MSG v. NHL II: Can the NHL Apply a Single-Entity Defense Based on American Needle?

As sports-law enthusiasts wait for the NHL to answer Madison Square Garden's Section 1 Sherman Act complaint (explained previously here), some discussion has shifted to predicting what the NHL's potential defenses will be. One potential defense, suggested by a reader of Sports Law Blog, is the Copperweld or "single entity" defense, which explains that as a matter of law a single enterprise cannot violate Section 1, because a single enterprise cannot conspire with itself.

Historically, courts have repeatedly rejected the Copperweld or "single entity" defense in the context of traditionally structured sports leagues -- finding that pro sports teams are individual actors, and not a single enterprise. In fact, until very recently, the closest that any court had come to accepting the single-entity defense in traditional sports leagues was Judge Easterbrook's 1996 concurring opinion in Chicago Bulls v. NBA, 95 F.3d 593 (7th Cir. 1996), in which the revered judge stated that "[w]hether the NBA itself is more like a single firm ... or like a joint venture ... is a tough question under Copperweld" and that "we do not rule out the possibility that an organization such as the NBA is best understood as one firm when selling broadcast rights."

Very recently, in the July 2007 decision American Needle, Inc. v. New Orleans Saints, 496 F.Supp.2d 941 (N.D. Ill. 2007), Judge Moran went a big step further, actually accepting the defense in ruling that NFL teams could not violate Section 1 of the Sherman Act by allegedly collectively refusing to license their trademarks to American Needle, Inc. because "the NFL and the teams act as a single entity in licensing their intellectual property." (emphasis added). Nevertheless, Moran's opinion has three glaring flaws that greatly reduce its future value:

Flaw No. 1, Poor Legal Analysis/Legal Support: Judge Moran's opinion provides only cursory analysis of an extremely complex issue of law, rejecting existing case law to instead rely almost exclusively on the views of a single author of a 2006 law-review note. Further, Moran handles the substantial weight of conflicting law poorly. He responds with only a single sentence: "[w]e reach this conclusion while recognizing that others might well disagree."

Flaw No. 2, Dubious Presumption that Long-Lasting Behavior Becomes Legal Behavior: Judge Moran's opinion seems to imply that because the NFL had been merchandising team paraphernalia in a collective manner since 1963, the NFL has automatically transformed itself from a joint venture to a single entity. A single-entity defense based on prolonged collusion by multiple entities is simply illogical!

Flaw No. 3, Ignoring a Stronger and More Traditional Legal Theory: Finally, Judge Moran could have easily (and without much controversy) decided American Needle in favor of the NFL teams by citing to the pro-competitive effects of collective licensing. Yet, even though Judge Moran states in his opinion that "[w]e recognize, as well, that supposed efficiencies in economic arrangements are more the stuff of the rule of reason than of distinguishing between single entities and joint ventures," Moran still chose not to rule based on pro-competitive effects but rather based on a single-entity defense.

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