Letter from AmeriKat II - American Needle v NFL (Part 2 of 2)

The Court continued to state that the teams not only competed against each other on the playing field and for the attraction of fans, but they competed 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 licences its intellectual property, it is not pursing the 'common interests of the whole'league but is instead pursuing interests of each 'cooperation itself'...Decisions by NFL teams to licence their separately owned trademarks collectively and to only one vendor are decisions that 'depriv[e] the marketplace of independent centers of decisionmaking'."

The Court considered the argument advanced by the NFL that they had formed a single entity (the NFLP) and had marketed their NFL brands (picture, left - all 32 teams) through this single outlet for a long time meant that their conduct fell outside section 1. The Court did not find favor with that argument and stated that "an ongoing section 1 violation cannot evade section 1 scrutiny simply by giving the ongoing violation a name and label." Although at times the 32 teams may operate through NFLP, the teams remained "separately controlled, potential competitors with economic interests that are distinct from NFLP's financial well-being." Ouch.....The Court did recognize that professional sports organizations have to necessarily unite and cooperate for advancement of the league, but cooperation is not justification when that cooperation is so concerted as to fall foul of section 1 (page 14 of the decision).

In closing the Court recognized that while the NFL teams share an interest in making the league successful and profitable in areas like scheduling, but that it does not justify "treating them as a single entity for section 1 purposes when it comes to the marketing of the teams' individually owned owned intellectual property." The case is remanded back to the lower court for further proceedings. In light that NFL agreements are capable of violating section 1, the parties will now have to argue that the NFL-Reebok licence agreement itself is or is not an unreasonable restraint of trade.

The ruling is heralded as being great for the NFL's players. How so? Had the NFL won the case they may have been able to justify continuing to act as 'one business entity' in implementing players' and coaches' salaries collectively, rather than the current system of individual bargaining. (picture, right - Brian Urlacher of the NFL's Chicago Bears and of the AmeriKat's home state) Commentators are suggesting that the ruling could initiate the stalled labor extension talks between the National Football League Players Association (NFLPA) and NFL team owners. However, Peter King of Sports Illustrated stated that the decision may not be the champagne-popping moment for the NFLPA. For further interesting sports-centric view on the impact of the decision see this article from ESPN and Huffington Post (here).

By way of interest, the AmeriKat directs readers to compare the position of the NFL with that of the Major League Baseball (MLB) who benefit from a host of anti-trust law exemptions. God bless the American past-time!

The AmeriKat has to mention that reading Justice Stevens's clear, structured, and well-argued decision makes his upcoming retirement even more poignant. He will be much missed.

Letter from AmeriKat I - American Needle v NFL (Part 1 of 2)

This week the AmeriKat has yet again been battling further biblical drama at home. A few weeks ago she was swimming through her flat after a neighbor's pipe burst (flood). This week she is battling a troop of ants that have built a transport highway from her kitchen to the patio (swarm). Ants are not particularly fun for Kats to play with - they are too tiny and have a habit of becoming stuck in one's paw pads. (picture, left - the AmeriKat watching the Ants Marching in) Despite her distaste for ants inside the home, she still has respect for the tiny creatures in nature. Ants organize themselves in complex social structures each equipped with a predetermined role to help maintain the colony. Although a colony may be comprised of a plurality of thousands of ants, they only operate together as one entity - the colony. (Note - this post is split into two parts)

American Needle (9) - NFL (0) - Full Time

A plurality of teams that have been held by the Supreme Court as not operating as one entity is the National Football League (NFL) in this week's decision in American Needle v NFL (see previous reports here). Delivering the unanimous majority opinion the soon-to-be retiree, Justice Stevens, declared that despite common interests that ran through the NFL brand, the teams are "still separate, profit-maximizing entities, and their interests in licensing team trade marks are not necessarily aligned."

The NFL is an unincorporated association that includes 32 separately owned professional football teams, such as the Denver Broncos or Seattle Seahawks, each with their own team logo, colors, mascot and other IP. Prior to the formation of National Football League Properties (NFLP) in 1963, the teams entered into their own separate IP licences for team merchandise. After 1963, NFLP developed, licensed and marketed the teams IP itself. Up until 2000, NFLP granted non-exclusive licences to a number of companies to permit them to manufacture and sell apparel with NFL team logos, including to American Needle. However, in December 2000, the teams authorized NFLP to grant an exclusive licence to Reebok International for the right to manufacture and sell trade mark head wear for all 32 NFL teams for 10 years.

The previous non-exclusive licences were therefore not renewed prompting American Needle to file their claim in Illinois federal court alleging that NFLP violated sections 1 and 2 of the Sherman Act. The NFLP said that their actions fell outside these sections as they were a "single economic enterprise" and therefore fell foul of the plurality requirement. The Illinois District Court then granted summary judgment in favor of the NFL holding that that all 32 teams were a single entity because their operations were so integrated, more so than "joint ventures cooperating for a common purpose." The Court of Appeals for the Seventh Circuit affirmed the lower court's decision declaring that "NFL teams share a vital economic interest in collective promoting NFL football...[i]t thus follows that only one source of economic power controls the promotion of NFL football." American Needle then filed their writ of certiorari which was granted by the Supreme Court last year.

The question the Supreme Court had to decide was this: Whether the alleged activity by the NFL "must be viewed as that of a single enterprise for purposes of section 1 of the Sherman Act." Section 1 provides that

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.

Section 1 only applies to concerted action that restrains trade. Section 2 apples to both concerted and independent action if that action monopolizes or threatens to monopolize trade. Section 1 behavior is treated more strictly because concerted behavior, without independent action, is more at risk of being anti-competitive. Justice Stevens reiterated that in considering whether conduct is concerted the Court is not merely concerned with whether the parties are formally legally distinct entities, but instead examine the functions of how the parties operate- the "substance over form" distinction.(Copperweld Corp v Independence Tube Corp (1984)). The question therefore is whether there is a "contract, combination.., or conspiracy" amongst "separate economic actors pursuing separate economic interests" such that the agreement "deprives the market place of independent centers of decision-making and therefore of "diversity of entrepreneurial interests" and potential and actual competition.

Applying this criteria the Supreme Court held that

"The NFL teams do not possess either the unitary decisionmaking quality of the 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; North American Soccer League v NFL (1982))

........continued in Part II..........

Breaking News: American Needle v NFL

Breaking News: The Supreme Court didn't deliver Bilski today but they did unanimously decide that American Needle's important IP and anti-trust lawsuit against the NFL can proceed (see decision here).

In brief, a 2001 agreement made between Reebok International and the National Football League (NFL) granted Reebok an exclusive licence for the rights to use the NFL's (i.e., all 32 NFL teams) IP (team trade marks, logos, etc) for baseball caps and other apparel. It therefore followed that American Needle and other merchandise manufacturer’s licences with the NFL were not renewed. Consumer prices for NFL team’s merchandise in turn increased. American Needle et al filed a complaint in 2004 alleging that this agreement was in violation of sections 1 and 2 of the Sherman Antitrust Act.The NFL (the biggest of the big sports businesses) asked the court to shield them from anti-trust laws which could have allowed the potential anti-competitive licensing of their intellectual property to continue affecting manufacturers like American Needle and consumers of NFL products (for further details see previous post here). The NFL's argument was that the NFL was one single entity, not a plurality of 32 individual teams, and so thus fell outside the Sherman Act's plurality requirement.

The Supreme Court held that the NFL's "alleged conduct related to licensing of IP constitutes concerted action that is not categorically beyond section 1's [of the Sherman Act's] coverage" and that the NFL does not constitute a single entity for the purposes of the Sherman Act. This decision overturned the lower court's decision which threw out American Needle's lawsuit at the summary judgment stage. Justice Stevens, giving the majority opinion, wrote:

"Although NFL teams have common interests such as promoting the NFL brand, they are still separate, profit-maximizing entities, and their interests in licensing team trademarks are not necessarily aligned."

The Supreme Court have remanded the case back to the lower court for re-consideration of its section 1 analysis.

This Kat will be back with a detailed update once she has time to digest all of the 20 pages of the decision. In the meantime see these articles in the Financial Times and the Wall Street Journal.

Birmingham to protect the Balti?; Google Book antitrust probe

Will Brum GI plan curry favour?

The IPKat is a little puzzled to read the news on the BBC that Birmingham City Council is pondering whether to get protected geographical status for the name Balti. A Balti is a hybrid British-South Asian curry, which is said to have originated in Birmingham in the 1970s. Unlike other curry dishes, they are subjectecd to high temperatures for the final 10 minutes of cooking. They are served in restaurants across the UK, without rice, in a special metal dish. While their Pakistani predecessor would have been slow-cooked and served on the bone, the meat in a Balti is served off the bone. The proposal has been welcomed by curry aficionados, who have expressed concern that recently the dish has been served on plates.

The IPKat thinks this smacks of protectionism. It looks like an attempt to turn back the clock and exclude others who are using the method of cooking from identifying it as such.

Google Book Deal - antitrust investigation

The LA Times reports that the US Department of Justice has notified the judge overseeing the Google Book Deal case that it is investigating the Google Book Deal for potential antitrust violations. The concern arises over aspects of the agreement in relation to orphan works. It would see Google being uniquely entitled to scan and distribute out-of-print works, arguable giving Google a monopoly on such works, and excluding other companies from similar practices.

The IPKat doubts whether this will be an easy decision for the DOJ. While the agreement may raise monopolistic concerns, the Kat suspects that the creation of the resource is such a massive undertaking that it might only come into existence if exclusivity is given.

ECJ allows limits on supply intended to stop parallel trade

Yesterday the ECJ delivered its judgment in Case C-468/06 Lelos v GSK, a reference from the Greek competition authorities concerning a failure by GSK to fully meet orders submitted to it by Greek wholesales which GSK deemed to be well in excess of demand on the Greek market.

Although it is an abuse of a dominant position under Art.82 of the EC Treaty for an undertaking to refuse to supply wholesalers in order to put a stop to parallel importation, an undertaking can stop supplying if orders are placed which are out of all proportion to those previously sold by the same wholesalers to meet the needs of the market in that Member State. It is for Member States' courts to determine whether orders are not 'ordinary', i.e. if they are out of proportion to the needs of that Member State's market. The court stressed that such supplies can only be limited to protect the undertaking's economic interests. It is for the Member State's authorities, and not for pharma companies to crack down on parallel imports which are so extensive that the exporting market finds itself within sufficient supplies of the drug in question.

The IPKat notes that the ECJ wiggled out of commenting on a couple of issues of particular interest to IP lawyers:

1. The argument was raised that consumers wouldn't ultimately benefit from parallel importation because any price differential between the importing country and the country of origin would be eaten up by parallel importers are resellers. No matter, said the ECJ - price competition would still result in the shape of 'financial benefits not only for the social health insurance funds, but equally for the patients concerned, for whom the proportion of the price of medicines for which they are responsible will be lower. At the same time... parallel trade in medicines from one Member State to another is likely to increase the choice available to entities in the latter Member State which obtain supplies of medicines by means of a public procurement procedure, in which the parallel importers can offer medicines at lower prices.' The IPKat says that this reasoning is limited to industries like pharma, where there is massive public procurement, backed by social funds. He also notes that this reasoning assumed that patients are responsible for a proportion of the cost, unlike the NHS, where a flat rate applies.
   
2. The court felt it unnecessary to consider the argument that undertakings might need to limit parallel importation to recoup their R & D costs.

The Kat also detects a whisker of the court's old IP-scepticisim in para.64:

On the other hand, it should be recalled that, where a medicine is protected by a patent which confers a temporary monopoly on its holder, the price competition which may exist between a producer and its distributors, or between parallel traders and national distributors, is, until the expiry of that patent, the only form of competition which can be envisaged.

Chinese Microsoft case; labour loses in US

Microsoft to face Chinese monopoly action

The IPKat learns from AFP that the Chinese State Intellectual Property Office has begun an antitrust investigation into Microsoft. The claim appears to be based on abuse of dominant position, and centres on the fact that the Office and Windows combination costs a lot more in China than in the US - sometimes the software costs more than the PC that is running it. The anti-monopoly law on which the suit is based doesn't actually enter into force until August.

The IPKat isn't too much of a competition law expert, but he thinks this looks less complex than the European antitrust action. The charge doesn't seem to levelled at how the software is constructed, but rather at how it is prices. He's willing to be proved wrong though.


Copyright decision comes right down to the wire

The IPKat is intrigued by a story in the Salt Lake Tribune, concerning a failed attempt by a Utah company to bring a copyright claim in respect of digital models of Toyota's cars. The company, Meshwerks, was commissioned by Toyota to create digital models of Toyota's cars for Toyota's advertising campaign and website. Meshwerks claimed that it only granted Toyota a licence for a single use of the models, but for that argument to work, Mershwerks had to show that it actually had copyright in the models to licence. The 10th Circuit Court of Appeals held that it didn't.

The models had been constructed by Meshwerks employees covering Toyota cars with a grid made of tape, and taking measurements and the intersections. Those measurements were used to generate electronic wire-frame models of the cars, with additional features being added by hand. The models were then sent to another company to add colour and texture etc, but Meshwerk's contribution added up to 80-100 man hours per vehicle.

The court held that there was no copyright because Meshwerks' contribution wasn't original. Instead, they were merely good copies of Toyota's cars.

The IPKat reckons that this is a textbook example of the proposition that, although the originality standard in copyright is low, it is real, and mere labour isn't enough to gain protection (in the US at least).