Will the Players’ Lawsuit Affect NFL Trademark Licensing?

This article appeared in the May 2011 edition of Intellectual Property Magazine

How do trademarks relate to the antitrust lawsuit filed by Tom Brady et al. against the National Football League (NFL), you ask? The players’ lawsuit was made possible, at least in part, by a May 2010 U.S. Supreme Court decision relating to NFL trademark licensing: American Needle v. National Football League et al. Apparel maker American Needle (AN) sued the NFL after an exclusive license to Reebok ended AN’s 20-year reign as a manufacturer of NFL hats under a nonexclusive license. AN charged that NFL Properties (NFLP), a licensing entity formed by the 32 NFL teams to develop, license, and market NFL intellectual property, was in violation of the Sherman Act, §1. The NFL argued its association of teams was a single entity not subject to antitrust scrutiny. The Supreme Court sided with AN and remanded the case for analysis under the Rule of Reason. 

While the American Needle decision that the NFL was not a single entity enabled the players’ antitrust lawsuit, the Court’s opinion hardly foretells success for the players. Quoting its own 1984 decision regarding the NCAA, the Supreme Court noted that the interest in “maintaining a competitive balance” among athletic teams is “legitimate and important” and “unquestionably . . . may well justify a variety of collective decisions made by the teams.” The NFL will argue that the draft, salary cap and free-agent restrictions challenged in the players’ lawsuit foster parity amongst NFL teams, and therefore target that interest. 

(Predicted final score: NFL 7 Players 0)

Will AN fare any better on its challenge against the NFL? Not necessarily. After some portion of the profits are donated to charity, the NFLP reportedly shares the rest of the licensing revenue evenly among teams. So, here too, the NFL can claim its licensing scheme promotes parity. 

(NFL 7 AN 0) 

On the other hand, a Rule of Reason analysis requires the court to define the market and determine the consequences of the restraint on the affected market. Earlier, denying the NFL’s Motion to Dismiss, the District Court reasoned that the relevant market could be defined as the market for goods bearing licensed team logos, because a significant portion purchasers buy NFL apparel to show they are a fan of a particular team or player. What would be the consequence if Reebok’s prices suddenly became anticompetitive? Fans are likely to suffer outrageous prices rather than start buying professional soccer team jerseys. 

(NFL 7 AN 7) 

How would the situation change, however, if each team was in charge of its own licensing? Would New Yorkers really choose Giants or Jets based on the price of hats? Unlikely. So, from the fan’s perspective, having a single supplier for all NFL apparel is not much worse than having a single supplier for any one team, and that certainly would not run afoul of antitrust law.

(NFL 10 AN 7)

But, imagine for a moment what might happen if the NFLP were forced to discontinue licensing on behalf of all teams. Each team would have to administer its own licensing and enforcement. Apparel makers would need to negotiate separate licenses with each of the different teams. Big market teams would enjoy more revenue than small market teams. Fans might see more variety in the types of licensed goods, particularly if each team favors local suppliers, but quality might vary from market to market. Actually, this resembles the landscape of college athletics. Each university is responsible for its own licensing and enforcement. Each still follows NCAA policies when it comes to the games, recruiting and benefits for players. Universities with bigger enrollment sell more apparel. So, if the NCAA and individual colleges operate without an overarching licensing body, why do the NFL teams need one? 

(Predicted final score: NFL 10 AN 14, in a nail-biter)

But what if the players succeed in their lawsuit, and the salary cap disappears? Big market licensing revenue might translate into bigger salaries, undermining parity. 

(NFL 0 Fans 0)

Players might demand a share of profits from their replica jerseys, making major markets and a national persona that much more desirable. Maybe players would work harder, stay out of trouble and keep their egos in check, just to maintain strong jersey sales!

(Players 7 Fans 7)

More likely, however, any impact on licensed goods if the players win will be overshadowed by changes to the league itself. Whether a single team or an entity representing all teams administers the licensing, the market will still be at the mercy of the licensing decision maker, and the majority of licensed products will probably still come from the same suppliers at approximately the same price. By contrast, a loss of parity might be far more disruptive. 

Personally, as long as some kind of football eventually comes back, I don’t really care who wins. For me, a game where the final score doesn’t matter is sometimes the most enjoyable to sit back and watch. Good thing, too, since legal wrangling may be the only NFL action in town this fall.

Rex Donnelly serves as the Managing Shareholder of RatnerPrestia’s Wilmington Office and a Co- Manager of RatnerPrestia’s Trademark Center. Mr. Donnelly enjoys a well-rounded practice involving every step of the IP process, from trademark and patent prosecution, to counseling, transactions, and enforcement. He patiently awaits the Philadelphia Eagles’ first Super Bowl win.