- clusion about the principal tendency of a restriction will follow from a quick (or at least quicker) look, in place of a more sedulous one.51 The Court cited in a footnote a number of commentators as supporting this sliding scale approach of judicial inquiry.52 The dissent agreed with these latter points articulated by the majority as to this sliding scale mode of rule of reason analysis.53 However, the dissent argued that the Court could have upheld the decision of the lower court even on a more discerning analysis.54 The Rise of the Reverse Quick Look Doc- trine in American Needle Next, to understand how the American Needle Court came to suggest what this article refers to as the reverse quick look doctrine, it is important to look at the back- ground behind American Needle, starting with the appellate opinion that was re- versed by American Needle. In response to plaintiff American Needle’s assertion that the NFL’s award of an exclusive li- cense for its teams’ intellectual property (e.g., team logoed-clothes) to Reebok vio- lated Section 1 of the Sherman Act, the Seventh Circuit Court of Appeals ruled that the Copperweld doctrine immunizing sin- gle-entity conduct involving a parent and its wholly-owned subsidiaries had to apply to the NFL itself because only the football league itself, as opposed to an individual football team, could produce a football game.55 The lower court further remarked that antitrust law encouraged cooperation inside such a business organization so that (continued from page 7)
  9. 9. Fall 2010 The Trade, Sports and Professional Associations Committee Newsletter 9 the organization as a whole could compete against other providers of entertainment.56 Next, insofar as the licensing of intellectual property was concerned, the lower court rea- soned the record amply establishes that since 1963, the NFL teams have acted as one source of economic power-under the auspices of NFL Properties-to license their intellectual property collectively and to promote NFL football.”57 The Seventh Circuit thereupon affirmed the judgment of the district court dis- missing plaintiff American Needle’s case un- der Copperweld. This concern about asserted pro-competitive joint conduct undergoing searching antitrust scrutiny took on additional wings in the cer- tiorari process in front of the United States Supreme Court. In response to the petition for certiorari by plaintiff American Needle, the NFL filed a document that supported plain- tiff’s petition for certiorari, even though it had won in the lower court. It specifically argued that Copperweld should be extended to any highly integrated joint venture as rule of rea- son inquiry into those ventures chill collabo- ration, and thus interbrand competition.58 It further observed that sport leagues were fac- ing a “cascade” of antitrust suits challenging how they produce an integrated entertainment product,59 most of which proceeded to full rule of reason review,60 and that other joint ventures faced the same problem.61 After certiorari was granted, this concern again arose in the context of oral argument in front of the High Court. In the High Court’s questioning of plaintiff’s counsel, Justice So- tomayor asked whether the system of exclu- sive licensing was pursuant to a joint venture such that the instant case could be distin- guished from the Court’s NCAA decision.62 Justice Kennedy asked about whether changes in football rules would give rise to a Section 1 cause of action and, when plaintiffs’ counsel replied that a challenge to those changes would not be a plausible rule of reason claim, responded “you know the litigation system. How do we know?”63 He further asked if plaintiff’s counsel could give “a zone where we are . . . . will be sure that rule of reason inquiry is inappropriate. We can take care of it on summary judg- ment.”64 In responding to this question, plaintiff’s counsel interpreted NCAA as standing for the proposition that rules and regulations promulgated by the league were presumptively pro-competitive be- cause they are integral to, and bound up with, the creation of the product itself, football.65 Justice Ginsburg noted in passing that if you have a rule of reason analysis, then you have to have discovery, which can be very costly.66 Chief Justice Roberts, in ask- ing plaintiff’s counsel for his view as to the position articulated by the Solicitor Gen- eral, observed that the Solicitor General’s brief was a response to the contention that it seemed “odd” to subject issues such as the rules of the game to a rule of reason analysis.67 In the context of responding to this latter point, plaintiff’s counsel ad- vanced the (as it turns out) highly impor- tant point: There are certain issues that this Court has said come up in a rule of reason analysis, and to quote this Court from Cal Dental, “can be dealt with in the twinkling of an eye;” that is some claims, as the NCAA Court (continued from page 8)
  10. 10. Fall 2010 The Trade, Sports and Professional Associations Committee Newsletter 10 said, are not going to be rule of reason claims and can be dismissed on the pleadings. The Court said that in Twombly as well.68 Justice Stevens, who would turn out to be the author of the Court’s American Needle opin- ion, presaged that opinion when he responded to this remark as follows: “And as I under- stand your position that could be the result in this case.”69 Set against this background, it is thus no stray remark for the United States Supreme Court in its unanimous opinion to have cited its NCAA decision for the proposition that joint ventures (or necessary restraints ancillary to those ventures) which were necessary for a product to be marketed at all could survive rule of reason inquiry “in the twinkling of an eye.”70 Rather, this point can only be as a carefully considered signal from the Court to the lower courts that it would approve a more aggressive handling and disposal of rule of reason cases in using not only offensive quick look but also defensive - or as this article calls it reverse - quick look. The Application of Reverse Quick Look The application of a reverse quick look doc- trine first raises the question of how to deter- mine when a restraint can be considered to be plainly pro-competitive according to an ob- server with nothing more than a rudimentary understanding of economics. In applying an ordinary quick look analysis under the rule of reason, i.e., in determining whether a restraint would have an anti-competitive effect obvious to an observer with only a rudimentary under- standing of economics, the federal courts have examined the restraint in question as a general matter before turning to whether a pro-competitive reason for the restraint nonetheless existed under the particular circumstances of that case.71 By way of an inverse analogy, the same would necessarily need to hold true of an assessment of a restraint under a reverse quick look analysis. Accordingly, it would need to be the case that a restraint must, generally speaking, have at the very least a pro-competitive effect from the perspective of an observer with only a rudimentary un- derstanding of economics. Of course, any particularities in the restraint at issue must be carefully considered to ensure that the restraint in question does not so deviate from other similar restraints that it would not have the same pro-competitive effect.72 But, how do you determine whether an ob- server with a rudimentary understanding of economics would find a restraint to be pro- competitive? At bottom, the courts must determine whether a consensus exists as to a restraint’s generally pro-competitive na- ture - to be followed by careful considera- tion as to whether the particular circum- stances of the restraint under consideration would differentiate that restraint to such an extent that the consensus would no longer be applicable.73 The next question is whether such a reverse quick look analysis can be conducted via an early motion for summary judgment. The answer is a qualified yes. In the first instance, there is manifest au- thority supporting the proposition that the courts may entertain an early motion for (continued from page 9)
  11. 11. Fall 2010 The Trade, Sports and Professional Associations Committee Newsletter 11 summary judgment when one party submits evidence extraneous to the complaint and the other party cannot demonstrate a need for fur- ther discovery.74 The standard for summary judgment, early or not, is whether there is a triable issue of material fact.75 An ordinary quick look analysis is well-suited for sum- mary judgment because, while empirical evi- dence can help confirm or rebut the assertion that a restraint is obviously anti-competitive, such evidence is not necessary to making such a determination.76 Just as an ordinary quick look analysis does not require empirical evidence for a conclu- sion to be drawn as to whether a restraint is obviously anti-competitive77 so too should it be the case that a reverse quick look analysis not require empirical evidence for a conclu- sion to be drawn as to whether a restraint is obviously pro-competitive.78 Moreover, be- cause an ordinary quick look analysis cannot be defeated on summary judgment merely by observing that its application may potentially chill some pro-competitive conduct as an ab- stract matter,79 the inverse conclusion must also be true for a reverse quick look analysis. A reverse quick look analysis can not be de- feated on summary judgment merely by point- ing out that its application may potentially excuse anti-competitive conduct as an abstract matter.80 Accordingly, it would seem that such an analysis could be conducted via a mo- tion for summary judgment given that the touchstone of such an analysis in the quick look context would be whether a triable issue of material fact exists as to the obvious com- petitive effect of a restraint. However, although empirical evidence is not germane to the first step of a quick look analysis, and thus to a reverse quick look analysis, it is germane to any rebuttal via a showing of pro-competitive efficiencies in the case of an ordinary quick look analy- sis81 or a showing of anti-competitive ef- fects in the case of a reverse quick look analysis. In the case of an ordinary quick look analysis, it is defendants who are most likely to have the kind of empirical evi- dence necessary to make a showing of pro- competitive efficiencies such that discov- ery on this point would either be truncated or completely unnecessary.82 From this point, the conclusion logically flows that a grant of an early motion for summary judg- ment in the ordinary quick look context is highly unlikely to prevent defendants from having their day in court. A reverse quick look analysis, however, is a bit more nuanced in terms of plaintiffs having their day in court. To rebut a pre- sumption of pro-competitive efficiencies under such an analysis, plaintiffs would need to point either to actual anti- competitive effects arising from the re- straint or to an inference of anti- competitive effects arising from those firms using the restraint collectively enjoy- ing market power.83 Moreover, the intent of the parties engaged in the joint activity may shed light on the competitive nature of that activity.84 All of these points may re- quire some discovery from defendants who are likely to have admissible information as to their intent in entering into, or perpetuat- ing, the restraint or as to the nature of the market in which they operate. And, in this respect, it is no answer to suggest that plaintiffs can simply proffer an expert analysis speculating as to the possible exis- tence of anti-competitive effects, whether (continued from page 10)
  12. 12. Fall 2010 The Trade, Sports and Professional Associations Committee Newsletter 12 in fact or via inference, as a court may not consider speculative expert opinions in ruling on a motion for summary judgment.85 Yet, a potential need for discovery on the part of plaintiffs in a reverse quick look analysis does not necessarily translate into a need for the kind of full-bore, expensive discovery which the federal courts view as being a seri- ous burden.86 Faced with an early motion for summary judgment on a reverse quick look analysis, the courts may wish to first inquire as to whether plaintiffs may be able to point to publicly-available information on the market, or on observed effects of a restraint,87 to dem- onstrate that a triable issue of material fact exists as to anti-competitive effects in order to escape a reverse quick look analysis and ob- tain fuller discovery. Furthermore, the courts may wish to inquire of both parties as to the extent to which they would stipulate to facts that would assist the courts in making a deter- mination as to the ability of plaintiffs to make a showing of plausible anti-competitive ef- fects should it allow for fuller discovery.88 (The incentive for defendants to agree to stipulated facts would be to avoid the ex- penses and intrusive discovery – not to men- tion an expensive and time-consuming trial in front of a jury - on a wide-range of issues as- sociated with a full-bore rule of reason inquiry involving disputed facts.)89 Finally, as empiri- cal evidence of actual anti-competitive effects may be difficult to uncover, plaintiffs may be able to point to material deviations regarding the structure of the restraint in question, cou- pled with circumstances surrounding the re- straint, as leading to an inference of the exis- tence of actual anti-competitive effects which would justify fuller discovery.90 Conversely, if plaintiffs have nothing to point to by way of publicly-available information, of stipu- lated or disputed facts, or of circumstances surrounding the particular restraint, to sug- gest that a triable issue of material fact may exist as to whether an ostensibly pro- competitive restraint is in fact anti- competitive, then a grant of summary judg- ment on a reverse quick look analysis may be appropriate.91 What kind of restraints would be subject to exculpation under a reverse quick look analysis? In the first instance, the forma- tion of a joint venture between competitors would be subject to early exculpation under a reverse quick look analysis if the forma- tion of the venture served precompetitive goals such as the manufacture or sale of a product that could not be produced effi- ciently or independently by the venture’s participants.92 Moreover, restraints central to the ability of a legitimate joint venture to achieve its pro-competitive goals, such as the fixing of a price on the product to be marketed by the joint venture,93 or collec- tive decisions involving the rules govern- ing play in a sports league context,94 would also be subject to early exculpation under a reverse quick look analysis. A more interesting example of the applica- tion, and the limits, of the reverse quick look doctrine would be patent pools. It should be obvious to an observer with even a rudimentary understanding of economics that patent pools formed by patent owners whose patents are essential to the produc- tion of a product can “provide pro- competitive benefits by integrating comple- mentary technologies, reducing transaction costs, clearing blocking positions, and avoiding costly infringement litigation.”95 (continued from page 11)
  13. 13. Fall 2010 The Trade, Sports and Professional Associations Committee Newsletter 13 Thus, patent pools, on their face, would be susceptible to being exculpated when faced with a rule of reason challenge in the twin- kling of an eye.96 However, even with reverse quick look analy- sis, circumstance can be king and queen.97 It should be equally obvious to an observer with even a rudimentary understanding of econom- ics that a patent pool can go rogue becoming an illegal mechanism to fix prices, extend pat- ents past their expiration term, bar competing end products, and split profits: as just one indicative and intuitive example, a patent pool could be expanded beyond complementary patents strictly necessary to the manufacturing of an end product to include invalid or expired patents or competing patents.98 In such cir- cumstances, a more sedulous inquiry may well be called for, requiring additional (perhaps tailored) discovery which may lead to a later-in-time motion for summary judg- ment if not a full-blown rule of reason trial in front of a jury.99 Conclusion The rule of reason is not an enquiry that should degenerate into oscillation between two mutually opposite poles:100 one pole be- ing the view that defendants almost always win because of a suspicion of antitrust plain- tiffs that is translated into Himalayan barriers of proof;101 the other pole being an analysis in which plaintiffs nearly always win as long as they can postulate any sort of anti-competitive effect supported by a bare sheen of evidence following costly, full bore discovery.102 The application of ordinary quick look, and, fol- lowing American Needle’s prodding, reverse quick look provides the federal courts with ample tools to separate early anti- competitive goats from pro-competitive sheep while ensuring that a jury can decide close questions of competitive effect. By using such tools, the federal courts not only would be carrying out the wishes of the High Court but also would be restoring the balanced common law approach of their judicial counterparts in the past.103 END NOTES: • Emilio Varanini is the former Vice-Chair, Trade, Sports, and Professional Associa- tions Committee, American Bar Associa- tion, Antitrust Section and the current Vice-Chair, Communications and Digital Technologies Committee, American Bar Association, Antitrust Section; Chair, In- ternational Committee, National Associa- tion of Attorneys General, Antitrust Task Force; and Deputy Attorney General, Cali- fornia Attorney General’s Office, San Francisco, California. Emilio Varanini is also the Chair of the multistate litigating group in the price-fixing case State of Cali- fornia et. al. v. Infineon Technologies et. al., C 06-4333 PJH. The views expressed herein are those of the author only and should not be attributed to the California Attorney General’s Office, to the National Association of Attorneys General, or to the American Bar Association. 1. All citations to this decision will be to the slip opinion, American Needle, Inc. v. Na- tional Football League Co. et. al., No. 08- 661, 560 U.S. ___, slip op. (May, 24 2010), available at opinions/09pdf/08-661.pdf. 2. Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 768-69 (1984). 3. American Needle, slip. op. at 9 (citing and (continued from page 12)
  14. 14. Fall 2010 The Trade, Sports and Professional Associations Committee Newsletter 14 quoting Copperweld, 467 U.S. at 769, 771). 4. Id. at 11-12. 5. See, e.g., i n d e x . p h p ? title=American_Needle_Inc._v._NFL (last visited on Aug. 25, 2010). 6. See, e.g., American Needle, slip. op. at 18-20. Another significant undercurrent is the sug- gestion - inherent in the American Needle de- cision’s favorable citation to older decisions long thought dead by the antitrust bar - that the Court has rejected the notion that corpora- tions should be allowed the same freedom to do through joint contracting activity what they could otherwise do unilaterally, e.g., via merger or firm expansion. See American Nee- dle, slip. op. at 6-7 & n.4, 16-17 (citing and discussing cases in which the Court had previ- ously found that members of a single legal entity were subject to scrutiny under Section 1 of the Sherman Act where the entity is con- trolled by competitors and serves as a vehicle for ongoing concerted activity, including the cases of United States v. Sealy, 388 U.S. 350 (1967) and United States v. Topco Associates, Inc., 405 U.S. 596 (1972)). In rejecting that notion, the Court focused on the special anti- competitive dangers inherent in joint actions, particularly the risk of de facto or de jure car- telization of the market. See American Nee- dle, supra, slip. op. at 5-6 (citing and quoting Copperweld, supra, 467 U.S. at 768-69), 17 & n.7. The exploration of this undercurrent is beyond the scope of this article. 7. Cf. State of California v. Safeway, Inc. et. al., No. 08-55671, slip. op. 11925, 11938, 11946 & n.3 (9th Cir. August 17, 2010) (discussing and summarizing the ordinary quick look ap- proach as determining whether “an observer with even a rudimentary understanding of economics could conclude that the restraint in question would have an anti-competitive ef- fect on customers and markets,” even if a par- ticular circumstance may exist in which the restraint may survive full rule of reason inquiry, at which point “the burden shifts to Defendants to show empirical evidence of pro-competitive effects” (internal cita- tions and quotation marks omitted)). The Safeway case involved a challenge by the State of California under per se and quick look theories to a profit-pooling arrange- ment among the three largest supermarket chains in Southern California by which those chains agreed to apportion any prof- its above their historical share amongst each other according to a formula as a tac- tic to combat union strikes. Id. at 11935. The profit-sharing agreement, which in- cluded one affiliate chain not subject to union activity, would last as long as any strike or lock out plus two weeks. Id. 8. See American Needle, slip. op. at 18-19; see also, e.g., Texaco Inc. v. Dagher, 547 U.S. 1, 6 (2006); Broadcast Music, Inc. v. Columbia Broadcast System, Inc., 441 U.S. 1, 20-23 (1979). 9. See, e.g., ADV. COMM. NOTES FED. R. CIV. P. 12(b)(6) (approving of court’s authority to convert Rule 12(b)(6) motion to dismiss to motion for summary judgment if a party submits evidence extraneous to the com- plaint as long as the court follows the pro- cedures set out in FED. R. CIV. P. 56(f)). 10. See, e.g., FED. R. CIV. P. 56(f); ADV. COMM. NOTES FED. R. CIV. P. 12(b)(6). 11. See, e.g., American Needle, supra, slip. op. at 18-20. 12. See Bell Atlantic v. Twombly, 550 U.S. 544, 557-58 (2007) (referring to the need to interpose additional pleading standards as to claims of antitrust conspiracy involv- ing parallel behavior in order to prevent companies from having to undergo expen- sive antitrust discovery in which judicial supervision had only been “modestly suc- cessful”); see also Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 549 U.S. 312, 321 & n.7 (2007) (distinguishing competitor lawsuits for predatory bidding from upstream bidder lawsuits and down- (continued from page 13)
  15. 15. Fall 2010 The Trade, Sports and Professional Associations Committee Newsletter 15 stream consumer lawsuits in finding that com- petitor lawsuits for predatory bidding should be subject to the same standard as predatory pricing lawsuits). This article concerns itself only with federal antitrust law under Section 1 of the Sherman Act and should not be inter- preted as a reflection of the author’s views on the construction and application of California antitrust law or of Section 2 of the Sherman Act regarding monopolies. In the first in- stance, California antitrust law has a different genesis, different statutory language, and a different legislative history than federal anti- trust law: all of which means that state courts can and do deviate from federal antitrust law in the construction and application of state antitrust law. E.g., Antitrust and Unfair Competition Law Section, THE STATE BAR OF CALIFORNIA, CALIFORNIA STATE ANTITRUST AND UNFAIR COMPETITION LAW, § 1.02[B] at 12-14 (2009); id. §1.05 at 24-27. While the subject is thus beyond the scope of this article, it is highly doubtful at first blush that a re- verse quick look doctrine could be applied under California antitrust law as that law places on defendants the burden of demon- strating a pro-competitive justification for a restraint. See, e.g., id. §2.05[A] at 47-48. Nor would this author advocate that such an analy- sis be applied as to Section 2 of the Sherman Act as that section reveals a specific Congres- sional concern with the acquisition and main- tenance of monopoly power that rightly places the burden on monopolists to justify as pro- competitive restraints or other conduct that is otherwise anti-competitive and hence illegal. See, e.g., American Needle, slip. op. at 5 (Congress singled out independent action in- volving monopoly power, while leaving alone other forms of independent actions, because monopoly power is equally harmful whether “it is the product of joint action or individual action”); id. at 5 & n. 2 (noting the scrutiny of independent actions that does “not threaten monopolization” could deter “perfectly competitive conduct” and force a judgment on “almost every business decision”); United States v. Microsoft, 253 F.3d 34, 59 (D.C. Cir. 2001) (if a plaintiff demonstrates “a prima facie case under Section 2” by “demonstrating anti-competitive effect,” then a monopolist may proffer a pro- competitive justification for its conduct. If that justification is “non-pretextual,” i.e., it involves “greater efficiency or enhanced consumer appeal,” then “the burden shifts back to the plaintiff to rebut that claim”). 13. 435 U.S. 679 (1985). 14. Id. at 690-93. 15. Standard Oil Co. v. United States, 221 U.S. 1 (1911). 16. Professional Engineers, 435 U.S. at 690. 17. Id. at 688-89 (discussing an antecedent common law case, Mitchell v. Reynolds, 24 Eng. Rep. 37 (1711), upholding as reason- able a covenant not to compete ancillary to the sale of a business because it was for a limited time and a limited geographical area such that the long-run benefit of en- hancing the marketability of the business itself outweighed the temporary and lim- ited loss of competition). 18. Id. at 692-93 (internal quotation marks and citations omitted). 19. Id. at 693-94. 20. 468 U.S. 85 (1984). 21. Id. at 92-94. 22. Id. at 99. 23. Id. at 101-02 (listing examples of such “restraints” as the rules of the game, the size of the field, and the need for college athletes to be non-paid). 24. Id. at 105-08. 25. Id. at 107-08. 26. Id. at 109 (internal quotation marks and citations omitted). 27. Id. at 109 n.39. 28. Id. (citing and quoting Philip Areeda, The Rule of Reason in General Antitrust Analy- sis: General Issues 37-38 (Fed. Judicial Center 1981).) (continued from page 14)
  16. 16. Fall 2010 The Trade, Sports and Professional Associations Committee Newsletter 16 29. Id. at 113 (internal quotation marks and cita- tions omitted). 30. Id. at 113-20. 31. 476 U.S. 447 (1986). 32. Id. at 449-52, 455. 33. Id. at 458-59. 34. Id. at 459 (internal quotation marks and cita- tions omitted). 35. Id. at 460 (citing and quoting NCAA, 468 U.S. at 109-10). 36. Id. at 461-62. 37. Id. at 459 (internal citations omitted). 38. Id. 39. 526 U.S. 756 (1999). 40. Id. at 762-65. 41. See id. 42. Id. at 770-71 (citing and discussing Profes- sional Engineers, NCAA, and Indiana Federa- tion of Dentists, supra). 43. Id. at 771. 44. Id. (internal citations and footnotes omitted); see also id. at 772-75 (elaborating on these points). 45. See id. at 771-75; see also id. at 778 (mentioning cases as well that supported this point). 46. Id. at 778. 47. Id. at 779. 48. Id. at 778. 49. Id. at 779. 50. Id. 51. Id. at 780-81. 52. Id. at 780 n. 15. Plainly, the Court in this case envisioned that the Court would conduct a judicial inquiry not only into whether quick look analysis would apply but also (if both pro-competitive efficiencies and anti- competitive were plausible) conduct a more sedulous inquiry to determine if the “principal tendency” of a restraint is pro-competitive or anti-competitive. Id. at 781. Yet, nothing in this case, or in the Court’s previous cases, ad- dressed how the “principal tendency” of a re- straint can be analyzed in the context of sum- mary judgment on a more sedulous look given that some assessments of fact at the boundaries may be required. See, e.g., Anderson v. Liberty Lobby, 477 U.S. 242, 248-49 (1986) (summary judgment proce- dure requires that credibility determina- tions be eschewed and that there only be a sufficient quantum of admissible evidence to justify a jury verdict in order to demon- strate a triable issue of material fact). And, certainly, nothing in this case, or in the Court’s previous decisions, suggested that a full-blown rule of reason inquiry would be a judicial one rather than one re- served to the jury, a suggestion that cer- tainly would raise Seventh Amendment concerns (cf. Unitherm Food Systems v. Swift-Eckrich, Inc., 546 U.S. 394, 402 n.4 (2006)) and go against the grain of prece- dent stretching back before the enactment of the Sherman Act. That being said, lim- ited fact-finding by a court as part of a summary judgment procedure is not un- known to the law. See, e.g., Stuart v. Colo- rado Interstate Gas Co., 271 F.3d 1221, 1225 (10th Cir. 2001) (noting that disputes as to jurisdictional facts could be resolved via evidentiary hearing on a converted mo- tion for summary judgment). And, courts do have the power, after hearing all of the evidence presented by the first party, to enter a directed verdict for the second party where the evidence is legally insufficient for a reasonable jury to find in favor of the first party. Fed. R. Civ. P. 50(a); cf., e.g., Unitherm Food Systems, 546 U.S. at 402 n.4 (noting that Federal Rule of Civil Pro- cedure 50(a) was drafted to avoid Seventh Amendment concerns involving a plaintiff having the right to have issues of fact be decided by a jury); Anderson, 477 U.S. at 250-51 (a directed verdict can be granted for a party even if there is a scintilla of evi- dence supporting the other party as long as no reasonable jury could find in favor of the other party after hearing the evidence and considering who carries the onus of (continued from page 15)
  17. 17. Fall 2010 The Trade, Sports and Professional Associations Committee Newsletter 17 proof; a grant of a directed verdict is on the same basis as a grant of a motion of summary judgment except that it involves not just docu- mentary evidence but admitted evidence such as witness testimony). Thus, a court could, after hearing all of the evidence on a con- verted motion for summary judgment includ- ing any in-court witness testimony, any depo- sition testimony, or any consideration of Daubert-type issues pertaining to proffered expert testimony – see, e.g., Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), decide that the “principal ten- dency” of a restraint is pro-competitive or anti-competitive where the evidence is such that a reasonable jury could not decide other- wise after due consideration of which party carried the onus of proof as to those effects. If the evidence presented by the parties indicated that the question of a restraint’s pro- competitive or anti-competitive effects were close enough that a reasonable jury could go either way, then it would be required to con- duct a full-blown rule of reason analysis via a jury trial: this process makes empirical sense as close factual questions on the effects of a restraint genuinely belong in the hands of the community. The analysis of the dissent in Cal. Dental Ass’n finding that a more sedulous analysis of the restraint supported the lower court’s opinion provides indirect support for these conclusions. See Cal. Dental Assn., 526 U.S. at 782, 784-88 (dis. op.). 53. Cal. Dental Ass’n, 526 U.S. at 781. 54. Id. at 784-88 (dis. op.) (anti-competitive ef- fects of the restraint are obvious; there is no significant evidentiary support for the asser- tion of pro-competitive efficiencies even though the defendant association had every reason to offer that evidence; and the facts as found by the FTC provided sufficient support for the conclusion that association could have enough market power that its restraints would likely have anti-competitive effects). In Leegin Creative Leather Prods. Inc. v. PSKS, Inc., 551 U.S. 887 (2007), the United States Supreme Court encouraged the lower courts to develop presumptions, or rules for offering proof, to separate cir- cumstances in which a vertical resale price maintenance scheme would have an anti- competitive effect from circumstances in which it would have a pro-competitive ef- fect. Id. at 898-99. Thus, although Leegin by itself never addressed the application of ordinary quick look, it still provides indi- rect support at least to buttress the author- ity of the federal courts to apply ordinary quick look (or reverse quick look – a con- cept discussed below) to separate anti- competitive goats from pro-competitive sheep. 55. American Needle v. NFL, 538 F.3d 736, 743 (7th Cir. 2008), rev’d on this ground No. 08-661, 560 U.S. ___, slip op. (May, 24 2010), available at http:// w w w . s u p r e m e c o u r t . g o v / opinions/09pdf/08-661.pdf. 56. Id. at 744. 57. Id. at 744. 58. American Needle v. NFL, No. 08-661, Brief of the NFL Respondents at 9 (Jan. 21, 2008). 59. Id. at 11. 60. Id. at 12-13. 61. Id. at 13-14. 62. American Needle v. NFL, No. 08-661, Tr. of Oral Argument at 4 (Jan. 13, 2010) (transcript in possession of author). 63. Id. at 6. 64. Id. at 7. 65. Id. at 8. 66. Id. at 21. 67. Id. at 23. 68. Id. at 24. 69. Id. 70. American Needle, slip. op. at 19 (citing and quoting NCAA, 468 U.S. at 109 n.39). 71. See Safeway, slip. op. at 11938, 11946, 11948-55, 11962 & n.3 (employing quick look plus analysis by examining in general (continued from page 16)
  18. 18. Fall 2010 The Trade, Sports and Professional Associations Committee Newsletter 18 profit-pooling arrangements, then refining analysis to consider whether the particularities of specific profit-pooling arrangement at issue made any difference as to the otherwise gen- eral assessment of the competitive effect of profit-pooling arrangements, before then con- sidering whether defendants had proffered any empirical evidence of pro-competitive ef- fects). 72. See id. at 11951-56. An example of this prin- ciple would be the patent pool example dis- cussed infra in the text. A patent pool lacking certain attributes might no longer appear on its face to be pro-competitive to an observer with a rudimentary understanding of economics, requiring a more sedulous look into the legal- ity of the patent pool. 73. Cf. id. at 11948-56 (discussing the general consensus regarding the anti-competitive ef- fect of profit-sharing pools and then discuss- ing how the particular circumstances of the profit-sharing arrangement were not so differ- ent as to warrant a different conclusion). In- deed, in Safeway, slip. op. at 11959 n. 10, the Ninth Circuit distinguished that case as in- volving a profit-pooling arrangement in which there is a long history of finding such arrange- ments to be anti-competitive (a history that was not tempered by the particular circum- stances of the arrangement at issue as the court found in that case) from the restrictions imposed on price and quality advertising in Cal. Dental Ass’n where specific circum- stances surrounding the restrictions suggested they may have a precompetitive effect or, at worst, no competitive effect. 74. ADV. COMM. NOTES FED. R. CIV. P. 12(b)(6); see, e.g., Crawford-El v. Britton, 523 U.S. 574, 579-600 (1998) (observing in circum- stances involving civil rights suits by prison- ers that, generally speaking, the discovery process could be managed so as to lead to early motions for summary adjudication or judgment); Marshall Health Care Auth. v. Shalala, 988 F.2d 1221, 1226 & nn. 5, 6 (D.C. Cir. 1993). 75. E.g., Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986); Anderson, 477 U.S. at 248-49. 76. E.g., Safeway, slip. op. at 11948, 11960; cf. Marshall Health Care Auth., 988 F.2d at 1226-27 (early motion for summary judg- ment appropriate as to validity of agency’s action based on record because plaintiffs not entitled to discovery or to trial to aug- ment agency record). 77. Safeway, slip. op. at 11947-48. 78. See American Needle, slip. op. at 19 (“And, depending upon the concerted activity in question, the Rule of Reason may not re- quire a detailed analysis, it can sometimes be applied in the twinkling of an eye.” (Internal citations and quotation marks omitted.)). 79. Cf., e.g., Safeway, slip. op. at 11946 (“We note that a confident conclusion does not always prove ultimately correct. Rather, it represents a tool of judicial economy de- signed to save the litigants a considerable investment of time and money which in the balance is a benefit to all. That occasion- ally we might be wrong is a price that it is long established that society is willing to pay. . . . Thus, a confident conclusion for purposes of quick look and other limited approaches means, at most, a reasonably confident conclusion that, on some occa- sions, may prove to be incorrect.”); id. at 11939 n. 3 (“Inherent in the summary na- ture of quick look and per se analysis is the possibility that a restraint that would sur- vive a full rule of reason analysis in a par- ticular case will nonetheless be invalidated. . . .”). 80. E.g., Safeway, slip. op. at 11938 n.3, 11959 n.10, 11962. A more sedulous analysis of a restraint under the rule of reason that is nonetheless shy of a full-blown rule of rea- son is not necessarily exempt from sum- mary judgment: the issue of the existence of a triable issue of material fact might be (continued from page 17)
  19. 19. Fall 2010 The Trade, Sports and Professional Associations Committee Newsletter 19 resolved without any credibility determina- tions or weighing of the strength of the evi- dence, see Celotex, 477 U.S. at 323-24; Anderson, 477 U.S. at 249, or the court might be able to proceed on the basis of a stipulated record, see, e.g., Appellant Opening Brief, State of California et. al. v. Safeway, Inc., et. al., No. 08-55671, 2008 WL 496770 (October 15, 2008). As previously noted, however, the need to engage in some fact finding does not necessarily preclude summary judgment as to a restraint’s effects given Cal. Dental Ass’n if the assessment of the evidence by the Court in determining the “principal tendency” of a re- straint would satisfy directed verdict stan- dards. 81. See, e.g., Safeway, slip. op. at 11962. 82. See, e.g., id. at 11962-64 (analyzing evidence proffered by defendants as to this point on a stipulated record pursuant to a summary judg- ment motion). 83. Cf., e.g., id. at 11957-58 (noting that the alter- natives to ordinary quick look analysis are proof of actual anti-competitive effects or market power). 84. American Needle, slip. op. at 18-19 n. 10 (“This is not because a good intention will save an otherwise objectionable regulation or the reverse; but because knowledge of intent may help the court to interpret facts and to predict consequences”); see also, e.g., id. at 16 (“Agreements made within a firm can con- stitute concerted action covered by §1 when the parties to an agreement act on interests separate from the firm itself and the intrafirm agreements may simply be a formalistic shell for ongoing concerted action.” (Internal foot- note and citations omitted.)). 85. E.g., Safeway, slip. op. at 11943 n.4. 86. See, e.g., Twombly, 550 U.S. at 557-58; Safe- way, slip. op. at 11938. 87. For example, the federal grand jury investiga- tion into the price-fixing cartel in the Dynamic Random Access Memory (“DRAM”) market appears to have been triggered by 2002 public statements by the CEO for Dell, a purchaser of DRAM chips for use in its computers and servers, that recently ob- served price increases in DRAM could only be explained if there were a price- fixing cartel in operation. E.g., Michael Kanelios, CNET News, Dell trying to side- step “cartel” (Apr. 30, 2002), available at 895938.html. 88. See, e.g., Safeway, slip. op. at 11952-53 & nn. 6, 7 (relying in its quick look plus analysis on undisputed facts, and publicly- available information, as to the nature of the market and the defendants’ market shares therein in determining if the defen- dants have market power for purposes of assessing whether the obvious anti- competitive effects of a profit-pooling ar- rangement hold under the specific circum- stances of that case). In Safeway, the par- ties stipulated to a dismissal of the case following denials of cross-motions for summary judgment - and to the specific record that was before the district court regarding those denials of the cross- motions for summary judgment. See, e.g., Appellant Opening Brief, State of Califor- nia et. al. v. Safeway, Inc., et. al., No. 08- 55671, 2008 WL 496770 (October 15, 2008). 89. See id. at 11938, 11952-53. 90. See id. at 11958 (quoting PHILIP AREEDA AND HERBERT HOVENKAMP, ANTITRUST LAW, §1901d at 188-89 (3d. ed. 1996)). 91. See, e.g., Fed. R. Civ. P. 56(f). The courts may be able to tailor discovery to the cir- cumstances raised by plaintiffs as differen- tiating the restraint at issue from one that would warrant exculpation under a reverse quick look analysis such that the discovery ordered may amount to something less than costly, full-blown discovery. This would still allow for an earlier summary judgment motion – or at least an earlier motion for summary adjudication to narrow issues – (continued from page 18)
  20. 20. Fall 2010 The Trade, Sports and Professional Associations Committee Newsletter 20 than would a summary judgment motion that falls on the heels of full-blown discovery. Cf., Crawford-El, 523 U.S. at 579-600. 92. See, e.g., Broadcast Music, 441 U.S. at 20 (association’s offering of blanket copyright license for millions of music compositions enables association to offer product of benefit to consumers as individual performance by performance transactions would be expen- sive); id. at 22-23 (blanket license is equiva- lent to new product and is quite different from what would be offered individually); id. at 24- 25 (noting that, while such a license may be subject to attack under a fuller rule of reason analysis, it should not be summarily struck down as being “automatically illegal”). 93. See, e.g., Dagher, 547 U.S. at 5 (“As a single entity, a joint venture, like any other firm, must have the discretion to determine the prices of the products that it sells, including the discretion to sell two brands at a single price.”). 94. See, e.g., American Needle, slip op. at 18-19; NCAA, 468 U.S at 101-02. 95. E.g., U.S. Dept. of Justice & FTC, Antitrust Guidelines for the Licensing of Intellectual Property, §5.5 (1995); see U.S. Dept. of Jus- tice & FTC, Antitrust Guidelines for Collabo- rations among Competitors, Agreements Chal- lenged as Per Se Illegal, §3.2 (competitor col- laborations, such as patent pools, are analyzed under the rule of reason if they are “participants in an efficiency-enhancing inte- gration of economic activity,” and if they en- ter into an agreement, i.e., on price, which is “reasonably related to the integration and rea- sonably necessary to achieve [these] pro- competitive benefits.” These guidelines fur- ther note that “[p]articipants in an efficiency- enhancing integration typically combine, by contract or otherwise, significant capital, tech- nology, or other complementary assets to achieve pro-competitive benefits that the par- ticipants could not achieve separately.”). 96. American Needle, slip. op. at 19 (citing and quoting NCAA, 468 U.S. at 109 n.39); see also Cal Dental Ass’n, 526 U.S. at 770-71. 97. Cf. Cal. Dental Ass’n, 526 U.S. at 780-81; Safeway, slip. op. at 11948-56. 98. E.g., Antitrust Guidelines for the Licensing of Intellectual Property, supra, §5.5; U.S. Dept. of Justice, Business Review Ltr. to MPEG-LA (June 26, 1997) at 6-7 [§II(A) (1)-(3)], available at http:// busre- view/1170.htm; compare, e.g., United States v. Glaxo Group, Ltd. , 410 U.S. 52, 54-55, 58-59, 60-64 (1973) (parties formed patent pools involving two competing pat- ents for alternate modes of manufacturing a drug, and imposed restrictions on sub- licensees preventing bulk manufacturing of the drug; government successfully attacked patent pool as a section 1 violation without challenging patent; High Court on appeal agreed with government that, to restore competition, court could require patent holders who formed a patent pool to fix prices to license out their patents at reason- able royalty rate); Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 139-140 (1969) (Section 1 violation oc- curred when defendant-company conspired with foreign patent pool involving televi- sions to prevent export of American-made televisions to Canada by refusing to license patents for American-made televisions to be imported into Canada; court also af- firmed striking down of policy by defen- dant-company that licensees had to pay a percentage of total sales as royalty for their use of the patent, regardless of their actual use of the patent, as that could require the payment of royalties on products in which a competing patent is used or on products in which no patent is used at all); United States v. United States Gypsum, 333 U.S. 364, 370-389 (1948) (patent pool that used patent licenses as part of its efforts to fix prices on certain products, even those not covered by the patents, and discontinue (continued from page 19)
  21. 21. Fall 2010 The Trade, Sports and Professional Associations Committee Newsletter 21 competing products, could have the validity of its patents be attacked by the government since the licensing arrangements would vio- late Section 1 if the patents were invalid); id. at 396-397 (inference could be drawn from evidence that manufacturers of unpatented competing product also had to pay patent li- cense fees that members of patent pool had reached agreement to cease production of al- ternative unpatented product; said agreement is an illegal extension of the patent monopoly and, as such, is invalid); Vulcan Powder Co. v. Hercules Powder Co., 96 Cal. 510, 512-17 (1892) (defendants could not justify otherwise illegal territorial allocation and profit pool on the ground that two of the parties had patents for dynamite as other parties did not have any patents and unpatented dynamite was covered by the pool). 99. Compare, e.g., Cal. Dental Ass’n, 526 U.S. at 778-79. 100.See Cal. Dental Ass’n, 527 U.S. at 793-94 (dis. op.). 101.See, e.g., PSKS, Inc. v. Leegin Creative Leather Prods., Inc., No. 09-40506, 2010 WL 3220384 at *4, 6 & nn. 4, 5 (5th Cir. Aug. 17, 2010) (erroneously implying that one can not use quick look, or point to actual, observed anti-competitive effects, without first defining a relevant market and showing that the defen- dant has market power). 102.See e.g., American Needle, supra, Tr. of Oral Argument at 6, 21. 103.Compare, e.g., Professional Engineers, 435 U.S. at 688-89 (discussing an antecedent com- mon law case, Mitchell v. Reynolds, 24 Eng. Rep. 37 (1711) upholding as reasonable a lim- ited covenant not to compete ancillary to the sale of a business); Safeway, supra, slip. op. at 11948-49 n.5 (discussing with approval an antecedent common law case, Anderson v. Jett, 12 S.W. 670, 671 (Ky. 1889), that ex- plained why profit pools have an anti- competitive effect). Reconciling team rivalry, essential to the magic of organized sports, with antitrust principles governing economic competition has long perplexed the courts. On the one hand, no one disputes that competitive league sports require a high degree of coor- dination to supply a product that appeals to consumers. On the other hand, it is the very fact of intense team competition that is at the heart of that appeal. Whether, in merchandising, teams are independently competitive actors or entities “[pursuing] the common interests of the whole”1 was the issue before the Court in American Needle v. National Football League, __ U.S. __, 130 S.Ct. 2201 (2010). Unfortu- nately, the Court’s opinion does not con- front or address the unique branding uses present in spectator sports. Professional sports leagues require a high degree of coordinated activity to compete and to provide their customers with a meaningful product. Prior to the Supreme Court’s recent decision in American Nee- dle, many would have agreed that the member teams of the NFL possessed a suf- ficient unity of interest in the production of its product to exempt certain collective ar- rangements from scrutiny under Section 1 of the Sherman Act. American Needle nar- rowed the issue to ask whether such a shared unity of interest existed with respect to the member teams' decision to license (continued from page 20) THERE IS ONLY ONE NATIONAL FOOTBALL LEAGUE AMERICAN NEEDLE AND THE EXPLOITATION OF BRAND CAROLE E. HANDLER AND JOHN SHAEFFER*
  22. 22. Fall 2010 The Trade, Sports and Professional Associations Committee Newsletter 22 their respective brands and logos jointly through National Football League Properties (“NFLP”), a company they created and owned for that purpose. While the American Needle Court acknowl- edged the necessity for member teams to co- operate in the production of football, it de- clined to hold that member teams have a suffi- cient unity of interest with respect to any as- pect of their product sufficient to avoid Sec- tion 1 scrutiny. Instead, the Court opted for a liberal Rule of Reason approach, citing evi- dence of “necessity” as a justification relevant to whether an arrangement is an unreasonable restraint, not whether there exists a “unity of interest” sufficient to foreclose any Section 1 consideration at all. With respect to the key issue before it - merchandising of each team’s distinct and unique trademarks - the Court held that the teams were “‘separate economic actors pursuing separate economic interests’ . . . such that the agreement [to exclusive li- cense the merchandising of headgear bearing team marks] ‘deprived the marketplace of in- dependent centers of decision making.’”2 In sum, Copperweld’s “common interest” immu- nity would not apply. This article considers whether the American Needle decision should have found branded team licensing interdependent rather than in- dependent in the sports league context. First, a merchandising license for a particular team is arguably not a substitute for a blanket mer- chandising license for all of the teams. Be- cause no team can offer a blanket license for use of all teams’ trademarks and logos, the agreement to offer blanket licenses has not deprived the market of competition among meaningful independent decision makers with respect to the blanket product.3 Sec- ond, and unlike competing forms of branded entertainment, competitive sports leagues’ internal brands are interrelated— injury to one affects all. Oddly, these unique characteristics of sports brands were not raised with, or considered by, the Court in deciding whether the NFPL’s mer- chandising decision was a collective or uni- lateral act. Whether these factors would have caused the Court to find a sufficient unity of inter- est to exclude this arrangement from Sec- tion 1 is highly debatable. Citing Copper- weld, the American Needle decision refer- ences “a complete unity of interest” be- tween distinct legal entities as rendering them “incapable of conspiring under § 1.”4 But how “complete” must “complete” be? At a minimum, the interdependence of a team’s brand with the league and among other members of the league provides am- ple justification for coordinating efforts to exploit the various brands. Thus, brand protection is an interest that may well jus- tify a collective decision under an ex- tremely deferential Rule of Reason analysis under Section 1 even though that decision may not be immune from any scrutiny un- der Section 1. The Nature of the Market Spectator sports are a unique consumer product precisely because competition is the product they sell to customers. The moment consumers perceive a lack of com- petitive drama, their interest wanes and the business suffers. While without question teams within a league want to achieve a competitive advantage against each other, (continued from page 21)
  23. 23. Fall 2010 The Trade, Sports and Professional Associations Committee Newsletter 23 leagues as a whole recognize that only by en- suring competitiveness within a league can they retain customer interest (for example, salary caps and revenue sharing are accepted ways of achieving that goal), and the need for such cooperation to achieve a viable spectator sports product has been unquestioned. Argua- bly, however, this interdependence transcends the playing field and extends to all facets of the consumers’ interest in their team and in the league itself. Spectator sports compete with other forms of entertainment and, like entertainment gener- ally, their popularity is dependent on con- sumer preferences and tastes. There is no ob- jectively meaningful way to compare the NFL’s consumer offering with the National Basketball League, the New York City Ballet, a U2 concert, a Rembrandt exhibition, or the latest episode of Glee. Distinguishing the value of these leisure diversions is simply per- sonal preference, i.e., taste. But spectator sports are distinguished from competing forms of entertainment in at least two significant ways. First, fan loyalty is par- ticularly strong in sports and in particular sports merchandising - just try to sell Minne- sota Viking merchandise to a Green Bay Packers Fan. Second, more so than in almost any other business, injury to the brand of one member of the league impacts not only the league’s brand but the brand of each member of the league. By comparison, misfortune be- falling a rock band should not impact the value of U2’s brand among their fans. In this way the brand value of spectator sports is similar to an entity offering a variety of simi- lar consumer goods. Toyota’s brand and all of its sub-brands unquestionably suffered from the sudden acceleration issues associ- ated with only a few of its sub-brands even though no similar problems were identified with most of its brands.5 In the same way, the NBA faced a significant challenge to its brand and its members’ brands resulting from a 2004 brawl in the closing minutes of a game involving only a few members of the Indiana Pacers and the Detroit Pistons. Brand interdependence arguably is one rea- son sports leagues can proffer themselves as a single economic entity competing for the consumer’s desire for entertainment whose teams are incapable of competing against each other in a meaningful manner beyond the field of play. And the fact of brand interdependence suggests that a blan- ket trademark license to all of the NFL brands does not deprive the marketplace of relevant independent centers of decision making. The Case as Presented to the Supreme Court A brief review of the facts present to the American Needle Court is helpful. The NFL was formed in 1920 as an unincorpo- rated association of its separate member teams and operates pursuant to an agreed to constitution and bylaws.6 In 1963, the member teams formed NFLP, which made possible the sale of blanket licenses cover- ing all of the teams. From 1963 until 2000, NFLP typically sold such blanket licenses to competing manufacturers for a variety of merchandise, and the members shared the revenues derived from this merchandising. In 2000, the member voted to empower NFLP to enter exclusive licenses,7 and in 2001, NFLP granted a 10 year exclusive license to Reebok International, Ltd. for, (continued from page (22)
  24. 24. Fall 2010 The Trade, Sports and Professional Associations Committee Newsletter 24 among other things, caps and headgear for all 32 member teams.8 Pursuant to Article V, Section 6 of the NFL Constitution, the af- firmative vote of three-quarters of the teams was required to approve this arrangement with Reebok.9 Significantly, the Dallas Cowboys exercised its contractual right under the Ree- bok agreement to opt out of this exclusive re- lationship in exchange for the Cowboys’ agreement to share a portion of the revenues it derives from its independent license with the 31 other teams. For decades prior to 2001, American Needle was among the manufacturers with a blanket license to produce headwear bearing all 32 member teams’ brands.10 As a result of the exclusive agreement with Reebok, American Needle lost its license with NFLP, and Ameri- can Needle sued the NFL, NFLP, each of the member teams and Reebok for violations of the Sherman Act.11 Nothing in the record in- dicates that American Needle sought an indi- vidual license from any team after losing its blanket license. The district court dismissed American Needle’s claim for a per se viola- tion of Section 1. Thereafter, the district court granted defendants’ motion for summary judgment finding that the NFL and its 32 teams should be deemed a single entity im- mune from Section 1 liability for their coop- erative conduct and that the teams’ single- entity status effectively defeated the monopo- lization claim. The Seventh Circuit affirmed, concluding “that only one source of economic power controls the promotion of football.” 538 F.3d 736, 743 (2008). In seeking certiorari, American Needle did not dispute that certain aspects of the NFL busi- ness should be immune from Section 1 scrutiny. American Needle similarly did not challenge the member’s agreement to make available blanket licenses through NFLP covering the trademarks and logos of all the teams. Instead, American Needle challenged the member teams’ agreement authorizing NFLP to enter an exclusive blanket license with Reebok for the sale of headgear bearing the brands and logos of the various teams and argued that it should not be immune from Section 1 attack. After certiorari was granted, the NFL Re- spondents filed their brief, characterizing the questioned merchandising contract as “promotional”. The NFL Respondents identified the question to be decided as “[w]hether . . . a professional sports league and its separately owned member clubs, which exist to produce collectively an en- tertainment product that no member could produce on its own, function as a single entity for Section 1 purposes in promoting that product.”12 They argued that [b]ecause the NFL and its member clubs function as one source of economic power when col- lectively producing NFL Football, they also function as a single economic entity in promoting that products.” Limiting their argument to the promotional function of merchandising, the NFL Respondents ar- gued that so long as merchandising served a promotional function, whether promotion was the sole or overriding purpose “ha[d] no practical antitrust significance.”13 This limitation was fatal to the NFL’s posi- tion, as it presumed a linkage between pro- duction, promotion and merchandising while failing to confront the American Nee- dle Court’s concern – whether the agree- ment itself to collectively license all team (continued from page 23)
  25. 25. Fall 2010 The Trade, Sports and Professional Associations Committee Newsletter 25 brands on an exclusive basis meaningfully deprived the market of independent decision makers. Acknowledging that two elements make up a § 1 claim - (1) “whether an ar- rangement is a contract, combination or con- spiracy;” and (2) “whether [that arrangement] unreasonably restrains trade” - the Court iden- tified the first element as the only one at is- sue.14 Consistent with the principles articu- lated in Copperweld, no one disputed that “[t] he key [to answering this question] is whether the alleged ‘contract, combination . . . . , or conspiracy’ is concerted action – that is, whether it joins together separate decision makers.”15 The question was “whether there is a ‘contract, combination . . . or conspiracy’ among ‘separate economic actors pursuing separate economic interests,’ . . . such that the agreement ‘deprives the marketplace of inde- pendent centers of decision making’ . . . and therefore of ‘diversity of entrepreneurial inter- ests.’”16 “Because the inquiry is one of com- petitive reality,” the Court continued that “it is not determinative that the [member teams] . . . are legally distinct entities” nor was it deter- minative that they “organized themselves [for the exploitation of their intellectual property] under a single umbrella or into a structured joint venture”, like NFLP.17 The Court agreed with the NFL that “teams share an interest in making the entire league successful and profitable, and that they must cooperate in the production and scheduling of games.”18 But the Court rejected the NFL’s efforts to link the necessity of cooperation with the unity of interest necessary to exclude an arrangement from Section 1 considera- tion.19 Instead, the Court stated that the fac- tors demonstrating the necessity for coopera- tion among member teams “provide[] a perfectly sensible justification for making a host of collective decisions”20 but “justification[s] for cooperation is not rele- vant to whether the cooperation is con- certed or independent action.”21 And the decision went on to say that the “necessity of cooperation is a factor relevant to whether the agreement is subject to the Rule of Reason.”22 “’A contract, combina- tion . . . or conspiracy’” . . . “that is neces- sary [is not immune from § 1 scrutiny] if it ‘deprives the marketplace of independent centers of decision making.”23 The Court refused to find any element of the production of NFL football necessarily immune from Section 1 scrutiny, which doomed the efforts of NFL Respondents to apply immunity to merchandising as a pro- motional activity.24 Because the NFL Re- spondents had provided no justification that the promotion of football should be immunized conduct other than its interde- pendence with the production of football, the Court could cite to the lack of a unity of interest with respect to aspects of the NFL’s business as support for the absence of an specific unity of interest with respect to merchandising. The Court broadly concluded that “[t]he NFL teams do not possess either the uni- tary decision-making quality or single ag- gregation of economic power characteristic of independent action.”25 Unfortunately, the American Needle opinion provides little explication of how member teams are “independent centers of decision-making” in a manner relevant to the antitrust laws. The only cited support for this sweeping statement is that “[t]he teams compete with one another, not only on the playing field, (continued from page 24)
  26. 26. Fall 2010 The Trade, Sports and Professional Associations Committee Newsletter 26 but to attract fans, for gate receipts and for contracts with managerial and playing person- nel.”26 But with respect to gate receipts and fans, do the Chicago Bears meaningfully com- pete for fans and gate receipts with the San Diego Chargers? Is not the viability of both teams relevant in an antitrust sense to the League’s competitiveness with other forms of entertainment? And is the competition for managerial and player personnel always meaningfully different than competition among subsidiary corporations for star em- ployees?27 Moreover, while there is prece- dent for finding concerted activity among league members in the labor arena, the fact that league members can act as meaningful independent decision makers with respect to one agreement - e.g., labor contacts - does not necessarily mean that they are meaningful in- dependent decision makers in all instances. In American Needle, the Court correctly recog- nized that each alleged collusive activity must be judged separately with respect to its ability to violate Section 1.28 Applying these principles, the Court con- cluded that the member teams’ decision to enter the exclusive headwear agreement was not unitary because “the teams compete in the market for intellectual property.”29 But the opinion simply did not consider whether the league members’ trademarks are meaningful substitutes for one another or whether their successes are complementary within the whole. The Court’s conclusion of a potential impact on competition rests on a single sen- tence only: “To a firm making hats, the Saints and the Colts are two potentially com- peting suppliers of valuable trademarks.”30 Whether the Court identified relevant poten- tial competition and what it might be is up for debate. Can it be said that the licensing right to the Colts trademark competes with the Saints’ trademark in New Orleans any more than the New York Yankees’ mark or rights to Paris Hilton’s image compete with the Saints for licenses on cap in that same market?31 The Unique Aspects of the Blanket License Significantly, the product that American Needle sought, and was denied as the result of the exclusive agreement with Reebok, was not a license to logo of any particular team, but a blanket license to the trade- marks of all of the teams, a unique product that no single team could grant. NFLP alone could offer a blanket license to all of the teams’ trademarks and logos. Since no one member team could offer a blanket li- cense to all of the teams’ marks, the joint conduct of the teams necessary to offer the blanket license simply “does not ‘deprive the marketplace of independent centers of decision-making.’”32 Nothing in the re- cord indicates that an independent license agreement with one or more member teams is a meaningful substitute; if it were, one would expect other manufactures who lost their blanket licenses following entry of the Reebok agreement to purse independent licenses with separate teams. In fact, there is a real question about whether American Needle even made a claim of antitrust in- jury resulting from the horizontal agree- ment to license team brands collectively. As the United States pointed out in its amicus brief, American Needle’s “asserted injury appears to flow not from any anti- competitive effect of the teams’ agreement to market their intellectual property collec- (continued from page 25)
  27. 27. Fall 2010 The Trade, Sports and Professional Associations Committee Newsletter 27 tively, but only from a subsequent and inde- pendent decision to contract with a single li- censee, other than American Needle.”33 The Court’s opinion is silent on the common interest shared by member teams in the mar- keting of the unique product at issue – a blan- ket license to all of brands. Offering a blanket license to a manufacturer enables a manufac- turer to include in its distribution of many Colts branded products to Indianapolis a few products branded with other member marks for the narrower group of expected fans of other teams in that area. Additionally, a co- operative effort in merchandizing the brands collectively recognizes the interdependence of each team’s brand and the unity of interest in maintaining the value of each of the brands to the entire league. While, broadly stated, the Saints’ mark competes for licensing revenues with Paris Hilton, an irrational merchandising decision by Ms. Hilton would not have any impact on the Saints’ brand. By contrast, a similar irrational marketing decision by a league team, such as branding condoms with the team’s logo, could easily bring ridicule to the league as a whole and adversely impact the value of each team’s brand. It is this inter- dependence of team brands within a league that makes the unity of interest in the market- ing of the separate league brands far greater and different than the pro-competitive ration- ale for coordinated licensing endorsed by the Supreme Court in Broadcast Music, Inc. v. CBS, 441 U.S. 1 (1979). In BMI, the Court recognized the competitive value to a single licensing source for music, but did not iden- tify any other common interest shared by the diverse music owners furthered by the rela- tionship. The Supreme Court in American Needle can be seen as a narrowing the unity of in- terest doctrine it articulated in Copper- weld.34 While some earlier Court decisions as well as Copperweld’s lower court prog- eny support that some divergent economic interest will not necessarily transmute uni- tary conduct into concerted activity subject to § 1,35 American Needle can be read as taking literally Copperweld’s mention of a “complete unity of interest.” But, although it rejected Section 1 immunity, the Ameri- can Needle Court is not completely unsym- pathetic to the necessity for concerted ac- tion in spectator sports. The opinion does its best not to engender fear that concerted activity necessary to create a market or for a product to compete will be found to vio- late Section 1. Instead of allowing a uni- tary interest to be found sufficient to re- move necessary conduct from antitrust scrutiny despite some divergence of eco- nomic interest among the parties, the American Needle Court suggests that a uni- tary interest demonstrated by evidence sup- porting the necessity of coordinated activ- ity should be considered as a justification for the concerted action under a Rule of Reason analysis.36 Indeed, the Court hints in dicta that there are instances where the divergent economic interest is so trifling that review should be nothing more than a “'twinkling of the eye.’”37 Conclusion For good reason, professional sports leagues do not want the cooperation among their members that is necessary to offer a product that can compete with other forms of entertainment for the consumer’s eye- balls to be subject to any Section 1 review, (continued from page 26)
  28. 28. Fall 2010 The Trade, Sports and Professional Associations Committee Newsletter 28 regardless of how fleeting.38 It is not difficult to understand why professional sports believe that their profitability is uniquely the result of team interdependence in a manner simply not shared by other forms of entertainment. The leagues rightfully argue that they are different than other forms of entertainment because their product is dependent upon the coopera- tion of what their consumers view as inde- pendently competitive teams. Subjecting pro- fessional sports' necessary coordinated activ- ity to any antitrust scrutiny arguably puts pro- fessional sports at a competitive disadvantage against entertainment not similarly predicated on cooperative competition. While the Ameri- can Needle opinion attempts to appease pro- fessional sports by hinting at an extremely deferential review for the necessary element of cooperation, the decision itself notes that the law “treats concerted behavior more strictly than unilateral behavior.”39 It is unfor- tunate that issues of brand interdependence and meaningful distinction between a license to any one member’s brand compared with a blanket license to all the leagues’ brands was not presented to the Court for consideration. While it is far from certain whether brand analysis would have pushed the Court into finding such joint licensing not to be an ar- rangement subject to Section 1 merited scru- tiny, a focus on branding provides evidence that NFLP’s exclusive blanket license agree- ment did not deprive the marketplace of inde- pendent enters of decision making and as such, could not adversely impact actual or po- tential competition. END NOTES: • Carole E. Handler and John Shaeffer both practice antitrust and intellectual property law at the Los Angeles office of Lathrop and Gage, where John is the man- aging partner. Their practices have focused on the entertainment, sports, and media industries, energy, and antitrust issues arising from the exploitation of in- tellectual property They have each au- thored numerous articles on antitrust sub- jects such as net neutrality, antitrust in the entertainment industry, the Noerr- Pennington defense, the pass-on defense, standard setting, equitable disgorge- ment, and reverse payments. Carole is an adjunct professor of antitrust law at USC's Gould School of law, where she teaches antitrust, intellectual property/antitrust, and copyright law, and John teaches entertain- ment and media law at Santa Clara Law School. 1. Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 771 (1984). 2. American Needle, 130 S.Ct. at 2212. 3. See Major League Baseball Properties, Inc. v. Salvino, 542 F.2d 290, 323 (2d. Cir. 2008) (“MLBP can offer a license that cov- ers all of the intellectual property of all the MLB clubs; no one Club could offer such a license, for no Club has the right to license the intellectual property of any other.”) 4. American Needle, 130 S.Ct. at 2211 5. As Judge Easterbrook noted in Chicago Professional Sports Ltd. Partnership v. NBA, 95 F.3d 593 (1996), “From the per- spective of fans and advertiser (who use sports telecasts to reach fans), ‘NBA Bas- ketball’ is one product from a single source even though the Chicago Bulls and the Se- attle Supersonics are highly distinguish- able, just as General Motors is a single firm even though a Corvette differs from a Chevrolet.” Id. at 599. 6. The Constitution and Bylaws of the NFL effective as of February 1, 1970 (2006 Rev.) (“NFL Constitution)” is available at static/html/careers/pdf/co_.pdf. (continued from page 27)
  29. 29. Fall 2010 The Trade, Sports and Professional Associations Committee Newsletter 29 7. See 2000 Resolution G-10 to the NFL Consti- tution at 2000-6. 8. See 2001 Resolution JC-3 to the NFL Consti- tution at 2001-14. 9. NFL Constitution at 21. 10. Similar blanket licenses covering all team brands within a professional sports league are available from entities similar to NFLP in other sports. See Major League Baseball Properties, Inc. v. Salvino, Inc., 542 F.3d 290, 299 (2d Cir. 2008). This case references that blanket licenses for use of all team brands are available from Major League Properties, Inc. (“MLBP”), NFLP and National Hockey League Enterprises, L.P. 11. According to American Needle, following this exclusive relationship with Reebok, the price of branded headwear generally jumped from $19.99 to $29.99. Brief of Petitioner at 7; American Needle, Inc. v. National Football League; available at publiced/preview/briefs/pdfs/07-08/08- 661_Petitioner.pdf. 12. See Brief for the NFL Respondents, at (i), American Needle, Inc. v. National Football League; available at publiced/preview/briefs/pdfs/09-10/08- 661_RespondentNFL.pdf. 13. Id. at 27 n.8. 14. American Needle, 130 S.Ct. at 2206. 15. Id. at 2212. 16. Id. 17. Id. Some confusion persists with respect to the relevance of the Court’s opinion in Texaco v. Dagher, 547 U.S. 1 (2006). In Texaco, the Court found that the agreement of Texaco and Shell to pool their refining operations and sell under their respective Texaco and Shell brands gasoline at the same price was more akin to a joint venture than a cartel. The Court reversed the Ninth Circuit’s decision holding that “respondents’ anti-trust claim cannot prevail” “[b]ecause the pricing deci- sion of a legitimate joint venture do not fall within the narrow category of activity that is per se unlawful under § 1 of the Sherman Act.” Id. at 8. Since the respon- dents did not put forward a Rule of Reason claim, the Court did not address whether the arrangement would run afoul of the Rule of Reason. Id. at 7 n. 2. No one dis- puted in American Needle, that if the ex- clusive arrangement with Reebok was sub- ject to § 1 review, that review would be under a Rule of Reason analysis. 18. American Needle, 130 S.Ct.. at 2216. 19. It is interesting that MLBP apparently did not seek Section 1 immunity pursuant to Copperweld when it faced a similar situa- tion in MLBP. v. Salvino, Inc., 542 F.3d 299 (2d Cir. 2008). In that case a licensor of plush toys, who previously had a blanket license from MLBP, claimed that MLBP exclusive right to license MLB team brands, with certain limitations, violated Section 1 when MLBP sought to block the licensor’s ability to sell certain products bearing the Arizona Diamondback logo. Id. at 295. On appeal, the Second Circuit affirmed the district court’s decision to ap- ply a Rule of Reason analysis rather than hold the arrangement a per se violation or subject to a quick-look rule. Id. at 334. 20. Id. at 2216. 21. Id. at 2214. 22. Id. at 2214 n.6. 23. Id. at 2214 (quoting Copperweld 467 U.S. at 769). 24. Id. at at 2214 n. 7. 25. Id. at 2212. 26. Id. 27. In Brown v. Pro Football, Inc., 518 U.S. 231 (1996), the Court hinted that in certain employment contexts the NFL might be considered more like a single bargaining employer than a collection of distinct enti- ties.. “We concede that the clubs that make up a professional sports league are not completely independent economic com- petitors, as they depend upon a degree of cooperation for economic survival. . . . . In (continued from page 28)