EA’s exclusive NFL license agreement could potentially be in jeopardy if apparel manufacturer American Needle Inc. has their way. Sure, it seems odd that something that has nothing to do with video games could affect them in such a large way, but it is true.
The licensing issue that will be before the Supreme Court deals with whether or not the NFL, the NFL Properties division and Reebok have violated the Sherman Antitrust Act, 15 U.S.C.S. SS 1-2.
American Needle Inc. is a former business partner of the NFL and the NFL Properties. For the past 20 years, the vendor produced headgear based on licensing agreements with the league. In 2000, The NFL and NFL Properties agreed to solicit bids from many equipment vendors for an exclusive license for headgear. Reebok won the bidding, and in 2001, Reebok became the exclusive vendor for headgear in the NFL. American Needle then filed an antitrust action against the NFL, NFL Properties, Reebok and a few individual teams, including the New Orleans Saints and Detroit Lions.
American Needle Inc. claim that granting an exclusive license is conspiring to monopolize because "each of the individual teams separately owned their team logos and trademarks," according to U.S. 7th Circuit Judge Michael Kanne. In addition, "their collective agreement to authorize NFL properties to award the exclusive license to Reebok was, in fact, a conspiracy to restrict other vendors’ ability to obtain licenses for the teams’ intellectual property."
The U.S. Court of Appeals for the 7th Circuit affirmed a lower court’s summary judgment, agreeing that the NFL and the defendants did not violate antitrust law sections 1 and 2.
Now, summary judgment is granted "when there are no genuine issues of material fact, and thus the judge can decide the case without conducting a full trial by simply applying the law to the undisputed facts" (Sharp, 2007).
As of now, under past precedents set and the antitrust act itself, the NFL is free from any antitrust violations. The result of these rulings is that the NFL can continue to grant EA their exclusive NFL license.
There is the possibility Madden might not be exclusive anymore...but it's only a slight chance.
The Reasoning: Why is the NFL Free From Antitrust Violation?
The Sherman Antitrust Act of 1890 prohibits concerted action by two or more parties that unreasonably restrains trade in a "relevant market."
Both the district court and the U.S. Supreme Court have reasonable evidence that the NFL is acting as one single economic entity -- the affiliated teams of the league, plus the owners and players, are also considered as part of this single entity in certain circumstances such as this case.
Furthermore, the league and the teams are acting together. They are both guided by the league body when negotiating intellectual properties. By doing so, there is no deprivation of competition in the market.
The NFL is free to choose which company they grant their license to -- even if it applies to the entire league. In general, The courts approve and support strong business models and practices. There is no wrongdoing here in the eyes of the law.
The NFL relied on precedents set by the Copperweld Corp. v. Independence Tube Corp. case of 1984. In this case, the Supreme Court agreed that "a parent corporation and its wholly owned subsidiary are a single-entity for antitrust purposes."
The NFL asserted that they "functioned as a single-entity when collectively promoting NFL football by licensing the NFL team’s intellectual property and were thus immune from liability under section 1," according to Judge Kanne.
The Supreme Court has asserted in the past that even though teams may compete with intellectual property sales, it does not keep the teams from acting as a single-entity; and although the teams compete on the field, they rarely compete in the marketplace.
Based on this idea, there is no deprivation of competition in the market and therefore no antitrust violations took place.
What Does It All Mean?
American Needle Inc. is challenging the foundation of the NFL’s licensing business practices by claiming "each of the individual teams separately owned their team logos and trademarks."
If this argument wins out, it would mean that each team would hold the exclusive rights to their own trademarks, logos and other properties because each team would be considered an independent entity. There would no longer be exclusive rights granted for NFL video games either -- or third-party exclusivity when it comes to baseball.
Instead of creating a bidding war and rewarding one publisher (currently EA Sports), the NFL Properties division would not be able to package the league license as a whole anymore.
Each separate team would have the ability to act freely as a separate entity or business. For example, each team would be able to grant licenses to different apparel companies, such as Nike, Reebok, Adidas, Under Armour and many more.
This would also mean that a huge variety of football games could potentially be back on the market. More importantly, teams could demand a separate asking price for their properties before they are represented in games like Madden, NFL 2K and so forth.
Publishers would then be bidding and fighting over which teams they can sign to their game. We could end up with Madden featuring the NFC teams and 2K Football featuring AFC teams. Since the NFLPA would still hold the rights to players, there could potentially be a scenario where Tom Brady is in a game, but the New England Patriots logos are not.
A ruling in favor or American Needle Inc. does not mean that all professional sports leagues would now be required to sell licenses to gaming companies in the same manner.
The Supreme Court has asserted that they shall view each professional sports league one case at a time and each league facet at time.
With the NFL’s collective bargaining agreement up for negotiation this year, this would be an ideal time to restructure the NFL Properties and licensing deals amongst the 32 league owners.
It is possible that the NFL could negotiate a way to collectively sell their intellectual property to gaming publishers as a whole while still avoiding antitrust violations; that is the beauty of a collective bargaining agreement –- key word "agreement." The hard part would be to prove that there is no economic deprivation to consumers or to the marketplace.
The NFL Shield can sell itself. However, match it with EA Sports, John Madden and the fact that there are no other NFL games on the market, and some would consider that there is unfair dominance in the video-game marketplace.
Sharp, (2007). Sport Law A Managerial Approach.
Scottsdale, Arizona: Holcomb Hathaway Publishers, Inc.
Read the 7th Circuit Decision here [PDF]