AMERICAN NEEDLE, INC. v. NATIONAL FOOTBALL LEAGUE ET AL.
No. 08-661
SUPREME COURT OF THE UNITED STATES
May 24, 2010
560 U.S. 183
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT. Argued January 13, 2010
Glen D. Nager argued the cause for petitioner. With him on the briefs were Joe Sims, Meir Feder, and Jeffrey M. Carey.
Deputy Solicitor General Stewart argued the cause for the United States as amicus curiae. With him on the brief were Solicitor General Kagan, Assistant Attorney General Varney, Deputy Assistant Attorney General Weiser, Benjamin J. Horwich, Catherine G. O‘Sullivan, Nickolai G. Levin, and Willard K. Tom.
Gregg H. Levy argued the cause for respondents. With him on the brief for the NFL respondents were Derek Lud-
JUSTICE STEVENS delivered the opinion of the Court.
“Every contract, combination in the form of a trust or otherwise, or conspiracy, in restraint of trade” is made illegal by § 1 of the Sherman Act, сh. 647, 26 Stat. 209, as amended,
*Briefs of amici curiae urging reversal were filed for the American Antitrust Institute et al. by Richard M. Brunell, Albert A. Foer, and Stephen F. Ross; and for Merchant Trade Associations by W. Joseph Bruckner and K. Craig Wildfang.
Briefs of amici curiae urging affirmance were filed for ATP Tour, Inc., et al. by Bradley I. Ruskin and Mark V. Young; for Electronic Arts Inc. by Stephen M. Nickelsburg; for MasterCard Worldwide et al. by Ryan A. Shores; for the National Basketball Association et al. by Richard W. Buchanan and Jeffrey A. Mishkin; for the National Collegiate Athletic Association by Gregory L. Curtner, Atleen Kaur, and Elsa Kircher Cole; for the National Hockey League by Shepard Goldfein; and for VF Imageware, Inc., by Mark E. Solomons, Laura Metcoff Klaus, and James I. Serota.
Briefs of amici curiae were filed for Robert Baade et al. by Craig C. Corbitt; for George Daly et al. by James T. McKeown and Michael D. Leffel; for the National Football Leаgue Coaches Association by Roy I. Liebman; and for the National Football League Players Association et al. by Jeffrey L. Kessler, David G. Feher, David S. Turetsky, James W. Quinn, Caitlin J. Halligan, Steven A. Fehr, G. William Hunter, and Laurence Gold.
Originally organized in 1920, the NFL is an unincorporated association that now includes 32 separately owned professional football teams.1 Each team has its own name, colors, and logo, and owns related intellectual property. Like each of the other teams in the league, the New Orleans Saints and the Indianapolis Colts, for example, have their own distinctive names, colors, and marks that are well known to millions of sports fans.
Prior to 1963, the teams made their own arrangements for liсensing their intellectual property and marketing trademarked items such as caps and jerseys. In 1963, the teams formed National Football League Properties (NFLP) to develop, license, and market their intellectual property. Most, but not all, of the substantial revenues generated by NFLP have either been given to charity or shared equally among the teams. However, the teams are able to and have at times sought to withdraw from this arrangement.
Between 1963 and 2000, NFLP granted nonexclusive licenses to a number of vendors, permitting them to manufacture and sell apparel bearing team insignias. Petitioner, American Needle, Inc., was one of those licensees. In December 2000, the teams voted to authorize NFLP to grant exclusive licenses, and NFLP granted Reebok International Ltd. an exclusive 10-year license to manufacture and sell trademarked headwear for all 32 teams. It thereafter declined to renew American Needle‘s nonexclusive license.
American Needle filed this action in the Northern District of Illinois, alleging that the agreements between the NFL, its teams, NFLP, and Reebok violated §§ 1 and 2 of the Sherman Act. In their answer to the complaint, the defendants
The Court of Appeals for the Seventh Circuit affirmed. The panel observed that “in some contexts, a league seems more aptly described as a single entity immune from antitrust scrutiny, while in others a league appears to be a joint venture between independently owned teams that is subject to review under § 1.” 538 F. 3d 736, 741 (2008). Relying on Circuit precedent, the court limited its inquiry to the particular conduct at issue, licensing of teams’ intellectual property. The panel agreed with petitioner that “when making a single-entity determination, courts must examine whether the conduct in question deprives the marketplace of the independent sources of economic control that competition assumes.” Id., at 742. The court, however, discounted the significance of potential competition among the teams regarding the use of their intellectual property because the teams “can function only as one source of economic рower when collectively producing NFL football.” Id., at 743. The court noted that football itself can only be carried out jointly. See ibid. (“Asserting that a single football team could produce a football game ... is a Zen riddle: Who wins when a football team plays itself“). Moreover, “NFL teams share a vital economic interest in collectively promoting
We granted certiorari. 557 U. S. 933 (2009).
II
As the case comes to us, we have only a narrow issue to decide: whether the NFL respondents are capable of engaging in a “contract, combination ..., or conspiracy” as defined by § 1 of the Sherman Act,
Taken literally, the applicability of § 1 to “every contract, combination ..., or conspiracy” could be understood to cover every conceivable agreement, whether it be a group of compеting firms fixing prices or a single firm‘s chief executive telling her subordinate how to price their company‘s product. But even though, “read literally,” § 1 would address “the entire body of private contract,” that is not what the statute means. National Soc. of Professional Engineers v. United States, 435 U.S. 679, 688 (1978); see also Texaco Inc. v. Dagher, 547 U. S. 1, 5 (2006) (“This Court has not taken a literal approach to this language“); cf. Board of Trade of Chicago v. United States, 246 U. S. 231, 238 (1918) (reasoning that the term “restraint of trade” in § 1 cannot possibly refer to any restraint on competition because “[e]very agreement concerning trade, every regulation of trade, restrains. To bind, to restrain, is of their very essence“). Not every in-
Thе meaning of the term “contract, combination ..., or conspiracy” is informed by the “basic distinction” in the Sherman Act “between concerted and independent action” that distinguishes § 1 of the Sherman Act from § 2. Copperweld, 467 U. S., at 767 (quoting Monsanto Co. v. Spray-Rite Service Corp., 465 U. S. 752, 761 (1984)). Section 1 applies only to concerted action that restrains trade. Section 2, by contrast, covers both concerted and independent action, but only if that action “monopolize[s],”
Congress used this distinction between concerted and independent action to deter anticompetitive conduct and compensatе its victims, without chilling vigorous competition through ordinary business operations. The distinction also avoids judicial scrutiny of routine, internal business decisions.
Thus, in § 1 Congress “treated concerted behavior more strictly than unilateral behavior.” Id., at 768. This is so because unlike independent action, “[c]oncerted activity inherently is fraught with anticompetitive risk” insofar as it “deprives the marketplace of independent centers of decisionmaking that competition assumes and demands.” Id., at 768-769. And because concerted action is discrete and distinct, a limit on such activity leaves untouched a vast amount of business conduct. As a result, there is less risk of deterring a firm‘s necessary conduct; courts need only examine discrete agreements; and such conduct may be remedied simply through prohibition.2 See Areeda & Hovenkamp
¶ 1464c, at 206. Concerted activity is thus “judged more sternly than unilateral activity under § 2,” Copperweld, 467 U. S., at 768. For these reasons, § 1 prohibits any concerted action “in restraint of trade or commerce,” even if the action does not “threate[n] monopolization,” ibid. And therefore, an arrangement must embody concerted action in order to be a “contract, combination ..., or conspiracy” under § 1.
III
We have long held that concerted action under § 1 does not turn simply on whether the parties involved are legally distinct entities. Instead, we have eschewed such formalistic distinctions in favor of a functional consideration of how the parties involved in the alleged anticompetitive conduct actually operate.
As a result, we have repeatedly found instances in which members of a legally single entity violated § 1 when the entity was controlled by a group of competitors and served, in essence, as a vehicle for ongoing concerted activity. In United States v. Sealy, Inc., 388 U. S. 350 (1967), for example, a group of mattress manufacturers operated and controlled Sealy, Inc., a company that licensed the Sealy trademark to the manufacturers, and dictated that each operate within a specific geographic area. Id., at 352-353. The Government alleged that the licensees and Sealy were conspiring in violation of § 1, and we agreed. Id., at 352-354. We explained that “[w]e seek the central substance of the situation” and
Conversely, there is not necessarily concerted action simрly because more than one legally distinct entity is involved. Although, under a now-defunct doctrine known as the “intraenterprise conspiracy doctrine,” we once treated cooperation between legally separate entities as necessarily covered by § 1, we now embark on a more functional analysis.
The roots of this functional analysis can be found in the very decision that established the intraenterprise conspiracy doctrine. In United States v. Yellow Cab Co., 332 U. S. 218 (1947), we observed that “corporate interrelationships ...
The decline of the intraenterprise conspiracy doctrine began in Sunkist Growers, Inc. v. Winckler & Smith Citrus Products Co., 370 U. S. 19 (1962). In that case, several agricultural cooperatives that were owned by the same farmers were sued for violations of § 1 of the Sherman Act. Id., at 24-25. Applying a specific immunity provision for agricultural cooperatives, we held that the three cooperatives were “in practical effect” one “organization,” even though the controlling farmers “have formally organized themselves into three separate legal entities.” Id., at 29. “To hold otherwise,” we explained, “would be to impose grave legal consequences upon organizational distinctions that are of de minimis meaning and effect” insofar as “use of separate corporations had [no] economic significance.” Ibid.
Next, in United States v. Citizens & Southern Nat. Bank, 422 U. S. 86 (1975), a large bank, Citizens and Southern (C&S), formed a holding company that operated de facto suburban branch banks in the Atlanta area through ownership of the maximum amount of stock in each local branch that was allowed by law, “ownership of much of the remaining stock by parties friendly to C&S, use by the suburban banks of the C&S logogram and all of C&S‘s banking services, and close C&S oversight of the operation and governance of the suburban banks.” Id., at 89 (footnote omitted). The Government challenged the cooperation between the banks. In our analysis, we observed that “corporate interrelation-
We finally reexamined the intraenterprise conspiracy doctrine in Copperweld Corp. v. Independence Tube Corp., 467 U. S. 752 (1984), and concluded that it was inconsistent with the “basic distinction between concerted and independent action.” Id., at 767. Considering it “perfectly plain that an internal agreement to implement a single, unitary firm‘s policies does not raise the antitrust dangers that § 1 was designed to police,” id., at 769, we held that a parent corporation and its wholly owned subsidiary “are incapable of conspiring with each other for purposes of § 1 of the Sherman Act,” id., at 777. We explained that although a parent corporation and its wholly owned subsidiary are “separate” for the purposes of incorporation or formal title, they are controlled by a single center of decisionmaking and they control a single aggregation of economic power. Joint conduct by two such entities does not “depriv[e] the marketplace of independent centers of decisionmaking,” id., at 769, and as a result, an agreement between them does not constitute a “contract, combination ..., or conspiracy” for the purposes of § 1.5
As Copperweld exemplifies, “substance, not form, should determine whether a[n] ... entity is capable of conspiring under § 1.” 467 U. S., at 773, n. 21. This inquiry is sometimes described as asking whether the alleged conspirators are a single entity. That is perhaps a misdescription, however, because the question is not whether the defendant is a legally single entity or has a single name; nor is the question whether the parties involved “seem” like one firm or multiple firms in any metaphysical sense. The key is whether the alleged “contract, combination ..., or conspiracy” is concerted action—that is, whether it joins together separate decisionmakers. The relevant inquiry, therefore, is whether there is a “contract, combination or сonspiracy” amongst “separate economic actors pursuing separate economic interests,” id., at 769, such that the agreement “deprives the marketplace of independent centers of decisionmaking,” ibid., and therefore of “diversity of entrepreneurial interests,” Fraser v. Major League Soccer, L. L. C., 284 F. 3d 47, 57 (CA1 2002) (Boudin, C. J.), and thus of actual or potential competition, see Freeman v. San Diego Assn. of Realtors, 322 F. 3d 1133, 1148–1149 (CA9 2003) (Kozinski, J.); Rothery Storage & Van Co. v. Atlas Van Line, Inc., 792 F. 2d 210, 214-215 (CADC 1986) (Bork, J.); see also Areeda & Hovenkamp ¶ 1462b, at 193-194 (noting that the “central evil addressed by Sherman Act § 1” is the “elimin[ation of] competition that would otherwise exist“).
Thus, while the president and a vice president of a firm could (and regularly do) act in combination, their joint action generally is not the sort of “combination” that § 1 is intended to cover. Such agreements might be described as “really unilаteral behavior flowing from decisions of a single enterprise.” Copperweld, 467 U. S., at 767. Nor, for this reason, does § 1 cover “internally coordinated conduct of a corporation and one of its unincorporated divisions,” id., at 770, be-
Because the inquiry is one of competitive reality, it is not determinative that two parties to an alleged § 1 violation are legally distinct entities. Nor, however, is it determinative that two legally distinct entities have organized themselves under a single umbrella or into a structured joint venture. The question is whether the agreement joins together “independent centers of decisionmaking.” Id., at 769. If it does, the entities are capable of conspiring under § 1, and the court must decide whether the restraint of trade is an unreasonable and therefore illegal one.
V
The NFL teams do not possess either the unitary decisionmaking quality or thе single aggregation of economic power characteristic of independent action. Each of the teams is a substantial, independently owned, and independently managed business. “[T]heir general corporate actions are guided or determined” by “separate corporate consciousnesses,” and “[t]heir objectives are” not “common.” Copperweld, 467 U. S., at 771; see also North American Soccer League v. NFL, 670 F. 2d 1249, 1252 (CA2 1982) (discussing ways that “the financial performance of each team, while related to that of the others, does not ... necessarily rise and fall with that of the others“). The teams compete with one another, not only on the playing field, but to attract fans, for
Directly relevant to this case, the teams compete in the market for intellectual property. To a firm making hats, the Saints and the Colts are two potentially competing suppliers of valuable trademarks. When each NFL team licenses its intellectual property, it is not pursuing the “common interests of the whole” league but is instead pursuing interests of each “corporation itself,” Copperweld, 467 U. S., at 770; teams are acting as “separate economic actors pursuing separate economic interests,” and each team therefore is a potential “independent cente[r] of decisionmaking,” id., at 769. Decisions by NFL teams to license their separately owned trademarks сollectively and to only one vendor are decisions that “depriv[e] the marketplace of independent centers of decisionmaking,” ibid., and therefore of actual or potential competition. See NCAA, 468 U. S., at 109, n. 39 (observing a possible § 1 violation if two separately owned companies sold their separate products through a “single selling agent“); cf. Areeda & Hovenkamp ¶ 1478a, at 318 (“Obviously, the most significant competitive threats arise when joint venture participants are actual or potential competitors“).
In defense, respondents argue that by forming NFLP, they have formed a single entity, akin to a merger, and market their NFL brands through a single outlet. But it is not dispositive that the teams have organized and own a legally separate entity that centralizes the management of their intellectual property. An ongoing § 1 violation cannot evade § 1 scrutiny simply by giving the ongoing violation a name and label. “Perhaps every agreement and combination in restraint of trade could be so labeled.” Timken Roller Bearing Co. v. United States, 341 U. S. 593, 598 (1951).
It may be, as respondents argue, that NFLP “has served as the ‘single driver’ of the teams’ ‘promotional vehicle, ‘pursu[ing] the common interests of the whole.‘” Brief for NFL Respondents 28 (quoting Copperweld, 467 U. S., at 770-771; brackets in original). But illegal restraints often are in the common interests of the parties to the restraint, at the expense of those who are not parties. It is true, as respondents describe, that they have for some time marketed their trademarks jointly. But a history оf concerted activity does not immunize conduct from § 1 scrutiny. “Absence of actual competition may simply be a manifestation of the anticompetitive agreement itself.” Freeman, 322 F. 3d, at 1149.
Respondents argue that nonetheless, as the Court of Appeals held, they constitute a single entity because without their cooperation, there would be no NFL football. It is true that “the clubs that make up a professional sports league are not completely independent economic competitors, as they depend upon a degree of cooperation for economic survival.” Brown, 518 U. S., at 248. But the Court of Appeals’ reasoning is unpersuasive.
The Court of Appeals carved out a zone of antitrust immunity for conduct arguably related to league operations by reasoning that coordinated team trademark sales are necessary to produce “NFL football,” a single NFL brand that competes against other forms of entertainment. But defining the product as “NFL football” puts the cart before the horse: Of course the NFL produces NFL football; but that does not mean that cooperation amongst NFL teams is immune from § 1 scrutiny. Members of
The question whether NFLP decisions can constitute concerted activity covered by § 1 is closer than whether decisions made directly by the 32 teams are covered by § 1. This is so both because NFLP is a separate corporation with its own management and because the record indicates that most of the revenues generated by NFLP are shared by the teams on an equal basis. Nevertheless we think it clеar that for the same reasons the 32 teams’ conduct is covered by § 1, NFLP‘s actions also are subject to § 1, at least with regards to its marketing of property owned by the separate teams. NFLP‘s licensing decisions are made by the 32 potential competitors, and each of them actually owns its share of the jointly managed assets. Cf. Sealy, 388 U. S., at 352-354. Apart from their agreement to cooperate in exploiting those assets, including their decisions as the NFLP, there would be no nothing to prevent each of the teams from making its own market decisions relating to purchases of apparel and headwear, to the sale of such items, and to the granting of licenses to use its trademarks.
We generally treat agrеements within a single firm as independent action on the presumption that the components of the firm will act to maximize the firm‘s profits. But in rare cases, that presumption does not hold. Agreements made within a firm can constitute concerted action covered by § 1 when the parties to the agreement act on interests separate from those of the firm itself,8 and the intrafirm agreements may simply be a formalistic shell for ongoing concerted ac-
For that reason, decisions by NFLP regarding the teams’ separately owned intellectual property constitute concerted action. Thirty-two teams operating independently through the vehicle of NFLP are not like the components of a single firm that act to maximize the firm‘s profits. The teams remain separately controlled, potential competitors with economic interests that are distinct from NFLP‘s financial wellbeing. See generally Hovenkamp, 1995 Colum. Bus. L. Rev., at 52-61. Unlike typical decisions by corporate shareholders, NFLP licensing decisions effectively require the assent of more than a mere majority of shareholders. And each team‘s decision reflects not only an interest in NFLP‘s profits but also an interest in the team‘s individual profits. See generally Shusido, 39 Hastings L. J., at 69–71. The 32 teams capture individual economic benefits separate and apart from NFLP profits as a result of the decisions they make for NFLP. NFLP‘s decisions thus affect each team‘s profits from licensing its own intellectual property. “Although the business interests of” the teams “will often coincide with those of” NFLP “as an entity in itself, that commonality of interest exists in every cartel.” Los Angeles Memorial Coliseum Comm‘n v. NFL, 726 F. 2d 1381, 1389 (CA9 1984) (emphasis added). In making the relevant licensing decisions, NFLP is therefore “an instrumentality” of the teams. Sealy, 388 U. S., at 352-354; see also Topco Associates, Inc., 405 U. S., at 609.
If the fact that potential competitors shared in profits or losses from a venture meant that the venture was immune from § 1, then any cartel “could evade the antitrust laws simply by creating a ‘joint venture’ to serve as the exclusive seller of their competing products.” Major League Baseball Properties, Inc. v. Salvino, Inc., 542 F. 3d 290, 335 (CA2 2008) (Sotomayor, J., concurring in judgment). “So long as no agreement,” other than one made by the cartelists sitting
VI
Football teams that need to cooperate are not trapped by antitrust law. “[T]he special characteristics of this industry may provide a justification” for many kinds of agreements. Brown, 518 U. S., at 252 (STEVENS, J., dissenting). The fact that NFL teams share an interest in making the entire leaguе 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 con-
When “restraints on competition are essential if the product is to be available at all,” per se rules of illegality are inapplicable, and instead the restraint must be judged according to the flexible Rule of Reason.10 NCAA, 468 U. S., at 101; see id., at 117 (“Our decision not to apply a per se rule to this case rests in large part on our recognition that a certain degree of cooperation is necessary if the type of competition that petitioner аnd its member institutions seek to market is to be preserved“); see also Dagher, 547 U. S., at 6. In such instances, the agreement is likely to survive the Rule of Reason. See Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U. S. 1, 23 (1979) (“Joint ventures and other cooperative arrangements are also not usually unlawful ... where the agreement ... is necessary to market the product at all“). And depending upon the concerted activity in question, the Rule of Reason may not require a detailed analysis; it “can sometimes be applied in the twinkling of an eye.” NCAA, 468 U. S., at 110, n. 39.
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Accordingly, the judgment of the Court of Appeals is reversed, and the case is remanded for further proceedings consistent with this opinion.
It is so ordered.
Notes
See also Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U. S. 877, 885-887 (2007); National Soc. of Professional Engineers v. United States, 435 U. S. 679, 688-691 (1978).“The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition. To determine that question the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint is imposed; the nature of the restraint and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, are all relevant facts. 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.”