Let’s face it; the embroidery industry is not very sexy. It is not the most glamorous and it doesn’t often grab front page headlines. It is just a group of companies like Thread Logic providing a valuable service to our customers and good jobs for our economy. Pretty innocuous stuff.
But that changed a little in the spring of 2010. An embroidery company called American Needle initiated a suit against the NFL in what Sports Illustrated called “the most important ruling is sports history.”
For 45 years, American Needle had been producing officially licensed hats for the NFL’s 32 teams. Then, in 2000, the NFL decided to eliminate the practice of contracting with companies like American Needle and awarded an exclusive hat contract to Reebok.
In an instant, 25% of American Needles’ business, worth millions of dollars, was gone.
The NFL’s rationale for the move was an increase in efficiency and uniformity of product quality. From American Needle’s perspective it was 32 separate businesses conspiring to remove competition, in violation of the Sherman Anti-Trust Act.
“What you had was the prices going down because there was a lot of competition,” says Carey, American Needle’s in-house counsel. “So the NFL had to stabilize the prices, and to do that, you had to eliminate the competition. That’s what the NFL did.”
It is a classic David vs. Goliath fight. And one the NFL welcomed. For years, the NFL (and the NBA and NHL) fought antitrust suits brought against the league. But if the NFL could get the high court to rule it was a single entity and not 32 separate entities, it would stop any future antitrust suits against the league.
During arguments before the Supreme Court, the Obama Administration stepped in, filing an amicus brief in support of American Needle and arguing that the Court should reject the NFL’s single entity argument and send the case back to the lower courts for reconsideration under the premise that the NFL is comprised of 32 separate companies.
That’s exactly what the high court did. In May, the nine Supreme Court justices returned a stunning verdict: 9-0 against the NFL.
The case will now go back to the lower courts, but this time the NFL cannot argue that it is a single entity.
If the lower court finds that the NFL’s exclusive licensing agreement is pro-competitive, the NFL wins. If not, then an American Needle victory could preclude exclusive professional sports licensing by leagues, and open up new markets – with possibly 32 professional football clubs as separate entities – for smaller embroiderers to compete with Reebok and other giants of the sports apparel world.
Of course this court case is important beyond that of embroidery companies. This ruling keeps markets open for other licensed products where companies can compete. For smaller companies, which are the backbone of the American economy, that is very important.