NFL Antitrust: What it Means for the Sports Video Game Industry

Feature Article

Submitted on: 04/13/2009 by Steven Bartlett

EA’s exclusive NFL license agreement could potentially be in jeopardy if apparel manufacturer American Needle Inc. has their way. Sure, it seems odd that something that has nothing to do with video games could affect them in such a large way, but it is true.

Facts

The licensing issue that will be before the Supreme Court deals with whether or not the NFL, the NFL Properties division and Reebok have violated the Sherman Antitrust Act, 15 U.S.C.S. SS 1-2.

American Needle Inc. is a former business partner of the NFL and the NFL Properties. For the past 20 years, the vendor produced headgear based on licensing agreements with the league. In 2000, The NFL and NFL Properties agreed to solicit bids from many equipment vendors for an exclusive license for headgear. Reebok won the bidding, and in 2001, Reebok became the exclusive vendor for headgear in the NFL. American Needle then filed an antitrust action against the NFL, NFL Properties, Reebok and a few individual teams, including the New Orleans Saints and Detroit Lions.

American Needle Inc. claim that granting an exclusive license is conspiring to monopolize because "each of the individual teams separately owned their team logos and trademarks," according to U.S. 7th Circuit Judge Michael Kanne. In addition, "their collective agreement to authorize NFL properties to award the exclusive license to Reebok was, in fact, a conspiracy to restrict other vendors’ ability to obtain licenses for the teams’ intellectual property."

The U.S. Court of Appeals for the 7th Circuit affirmed a lower court’s summary judgment, agreeing that the NFL and the defendants did not violate antitrust law sections 1 and 2.

Now, summary judgment is granted "when there are no genuine issues of material fact, and thus the judge can decide the case without conducting a full trial by simply applying the law to the undisputed facts" (Sharp, 2007).

As of now, under past precedents set and the antitrust act itself, the NFL is free from any antitrust violations. The result of these rulings is that the NFL can continue to grant EA their exclusive NFL license.

There is the possibility Madden might not be exclusive anymore...but it's only a slight chance.

The Reasoning: Why is the NFL Free From Antitrust Violation?

The Sherman Antitrust Act of 1890 prohibits concerted action by two or more parties that unreasonably restrains trade in a "relevant market."

Both the district court and the U.S. Supreme Court have reasonable evidence that the NFL is acting as one single economic entity -- the affiliated teams of the league, plus the owners and players, are also considered as part of this single entity in certain circumstances such as this case.

Furthermore, the league and the teams are acting together. They are both guided by the league body when negotiating intellectual properties. By doing so, there is no deprivation of competition in the market.

The NFL is free to choose which company they grant their license to -- even if it applies to the entire league. In general, The courts approve and support strong business models and practices. There is no wrongdoing here in the eyes of the law.

The NFL relied on precedents set by the Copperweld Corp. v. Independence Tube Corp. case of 1984. In this case, the Supreme Court agreed that "a parent corporation and its wholly owned subsidiary are a single-entity for antitrust purposes."

The NFL asserted that they "functioned as a single-entity when collectively promoting NFL football by licensing the NFL team’s intellectual property and were thus immune from liability under section 1," according to Judge Kanne.

The Supreme Court has asserted in the past that even though teams may compete with intellectual property sales, it does not keep the teams from acting as a single-entity; and although the teams compete on the field, they rarely compete in the marketplace.

Based on this idea, there is no deprivation of competition in the market and therefore no antitrust violations took place.

What Does It All Mean?

American Needle Inc. is challenging the foundation of the NFL’s licensing business practices by claiming "each of the individual teams separately owned their team logos and trademarks."

If this argument wins out, it would mean that each team would hold the exclusive rights to their own trademarks, logos and other properties because each team would be considered an independent entity. There would no longer be exclusive rights granted for NFL video games either -- or third-party exclusivity when it comes to baseball.

Instead of creating a bidding war and rewarding one publisher (currently EA Sports), the NFL Properties division would not be able to package the league license as a whole anymore.

Each separate team would have the ability to act freely as a separate entity or business. For example, each team would be able to grant licenses to different apparel companies, such as Nike, Reebok, Adidas, Under Armour and many more.

This would also mean that a huge variety of football games could potentially be back on the market. More importantly, teams could demand a separate asking price for their properties before they are represented in games like Madden, NFL 2K and so forth.

Publishers would then be bidding and fighting over which teams they can sign to their game. We could end up with Madden featuring the NFC teams and 2K Football featuring AFC teams. Since the NFLPA would still hold the rights to players, there could potentially be a scenario where Tom Brady is in a game, but the New England Patriots logos are not.

Wrap-Up

A ruling in favor or American Needle Inc. does not mean that all professional sports leagues would now be required to sell licenses to gaming companies in the same manner.

The Supreme Court has asserted that they shall view each professional sports league one case at a time and each league facet at time.

With the NFL’s collective bargaining agreement up for negotiation this year, this would be an ideal time to restructure the NFL Properties and licensing deals amongst the 32 league owners.

It is possible that the NFL could negotiate a way to collectively sell their intellectual property to gaming publishers as a whole while still avoiding antitrust violations; that is the beauty of a collective bargaining agreement –- key word "agreement." The hard part would be to prove that there is no economic deprivation to consumers or to the marketplace.

The NFL Shield can sell itself. However, match it with EA Sports, John Madden and the fact that there are no other NFL games on the market, and some would consider that there is unfair dominance in the video-game marketplace.

Works Cited

Sharp, (2007). Sport Law A Managerial Approach.
Scottsdale, Arizona: Holcomb Hathaway Publishers, Inc.

Read the 7th Circuit Decision here [PDF]

Madden NFL 10 Videos

Member Comments

# 21 S1ARk5 @ 04/13/09 01:23 PM

I would pay $100 for an NFL game done by the same team that developed 2k5, even if it means not having all the NFL teams, heck I would never buy Madden again if All Pro Football had a franchise/dynasty. To me that is the best playing football game ever.

Ofcourse we would need the customizable tools that a winning eleven/PES gives to their games as well...

# 22 SageInfinite @ 04/13/09 01:35 PM

Quote:

Originally Posted by shotgun styles


	For Natural Motion, Adaptive AI, Custom Playbooks, and Online Franchise I would pay $250.

Don't give EA any ideas!

# 23 blackpuppy @ 04/13/09 02:07 PM

Why don't they just sell the games sans official team logos and players and let you buy the licensing on an individual basis online. For example buy Fifa, Madden etc as the game with made up players for like $39 buck and let people buy the license online for like $15 bucks.

# 24 The.Nacirema.Dream @ 04/13/09 02:21 PM

As a law student who is currently studying antitrust law, I would like to shed some light on the situation.

The sole issue here is the trial courts finding, and the 7th Circuit Court of Appeals affirmation, that the NFL and its 32 teams are a "single entity," ie. akin to a parent corporation and a wholly-owned subsidiary. If found to be so, section 1 of the Sherman Act, which outlaws "every contract, combination in the form of trust or otherwise, or conspiracy..." by definition cannot apply because for a section 1 violation there has to be two or more parties working in concert.

By contrast, section 2 of the Sherman Act outlaws "monopolizing or attempting to monopolize" by a single entity. American Needle also brought a claim under section 2 (which was also rejected), however that issue is not going to be argued in front of the Supreme Court if they decide to take the case (It is currently under guidance of the Solicitor General).

The last case the Supreme Court decided using the "single entity" theory was in 1984 (Copperweld Corp. v. Independence Tube Corp.). Since then, lower courts have stretched the "single entity" theory to various other business arrangements, ie. affiliated companies involved in joint ventures. The Supreme Court expressing an interest in this case is in all likelihood a signal that lower courts have gone too far in their findings, and the Supreme Court will clarify the doctrine.

Most likely the NFL will be found to be a single entity, as the "NFL can only function as one source of economic power when collectively producing NFL football." Other arrangements that single entity immunity has been extended to, however, may not be as lucky.

# 25 wildthing2022000 @ 04/13/09 02:32 PM

Quote:

Originally Posted by blackpuppy


	Why don't they just sell the games sans official team logos and players and let you buy the licensing on an individual basis online. For example buy Fifa, Madden etc as the game with made up players for like $39 buck and let people buy the license online for like $15 bucks.

That just sounds so dumb, sounds like buying an official hat but you have to buy the team patch and stitch it on. This whole lawsuit reeks of sore loserdom to me. "Wah, we lost the bid & now we're gonna sue."

# 26 marcoyk @ 04/13/09 03:23 PM

It would be great if we got many options for video games. As the monopoly idea goes, competition makes a better product. Realistically, EA could release a mediocre Madden game , and it would probably outsell any other company's title. I'm 15 years old, and I haven't heard of anybody owning a football game other than Madden. If three companies were producing NFL football games, then we'd surely see some great games.
I've bought Madden 2004, 2005, 06, 07 for two systems, 08, 09, and there's about a 99% chance that I'm going to buy Madden 10. But if the teams were split up... strong considerations of not buying a Madden game for the first time since i was 9.

# 27 boston_sports_maniac @ 04/13/09 03:28 PM

Madden is just fine with me. I would do anthing to play madden on xbox 360 or ps3. but I am stuck with the dumb old wii. You 360/ps3 owners really dont't know who good you have it.

# 28 marcoyk @ 04/13/09 03:35 PM

I felt your pain. I used to only have a Wii and i was forced to get my sports games fill on the wii. I bought nba live 08 for wii... i started laughing about how much of a horrible product it was. Controls: move, shoot, jump, pass. that's it. then i got a 360 and came a little. i've played my wii maybe 5 times in the year that i've had my 360.

# 29 ballaspence9493 @ 04/13/09 05:08 PM

tht would b so lame if there was one conference in one game and then another in another game. hopefully, it'll never come to this

# 30 bears5122 @ 04/13/09 06:13 PM

I don't see where you guys are getting this "only half the teams in the game". The NFL acts as a single entity. The issue is limiting who they sell the rights to, not whether each team owns their individual trademark.

The only change that we would see is other game companies being given the right to purchase the licensing agreement to the NFL and NFLPA. That is how it was done for decades. The stuff about not having the rights to every team is just scare mongering that EA is filtering through the pipes to save face on PR.

I know that the complaint argues about the individual teams, but a judgment against the NFL would simply force them to open up the license to other companies. A much easier solution for them than granting each team individual rights.

# 31 metal134 @ 04/13/09 09:15 PM

I am certainly not an expert in the field, but I have a little bit of background in media and privacy laws as part of my Communication degree, so take this for what it's worth. I don't think that the Madden license is not an anti-trust issue, at least as far as the players are concerned. Privacy laws dictate that a celebrity's image is a commodity, one which they have control to sell and market. This would extend to the NFLPA as a group. Basically, they have the right to sell their likeness to whomever they want, however they want. So even if the NFL were to somehow lose this lawsuit, which I honestly don't see happening, you would still have separate issue of NFL licensing and player image licensing. That would mean another NFL game without real players. Another thing to consider is that in regards to privacy laws, corporations are often treated as a single likeness (which has already been mentioned in this thread) and as such, are often granted the same rights as individuals, which would mean that the NFL would be treated as a person in regards to privacy laws and the selling (or witholding) of their image. Again, I'm not an expert and there are probably some intricacies and interpretations that affect the argument which I have laid out, but still, I don't believe the NFL will lose this case and even if they do, I don't believe it open the door for 2K.

# 32 travis a.d. @ 04/13/09 09:58 PM

Quote:

Originally Posted by TheCreep


	I'm with ya. I love it. Most folks do actually. 2010 is going to be the year!

one can only hope.

# 33 canes21 @ 04/13/09 10:00 PM

I doubt this case will go in our favor, but at least something is actually happening. If more and more people start to attack this, we might see change. Maybe if 10 shapes up to what I think it will, we won't need to worry about 2k. But going off past Maddens, we need competition.

# 34 Hendrick4life @ 04/14/09 07:16 AM

Right, I just wouldnt like playing without 32 Teams. Then its not the NFL. Id like all 32 Teams even if it means keeping EA. But...I play ESPN 2K5 With updated Rosters & Other things so im not worried until that gets wayyyy to old.

# 35 NYCNNJ @ 04/14/09 07:39 AM

Some of you keep talking about how HORRIBLE, 2K sports games are. EA arent that much better and at the moment, they have exclusive rights and their games may even worse. NBA Live is horrible, NHL Hockey, eh, Madden, eh, the only game that worth purchasing is NCAA Football.

# 36 Cryolemon @ 04/14/09 08:20 AM

Quote:

Originally Posted by Hendrick4life


	Right, I just wouldnt like playing without 32 Teams. Then its not the NFL. Id like all 32 Teams even if it means keeping EA. But...I play ESPN 2K5 With updated Rosters & Other things so im not worried until that gets wayyyy to old.

People aren't saying there should be less than 32 teams in the game, just that some would be generic.

# 37 Swingking77 @ 04/14/09 08:26 AM

I find the subject redundent to be honnest... HUGE 2K sports fan here as well... The problem is not the licences, the problem is 2K's unwillingness to release a generic football game with complete control over players/team/location names... It would be as simple as making a generic game which allows people to make changes to key things like names/uniforms/stadiums that keeps the football world or gaming down... The licence can only be held acountable for sooo much. I think the OS forums have shown that with very little ability to mod things in the 2K5 games, we're done just fine at keeping it going... Emblems and all this king of thing could simply be added via DL, much like Forza does for the car industry... After that it's community based effor that would run with it and make a game... BUT, and this comes after years of waiting, I think that 2K simply doesn't want to do this as if they do this, when the Madden licence is remooved or is no longer in place, there will still be people modding this modable game, rendering their slice of the NFL pie worthless... They're still holding on to a shred of hope that the licence will be revoked and that they'll be able to get back in there, as such giving people total control of what can be done with the game doesn't makes sence at this time until such a time as the dispute is 100% resolved... Both sides are screwing the gamer in a big way... It's taken time, but I'm holding 2K just as responcible here as I am EA...

# 38 vinny_b @ 04/14/09 09:25 AM

"Yuck.That would kill video football period in my opinion"

EA already did that. I haven't done so much as look at a football videogame, since NFL 2k5

# 39 Swingking77 @ 04/14/09 09:48 AM

Quote:

Originally Posted by vinny_b


	"Yuck.That would kill video football period in my opinion" EA already did that. I haven't done so much as look at a football videogame, since NFL 2k5

Competition is NEVER a bad thing... Period. It's better to have a 13 year old boy in the ring against a heavy weight then it is to simply have the heavy weight standing there alone...

# 40 zgames @ 04/14/09 10:01 AM

Quote:

Originally Posted by SageInfinite


	Also I wonder how this would effect the NCAA football license? Would they have to give up the exclusive rights as well?

NCAA is different. To my knowledge, all of the college teams do have the ability to operate as single entities. I believe by acquiring the exclusive NCAA license, EA primarily has the exclusive right to call it NCAA Football. I would assume they have an exclusive on the BCS as well. The majority of teams use a company called the Collegiate Licensing Company to represent them, but there are some schools like Notre Dame and Virginia Tech that choose to represent themselves.

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