Justices rule against NFL over apparel licensing

WASHINGTON (CNN) -- The Supreme Court unanimously ruled against the National Football League over its exclusive contract with an apparel maker in one of the most important sports law cases in decades.

In a 9-0 decision Monday, the justices said the league can be considered 32 separate teams -- not a single business.

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The court allowed a lawsuit against the league to continue, saying the licensing of intellectual property "constitutes concerted action" that is not part of the broad antitrust protection enjoyed by professional baseball. Such protection allows individual teams to act as one business when making a host of financial decisions, including marketing their logos and trademarks.

The outcome could affect other sports franchises with similar, limited antitrust exemption, as well as businesses that have cooperative networks, such as credit card companies.

The National Basketball Association, National Hockey League, National Collegiate Athletic Association (NCAA), NASCAR, professional tennis and Major League Soccer backed the NFL in their appeal, seeking similarly broad antitrust protection.

"Decisions by NFL teams to license their separately owned trademarks collectively and to only one vendor are decisions that 'deprive the marketplace of independent centers of decisionmaking,'" wrote Justice John Paul Stevens for the court, "and therefore of actual or potential competition."

The case involves a lawsuit from American Needle Inc., an Illinois-based sports apparel maker that was one of several companies with long-standing contracts with NFL Properties, a separate corporate entity that develops, licenses and markets the intellectual property of each team.

But the league in 2001 entered into an exclusive 10-year contract with Reebok to manufacture hats, jackets, and other clothing featuring team logos. American Needle is no longer able to negotiate with individual teams.

Some fans have complained the prices on such gear have since skyrocketed in the absence of competition from other apparel makers. A Baltimore Ravens "replica jersey" with the name of star quarterback Joe Flacco, for example, now is listed for $108 on the team's website.

American Needle complained the deal violated a 120-year-old antitrust law designed to limit cartels and monopolies, and to foster fair competition in the marketplace. The key section of the law bans business rivals from conspiring to blunt competition or hurt consumers, either by increasing prices or limiting choices.

Baseball is the only sports league that enjoys complete antitrust protection. The NFL has long sought similar status.

The dilemma is acute because of the unique nature of pro sports, including American football and its 32 teams. Those teams -- including top apparel sellers Dallas Cowboys and Pittsburgh Steelers -- compete against each other on the field and off -- for victories, players and for their own brands.

But the league maintains unilateral rules and structure that all teams must follow to ensure parity and an equal playing field. The NFL negotiates national television contracts, and deals with the players' union through collective bargaining.

The league says trademark licensing primarily benefits the on-field competition. "A sports league produces a single entertainment product," the league told the high court, "a structured series of athletic competitions leading to a championship, that no member club could produce on its own."

But American Needle countered the structure does not erase the fact that "the teams are separately owned and controlled profit-making enterprises. They are actual and potential competitors in numerous areas, including the licensing of intellectual properties."

The Obama administration supported neither side, saying the league can be considered a single business in some areas but not others.

Stevens noted the ruling will not completely hamstring the league. "Football teams that need to cooperate are not trapped by antitrust law," he wrote. "The fact that NFL teams share an interest in making the entire league successful and profitable, and that they must cooperate in the production and scheduling of games provides a perfectly sensible justification for making a host of collective decisions. But the conduct at issue in this case is still concerted activity under the Sherman Act."

The ruling throws the dispute back to the lower federal courts to sort out the parameters of a possibly reworked licensing agreement that presumably would favor American Needle.

Retail sales of NFL-licensed merchandise in the United States and Canada was about $3.2 billion in 2007, according to the trade journal Sports Licensing Report. The combined total for football, baseball, hockey, basketball and soccer is more than $9 billion annually.

Among those backing the league are credit card companies, fearing a ruling against the NFL could set a precedent that would hurt the federation of banks that constitutes the credit card network for companies like Visa and MasterCard.

Workers' rights groups feared a win for the sports league could have boosted its power in other off-field activities -- perhaps giving owners immunity from lawsuits in areas like television rights, video-game licenses, franchise relocation and possibly athlete salaries.

Unions also expressed concern the current legal fight could lead to labor unrest and possible player strikes, since the leagues might be protected legally from accusations owners conspired to keep down salaries.

Athletes say salaries, free agency rights, and pensions could also have been affected by a ruling against them. The NFL Players Association backed American Needle in the high court appeal.

The case is American Needle v. National Football League (08-661).