Article
American Needle and the Future of the Single Entity Defense under Section One of the Sherman Act
by Nathaniel Grow
Article’s
Purpose
The article explains the single entity
defense that has evolved in response to the Sherman Antitrust Act and the
effect it has had in antitrust court cases. Numerous court cases and their
rulings are examined. The article is
written in 3 parts: the evolution of the single entity defense, the history and
outcome of the American Needle litigation,
and criticisms and implications of the ruling in that case. I will follow a similar outline in this
review of the article.
The
Sherman Antitrust Act
There are two sections of the SAA. Section One’s concern is concerted action, or two or more companies acting in the restraint
of trade. Section Two covers independent action and regulates
monopolization. As stated in the article,
§ 2 cases generally lose; the conflict of
opinion resides in the §1 verbiage dealing
with what constitutes concerted action and restraints of trade.
Origin
and Evolution of the Single Entity Defense
Historically courts ruled using the Intra-Enterprise Conspiracy Doctrine;
effectively meaning that separate legal entities are always subject to §1, even when one is a wholly-owned subsidiary
of the other. As the article states,
this did not provide the protection for which SAA was meant. Courts increasingly began avoiding its
application.
In the 1984 Copperweld case, the Supreme Court conveniently rejected the
doctrine and ruled that a parent and wholly-owned subsidiary are a single
entity and outside the scope of §1. However, as pointed out in the article, this
ruling did not provide a solid substantive measure for lower courts to
determine what constitutes a single entity.
Different interpretations of the case led to the lower courts
implementing their own measure; with inconsistent rulings of what constitutes a
single entity and thus immunity to §1:
- Parent companies and less than wholly-owned subsidiaries. (As low as 51% parent ownership)
- Commonly owned and controlled companies. (E.g. Sister subsidiaries, franchises)
- Members of trade and professional associations.
- Parties acting on the basis of contractual agreements.
The article next addresses joint ventures.
Courts have ruled more uniformly concerning joints ventures, deciding that they
were either competitors or potential competitors and thus the Copperweld single entity defense did not
apply. The Supreme Court, however,
reversed this in the Dagher case. Dagher was a joint venture of Shell and
Texaco. The two companies agreed to
consolidate operations, set a price, and end competition in the western U.S. with
equal shares of profits and losses under the joint venture (They still competed
in other markets). Relying on their interpretation
of the verbiage of§1, the Supreme Court
ruled that in the case of Dagher, a
single entity existed and it therefore could not possibly act in restraint of
trade.
As explained in more detail in the article, these
two Supreme Court cases, Copperweld
and Dagher, have led to a lot of
confusion amongst lower courts as to what the actual definition of a single
entity is or should be. With confusion already surrounding the interpretation
of §1, the verbiage of
the Supreme Court rulings do very little in clearing it up.
History
and Final Decision of American Needle
The American
Needle case was brought by a hat manufacturer suing the NFL when NFL
Properties decided to grant Reebok exclusive access to its trademarks
concerning the 32 NFL franchises. The NFL
teams, or franchises, gave the power to use the trademarks to NFL Properties,
whom was owned equally and jointly by all 32 NFL teams. A defense for the NFL is that, even though
all the teams are separate entities, they are dependent on each other to
produce one product, the sport, and because NFL Properties had the sole power
to use the trademarks, the NFL franchises are effectively a single entity.
Even though the argument for the NFL makes
sense, the Supreme Court, ruled that the franchises lack the capacity to
operate as a single decisive unit. Again,
the Supreme Court seems to have added to the confusion regarding what is and
isn’t a single entity in the verbiage of their ruling. The article explains in depth how this case
could have cleared up both the Copperweld
and Dagher rulings, yet failed to do
so.
Criticisms
and Implications of the American Needle
Decision
This section of the article provides some
very rational criticisms of American
Needle and the implications of the decision on the sports industry and past
and future rulings. It seems as if American Needle only added to the
confusion and future rulings can be deemed unpredictable. The wording of §1
and the exact details of the inter-organizational setup are central in the
Supreme Courts’ rulings.
Implications
of the Article
Perhaps foreshadowed in the author’s assessment of the
implications, management should carefully determine the exact detail of how
they organize their inter-organizational business dealings. This is especially true if the company runs a
potential risk of having an antitrust case brought against them and they wish
to use the single entity defense.
Grow, Nathaniel. “American Needle And The
Future Of The Single Entity Defense Under Section One Of The Sherman Act.” American Business Law Journal 48.3
(2011): 449-501. Business Source Complete.
Web. 30 June 2012
