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Associations Now

Joint Ventures May Pose New Antitrust Risks

ASSOCIATIONS NOW, August 2010 Intelligence

By: Jonathan T. Howe

Summary: A 2010 Supreme Court antitrust ruling could change how associations approach joint ventures.

Q: Is the American Needle Inc. antitrust case against the National Football League significant for associations?

A: In a rare event, the Supreme Court rendered a unanimous decision for an antitrust plaintiff in a civil suit. The Court reversed the Seventh Circuit Court of Appeals in a case involving the National Football League's exclusive licensing program for NFL-team-branded merchandise. The Seventh Circuit, which includes federal courts in Illinois, Wisconsin, and Indiana, has long been regarded as a "safe haven" for defendants in antitrust cases.

Retiring Justice John Paul Stevens, who is from the Seventh Circuit, wrote the unanimous decision—in itself a primer on the basics of Section 1 of the Sherman Antitrust Act, which prohibits a combination, agreement, or conspiracy to restrain trade in interstate commerce.

Background

NFL Properties was an entity formed by NFL teams that had the exclusive rights to license every NFL team's logo and other intellectual property through agreements with each team. Recently, NFL Properties granted an exclusive license to Reebok that prevented the company American Needle Inc. from producing NFL logo merchandise as it had done previously. American Needle sued, but lost at the trial and appellate court level.

What the NFL had done was allow a single outlet to manufacture and market various merchandise bearing identifying logos and names of NFL teams. The district court ruled that when the league seeks to promote its brand or its product, it is permissible to do so through a joint venture as opposed to each team entering into its own merchandising contracts. The Supreme Court disagreed. American Needle previously had a nonexclusive license to manufacture and sell products bearing trademarked logos of NFL teams that was foreclosed when Reebok was granted the exclusive license to do so. Justice Stevens noted that competitors cannot circumvent antitrust liability by acting through a third-party intermediary or a joint venture.

Implications for Associations

Of importance to the association community is where the line is drawn between "conspiratorial agreements" and legitimate "unilateral" behavior. While the case received much news coverage, it added very little, if anything, new to antitrust law—but it did recognize there can be legitimate reasons to do what the NFL teams may have done here. The case was sent back to the trial court for further action.

Of key significance is the finding that the behavior of the NFL properties is to be judged on a "rule of reason" basis as opposed to the more stringent per se approach. When a violation of the antitrust laws is viewed as being per se unlawful, such as price fixing, the plaintiff need only establish the extent of damages. There is no necessity to prove that the restraint was indeed unreasonable; it is unreasonable on its face.

In a "rule of reason" case, the plaintiff bears the burden of establishing the unreasonableness of the defendants' behavior that leads to a restraint of trade in interstate commerce resulting from a combination, agreement, or conspiracy. The fact that associations, like the NFL, are composed of competitors gives rise to the allegations of combination, agreement, or conspiracy.

Many associations enter into joint ventures with other associations or even with members or other suppliers, such as in the context of tradeshows. What the Supreme Court did in American Needle is send the case back to the trial court to determine whether the conduct by the NFL in this case is "unreasonable" under the rule-of-reason approach. Thus, American Needle, while having won this battle, still must pursue the case further. It now has the burden of establishing that the actions by the NFL owners are indeed an unreasonable restraint of trade.

The key lesson for associations: Before granting "exclusives," check with your attorneys to make sure you aren't fodder for the antitrust cannon.

Jonathan T. Howe is senior partner and president of Howe & Hutton, Ltd., in Chicago. Email: jth@howehutton.com

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