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AMERICAN NEEDLE, INC. v. NEW ORLEANS LOUISIANA SAINTS

May 5, 2005.

AMERICAN NEEDLE, INC., Plaintiff,
v.
NEW ORLEANS LOUISIANA SAINTS, et al., Defendants.



The opinion of the court was delivered by: JAMES MORAN, Senior District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff American Needle, Inc. (American Needle) brought this antitrust action against defendants, the National Football League (NFL), the individual owners of the NFL's member teams, National Football League Properties, Inc. (NFLP) and Reebok International, Ltd. (Reebok), for violation of the Sherman Act, 15 U.S.C. § 1 et seq. Defendants move to dismiss the complaint for failure to state a claim. The motion is granted in part and denied in part.

BACKGROUND

  The following facts, taken from plaintiff's complaint, are, for purposes of this motion, accepted as true. American Needle, a corporation headquartered in Buffalo Grove, Illinois, designs, manufactures, and sells headwear carrying the trademarked names and logos of various professional athletic teams. The NFL is an unincorporated association of professional football teams and their owners. The NFLP is a Delaware corporation established by the NFL and its member teams to license their trademarks. For many years, American Needle and other clothing manufacturers were licensed by the NFLP to use NFL teams' trademarks on their headwear and apparel. However, in December 2000, the NFL, NFLP and NFL team owners decided to change their licensing practices for the use of trademarks on headwear and apparel — no longer would various manufacturers compete for licenses, nor would the NFLP grant multiple licenses. Instead, the NFLP would enter into an exclusive licensing agreement with one company for the manufacture, sale, and distribution of headwear and apparel carrying the trademarks of the NFL and its member teams. Subsequently, the NFLP entered into an exclusive licensing agreement with Reebok. American Needle's trademark license with the NFLP expired in March 2001 and was not renewed.

  Plaintiff filed a five-count complaint on December 1, 2004, alleging that defendants' agreement to grant an exclusive license for the use of NFL teams' trademarks on headwear and apparel constitutes a monopolization, a conspiracy to monopolize, and an attempt to monopolize various markets (counts I-III), in violation of section 2 of the Sherman Act, 15 U.S.C. § 2. Plaintiff also contends that the agreement constitutes a restraint of trade under the per se rule and the rule of reason (counts IV and V), in violation of section 1 of the Act.

  DISCUSSION

  A Federal Rule of Civil Procedure 12(b)(6) motion to dismiss tests the sufficiency of the complaint, not the merits of the case. Triad Assocs., Inc. v. Chicago Hous. Auth., 892 F.2d 583, 586 (7th Cir. 1989). In deciding a motion to dismiss, the court must assume the truth of all well-pleaded allegations, making all inferences in the plaintiff's favor. Sidney S. Arst Co. v. Pipefitters Welfare Educ. Fund, 25 F.3d 417, 420 (7th Cir. 1994). The court should dismiss a claim only if it appears "beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957).

  Counts IV and V of plaintiff's complaint allege violations of section 1 of the Sherman Act, which states: "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 hereby declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony." 15 U.S.C. § 1. Counts I, II and III of plaintiff's complaint allege violation of section 2 of the Sherman Act, which states that "[e]very person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony." 15 U.S.C. § 2.

  In their motion to dismiss, defendants argue that plaintiff's claims for violations of the Sherman Act require it to identify the relevant market in which they have restrained and monopolized trade. See, e.g., Elliot v. United Center, 126 F.3d 1003, 1004-05 (7th Cir. 1997); Menasha Corp. v. News America Marketing In-Store, Inc., 238 F.Supp.2d 1024, 1032 (N.D.Ill. 2003). Defendants assert that plaintiff has failed to identify such a relevant market. Plaintiff first maintains that even if this were true it would not defeat count IV because it states a claim for a per se violation of the Sherman Act and therefore does not require the identification of a relevant market.

  The complaint alleges that the 32 professional football teams that constitute the NFL agreed to restrict the use of their intellectual property, opting to allow the NFLP to control it, and that the NFLP agreed to grant Reebok an exclusive license to use the trademarked names and logos of NFL teams on headwear and apparel. Plaintiff claims that this constitutes horizontal price-fixing and a group boycott, per se violations of the Sherman Act, which necessarily results in decreased output and/or supra-competitive prices. In their reply, defendants counter that a per se standard is inapplicable to the NFLP's agreement with Reebok because agreements involving members of sports leagues must be analyzed under the rule of reason and these agreements cannot be labeled a group boycott or price-fixing. We agree that the per se rule does not apply to defendants' actions.

  Over a century ago the Supreme Court established that section 1 of the Sherman Act outlaws only unreasonable restraints of trade. United States v. Joint-Traffic Association, 171 U.S. 505 (1898); see Arizona v. Maricopa County Medical Society, 457 U.S. 332, 343 (1982). Thus, to determine whether a restraint of trade violates antitrust law, courts employ the rule-of-reason test, "taking into account a variety of factors, including specific information about the relevant business, its condition before and after the restraint was imposed, and the restraint's history, nature, and effect." State Oil Co. v. Khan, 522 U.S. 3, 10 (1997). Because of the costs of the rule-of-reason test, courts have employed a per se rule to establish illegal restraint, where prior experience allows the court to reach a conclusive presumption that the restraint has a "predictable and pernicious anticompetitive effect" and "limited potential for procompetitive benefit." Id.; Maricopa County, 457 U.S. at 343. Courts do not employ the per se rule unless the effect of the restraint of trade is obvious. Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49-50 (1977) ("Per se rules of illegality are appropriate only when they relate to conduct that is manifestly anticompetitive.").

  The Supreme Court has rejected the per se rule when reviewing trade restraints imposed by sports leagues. NCAA v. Board of Regents of the University of Oklahoma, 468 U.S. 85, 100-101 (1984). In Board of Regents, members of the National Collegiate Athletic Association (NCAA) challenged the association's restraints on the sale of television broadcast rights. Id. Though the Supreme Court had found similar restraints to be illegal per se in other circumstances, it did not apply the per se rule but, rather, analyzed the restraints under the rule of reason. The court jettisoned the per se rule in that case because it involved "an industry in which horizontal restraints on competition are essential if the product [college football] is to be available at all." Id. In order to offer intercollegiate athletic competition, the NCAA required joint cooperation and conformity to rules. Id. Furthermore, the court found that many NCAA restraints resulted in a pro-competitive effect on the association's members, thus a fair evaluation of the restraints required consideration of the NCAA's justification for the regulations. Id. at 103.

  Since the Supreme Court's decision in Board of Regents, courts have repeatedly rejected the per se rule when analyzing a trade restraint imposed by a sports league, opting instead for the rule of reason. See, e.g., Chicago Professional Sports Limited Partnership v. NBA, 961 F.2d 667, (7th Cir. 1992) (reviewing NBA's restriction on television broadcast rights under the rule of reason); National Hockey League Players' Association v. Plymouth Whalers Hockey Club, 325 F.3d 712, 719 (6th Cir. 2003) (reviewing hockey league's limitation on the eligibility of "overaged" players under rule of reason); Law v. NCAA, 134 F.3d 1010, 1019 (10th Cir. 1998) (stating that since athletic league competition requires horizontal agreements, "all horizontal agreements among NCAA members, even those as egregious as price-fixing, should be subject to a rule of reason analysis."); see also Overview: Looking Ahead at Sports and the Antitrust Law, 14 Antitrust 15, 16 (Spring 2000) ("[I]t is now settled that the practices typically associated with the organization of professional sports leagues and other organizations such as the NCAA are not subject to the per se rule."). Thus, even if plaintiff's allegations describe a trade restraint that has been held unlawful, see Denny's Marina, Inc. v. Renfro Productions, Inc., 8 F.3d 1217, 1220 (7th Cir. 1993) ("[A] horizontal price-fixing conspiracy . . . is per se an unreasonable restraint of trade."), a per se claim for violation of section 1 of the Sherman Act is inappropriate against the NFL. Our analysis of section 1 of the Sherman Act does not end, however, because plaintiff also alleges a violation of the section based on the rule of reason. To determine whether a trade restraint runs afoul of antitrust law under the rule of reason, a court must determine the consequences of the restraint on the affected market. See Havoco of America, Ltd. v. Shell Oil Co., 626 F.2d 549, 554 (7th Cir. 1980); see also 42nd Parallel North v. E. Street Denim Co., 286 F.3d 401, 404 (7th Cir. 2002). But, first, the relevant affected market must be defined. Adidas America, Inc. v. NCAA, 64 F.Supp.2d 1097, 1101(D. Kan. 1999) ("The first step in an antitrust analysis is defining the relevant market or markets."). Likewise, claims of monopolization of trade under section 2 of the Sherman Act also require a determination of the relevant market. U.S. v. Grinnell Corp., 384 U.S. 563, 571 (1966); Bernard Food Industries, Inc. v. Dietene Co., 415 F.2d 1279, 1284 (7th Cir. 1969) ("A definition of the relevant market is an essential element of a violation under Section 2 of the Sherman Act.") (superseded by statute on an unrelated issue). Defendants assert that plaintiff has failed to identify a legitimate market on which it can base its remaining claims.

  Plaintiff alleges that defendants' conduct has affected six relevant markets: (1) the market for licenses to use NFL and NFL teams' trademarks in the design, manufacture and sale of apparel, (2) the market for licenses to use these trademarks in the design, manufacture and sale of headwear, (3) the wholesale market for the sale and distribution of apparel with these trademarks, (4) the wholesale market for the sale and distribution of headwear with these trademarks, (5) the market for the manufacture of apparel with the NFL and NFL teams' trademarks, and finally, (6) the market for the manufacture of headwear with these trademarks. Defendants argue that none of these alleged markets, which are all defined by the use of trademarks, can support plaintiff's antitrust claims because market definitions contingent on trademarks are inadequate as a matter of law. In addressing defendants' argument, we do ...


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