What is the rule of reason test in antitrust law

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One of the primary money-making operations that that the NFL has engaged in over the years has been the merchandising of goods, such as ball caps, jerseys, t-shirts, and so on, all of which bear the logo and/or colors of an NFL team. Throughout the 20th century, the NFL was satisfied to deal with a variety of vendors through a legal entity that it created known as National Football League Properties (NFLP).

Then, in the year 2000, NFLP decided to award an exclusive contract to Reebok. One former NFL merchandiser, American Needle, was, understandably enough, unhappy with the new arrangement. Consequently, American Needle brought a lawsuit against the NFL arguing that the Reebok contract established a monopoly that was in violation of Section One of the Sherman Antitrust Law. Section one makes it illegal to enter a contract, combination, or conspiracy in order to restrain trade.

Ordinarily under section one the court would apply what is known as the rule-of-reason standard, which asks judges to balance the pro-competitive results of a challenged arrangement with the anti-competitive results. In this case, however, a different tactic was used. The Seventh Circuit Court of Appeals took a more fundamental approach and targeted the very ability of the NFL to enter a contract of any sort.

The court ruled that the NFL was not a collection point around which a group of 32 different team joined forces but was, instead, a single entity. As a single entity, the NFL could not make any type of contract with itself, let alone a contract to restrain trade. This ruling means that section onedid not apply to the case and, as a result, the case was dismissed. The United States Supreme Court disagreed with the appellate court, however, and ruled that the NFL is not a single entity.

The Court said that, under corporate law, the NFL might be a single entity, but under antitrust law, it is not. The NFL turns out to be, at least for purposes of antitrust law, a collection of 32 distinct constituent parts, referred to as teams and headquartered in different cities, thatmake financial decisions on their own for their own purposes and benefit. (See American Needle, Inc. v. National Football League, 130 S.Ct . 2201 (2010).

See also Gabriel Feldman, "The NFL Is Not a Single Entity," The National Law Journal , February 1, 2010, p. 35; and Michael P. Waxman, " American Needle Inc. v. National Football League : Surprise! The Supreme Court Upholds an Existing Antitrust Doctrine," Marquette University Law School Faculty Blog , October 29, 2010, http://law.marquette.edu.)

Opening Case Questions
1. In American Needle, Inc. v. National Football League, the U.S. Supreme Court seems to admit that, under corporate law, the NFL might be a single entity. Is it appropriate to have two different areas of the law come to two entirely different outcomes when judging the same set of facts? Why or why not?

2. In relation to antitrust law, what is significant about the Supreme Court's ruling that the NFL is not a single entity? Explain.

3. What is the rule-of-reason test in antitrust law and how is it carried out? Explain.

4. What other test, besides the rule-of-reason test, is available in antitrust law? Explain.

5. Now that the U.S. Supreme Court has remanded the case, what happens next? Explain.

Reference no: EM131379246

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