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

# 41 elgreazy1 @ 04/14/09 10:37 AM

Quote:

Originally Posted by coogrfan


	So because you're unhappy with the state of football video games, you would be in favor of a Supreme Court ruling that would effectively tell sports leagues that they do not have the right to market their intellectual property rights as they see fit? You guys really need to think about the larger ramifications of a win by American Needle. There's a lot more at stake here than just NFL 2k__.

I understand this and I'm looking at the big picture as well. It's not just about football games or having a 2K branded football game again, it is about the whole picture.

If corporations like the NFL continue to do this it stifles the consumer. When a consumer no longer has any viable option on a product they will not always get their money's worth.

Simply put, Madden has been very below average in the last few years and that has hurt the consumer. People are being forced to purchase the only NFL product out there that comes completely bug-laden & it's an unfinished product. That is INEXCUSIBLE! How would you like if Ford was the only car company allowed in the US yet the cars were sold faulty (lacking brakes, air bags, ex’s) and that is the only option we, as the consumer, had. Doesn’t seem right in the least. That’s exactly what EA has been doing: packaging an inferior product & making millions simply because it has no competition.

If the NFL continues to get away with this, who’s to stop the NBA or NHL or NCAA from doing the same? How would you like it if one of those companies signed an exclusive rights deal on a specific console that you don’t own? So you’d be forced to either go without a product or purchase a console you don’t want (much like being forced to purchase a game you don’t want) in order to get the product you demand. I understand that’s why we have capitalism, but that ideal is broken when monopolies start coming into place.

I understand, EA bought the license because the NFL put it up for grabs, there is no harsh sentiments towards them for that because every company had the same opportunity (not really) to purchase the license. EA simply did what they had to do to keep their best product in production; that’s good & smart business. But where EA clearly crossed the line was when the maliciously went after the NCAA football, Arena Football League, & ESPN rights simply to put 2K out of business (and EA’s other minor competitors). That right there is a red flag that a monopoly or bad business practices are in place. Another sign of a monopoly was when an NFL exec bundled rights to all previous & HOF NFL players at a low cost and packaged them in an under-the-table deal to EA, thus further cutting into 2K’s game market. There are many more articles like this.http://arstechnica.com/gaming/news/2008/09/lawsuit-nflpa-conspired-with-ea-to-cheat-retired-players.ars

# 42 Swingking77 @ 04/14/09 01:01 PM

Quote:

Originally Posted by elgreazy1


	I understand this and I'm looking at the big picture as well. It's not just about football games or having a 2K branded football game again, it is about the whole picture. If corporations like the NFL continue to do this it stifles the consumer. When a consumer no longer has any viable option on a product they will not always get their money's worth. Simply put, Madden has been very below average in the last few years and that has hurt the consumer. People are being forced to purchase the only NFL product out there that comes completely bug-laden & it's an unfinished product. That is INEXCUSIBLE! How would you like if Ford was the only car company allowed in the US yet the cars were sold faulty (lacking brakes, air bags, ex�s) and that is the only option we, as the consumer, had. Doesn�t seem right in the least. That�s exactly what EA has been doing: packaging an inferior product & making millions simply because it has no competition. If the NFL continues to get away with this, who�s to stop the NBA or NHL or NCAA from doing the same? How would you like it if one of those companies signed an exclusive rights deal on a specific console that you don�t own? So you�d be forced to either go without a product or purchase a console you don�t want (much like being forced to purchase a game you don�t want) in order to get the product you demand. I understand that�s why we have capitalism, but that ideal is broken when monopolies start coming into place. I understand, EA bought the license because the NFL put it up for grabs, there is no harsh sentiments towards them for that because every company had the same opportunity (not really) to purchase the license. EA simply did what they had to do to keep their best product in production; that�s good & smart business. But where EA clearly crossed the line was when the maliciously went after the NCAA football, Arena Football League, & ESPN rights simply to put 2K out of business (and EA�s other minor competitors). That right there is a red flag that a monopoly or bad business practices are in place. Another sign of a monopoly was when an NFL exec bundled rights to all previous & HOF NFL players at a low cost and packaged them in an under-the-table deal to EA, thus further cutting into 2K�s game market. There are many more articles like this.http://arstechnica.com/gaming/news/2008/09/lawsuit-nflpa-conspired-with-ea-to-cheat-retired-players.ars

Well said, and in a nutshell, the only argument that makes any sence... That being said, they did not attack 2K's ability to make a football game, only the licences to make "official" league games... Hence why I stated that they should make the generic football game and let people have total control of how to mod it... Since they're not putting out, at the very least, SOMETHING to compete with Madden they are also purpetuating the monopoly, which in the end, as you said yourself, screws gamers... As such, they're both douche bags for jamming it to the gaming community...

# 43 Swingking77 @ 04/14/09 01:07 PM

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

I'm sorry for the double post here, but could you please elaborate on why this would "kill" football video games? It's all fine and dandy to say it... But an explination would be nice...

Furthermore, if EA saw that as a result of this kind of open football game, that being exclusive means very little when pitted against a community of people willing to work at a better product TOGETHER, they would likely halt the wish for exclusivity all together... And eventually we would have pairity within video game football once again... And that goes for EA as well... Make a generic baseball game with complete custome ability... I'm on no ones side but we the consumers here... We deserve better for our hard earned (or at this point) rapidly decreasing money...

# 44 raidersbball20 @ 04/15/09 06:49 PM

this could really mess up games with having teams and logos individually bought

# 45 SouthernBrick @ 04/16/09 04:48 AM

EA is finally wising up.

Could be coincidence, but EA just seems like that type of company that knows when to hold em and when to fold em. They have been holding for a long time with the back of the box features and the dev's probably have to bend to there ways.

But now that the time is getting closer that they may lose there Exclusive Rights they are now folding and bending to our ways rather than there's.
They have heard our voice and they are responding b/c they know if they lose that Lisence that 2k may come back strong and they don't want that.

To EA its all about sales, but now that they see that 2k can eventually take alot of money from them if they lose this battle in the football genre.

And thats not in EA's best interest and now they know they have to just straight up make a better game than 2k or at least up to that level. After the exclusive lisence EA was like well we own the NFL rights we can do whatever to make the game look flashy and sell without interuption of 2k.

Now toward the end of there exclusive rights its more about physics, sim and realism more than ever...

I may be dead wrong but its just my opinon on why we are getting the best madden(possibly football game) up to date this year.

My expectations of this madden is very high this year and they have always had the teams to do it until the exclusive rights took place, and it went downhill from there.

# 46 xylocaine @ 04/17/09 11:25 AM

please let this come true...

# 47 Swingking77 @ 04/17/09 01:45 PM

Quote:

Originally Posted by Derrville


	Not allowed, 2K would get sued.

Not at all... EA owns the rights to NFL football, not the sport itself. It's no different then having people mod the names in NCAA sports titles... Though I woud be interested in seeing where you came up with this notion... Or are you just making an assumption here...

# 48 SBartlett @ 04/17/09 03:34 PM

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

So NCAA would be a whole different issue.

What the Supreme Court says is the law is the law lol. I love the ideas here though guys. I think 2k could still be able to come back with titles with full customization and some likenesses to the NFL. They have a great engine for their game, it just needs fine tuning and more features.

They have taken hits though to produce the games and so who knows what the future holds.

# 49 Brandwin @ 04/17/09 03:53 PM

Sorry, I won't buy an NFL game with out all the teams and players.

# 50 tabulaRasa @ 04/17/09 06:09 PM

Awesome if we could have more NFL games to choose from, I personally preferred NFL2k series, but in general I am for competetion, as it�s the driving force pushing games forward.

# 51 Swingking77 @ 04/17/09 09:26 PM

Quote:

Originally Posted by Derrville


	No Someone asked the Madden devs if they could edit the uniforms but keep the logo, and EA said no cause if a vid popped out somewhere on youtube where the cowboys were pink EA would be in alot of trouble. So if EA who has the license would get in trouble, wouldnt a company that doesnt have the license expect the same?

No no... You're mistaken, this would have to be a game with NO names, and no logos what so ever... Ther would be no infringment what so ever... You're talking about editing official teams... Not subject matter

# 52 PGaither84 @ 04/17/09 09:35 PM

Quote:

Originally Posted by Swingking77


	No no... You're mistaken, this would have to be a game with NO names, and no logos what so ever... Ther would be no infringment what so ever... You're talking about editing official teams... Not subject matter

Exactly. think Madden 64, but also with no NFLPA. Madden 64 had team San Francisco, and Team Dallas, etc. But in that game there was S. Young the QB and J. Rice the WR.

I am all for competition. I bought 2k5 on a whim before when i went in to get Madden 05. I'll give you 3 guesses which one I liked more.

# 53 coach_ruckus @ 04/20/09 01:47 PM

With back breaker getting in the mix, well see the best 2k and madden games once they are free to use nfl players

# 54 tarikre92 @ 04/20/09 05:06 PM

I agree with most of you guys completely ANY football game without the 32 teams is not a football game at all... plus if yo guys think about they have to have all the teams because US the consumers control how much money those companies make.... They wont make any money if nobody will but their gameso i wouldnt woory too much about them not having all the teams, but if anything were to happen i hope they get rid of that stupid contract, NFL 2K5 fn all the way BABY!!!!

# 55 dezznutz1001 @ 04/28/09 05:02 PM

I read a few comments and it seems people dont understand the nature of competition.

If in the NFL, only the same 4 or 5 teams are good each and every year and each and every year those teams win the SB, then no one would watch. By putting in salary caps, etc. the league makes the field more balanced and you get a better product. Just think, the salary cap is why the NFL is more popular then MLB, more good teams across the board, fewer "Yankee" type teams.

Well in business the same is true. Could you imagine if the only place you could buy a burger was at McDonalds, or the only place you could get a taco was T-Bell? That would suck. Those corporations would get lazy and wouldnt try to improve or get better due to the lack of competition.

The same goes for Madden. With 2K out of the picture there is no reason for them to improve the game or make it better in any way. EA doesnt have to look over there shoulders and wondre if someone else is making a better game. Personally, I was disapointed in this years games lack of refinement and its many, many glitches. Collinsworth is absolutely horrible. I think the game took a step back, which hurts us, the consumer.

# 56 Swingking77 @ 04/28/09 10:57 PM

I had forgotten about this thread, but to add a bit to this... I had said that 2K should have just made a generic football game, blah blah blah... Some people said it couldn't be done... Enter Ian's Super Secret Project... There is nothing that anyone can do about fans making teams and posting them online and this new project/idea for team EA prooves it... At this point, good for them, at least this idea should at the very least SHOW people that editing blank teams/players is allowed... Now if only Take 2 were aware of this...

# 57 Valdarez @ 04/28/09 11:55 PM

Professional sports are unlike any other intellectual property in the sense that they are already a virtual monopoly. It's one thing to let the sports monopolies live, but they shouldn't be allowed to create other monopolies in the process.

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