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Young Lawyers Division Antitrust Committee

Section 1 Update: Single Entity Defense

February 23, 2010

Presented by:

Svetlana S. Gans

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The Copperweld Doctrine

Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984).

A parent and its wholly owned subsidiary have complete unity of interest and are incapable of conspiring in violation of Section 1 of the Sherman Act.

“Their objectives are common, not disparate; their general corporate actions are guided or determined not by two separate corporate consciousnesses, but one. They are not unlike a multiple team of horses drawing a vehicle under the control of a single driver. . . . If a parent and a wholly owned subsidiary do “agree” to a course of action, there is no sudden joining of economic resources that had previously served different interests, and there is no justification for § 1 scrutiny.” (Id. at 771)

“[S]ubstance, not form, should determine whether a separately incorporated entity is capable of conspiring under § 1.” (Id. at 773 fn21)

The Court left open the question as to whether a parent company may be liable for conspiring with an affiliated corporation it does not completely own. (Id. at 767)

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The Copperweld Doctrine

• Copperweld has been extended to bar antitrust claims against parent entities and less-than wholly-owned subsidiaries.

Leasco Enters. v. Glen Elec. Co., 737 F. Supp. 605 (D. Or. 1990) (91.9% is a de minimus departure from total ownership). Coast Cities Trust Sales, Inc. v. Navistar Int’l Transp. Co., 912 F. Supp. 747 (D.N.J. 1995) (70% owned dealerships incapable of conspiring with parent entity). Novatel Commc’ns Inc. v. Cellular Tel. Supply, Inc., No. 85-2674A, 1986 WL 15507 (N.D. Ga. Dec. 23, 1986) (51% owned subsidiary incapable of conspiring with parent entity). But see, Sonitrol of Fresno, Inc. v. Am. Tel. & Tel., Civ. A. No. 83-2324, 1986 WL 953 (D.D.C. Apr. 30, 1986) (AT&T had capacity to conspire with 32% and 23% owned subsidiaries).

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The Copperweld Doctrine

Copperweld has also been extended to companies and their agents and dealers, in the franchisor-franchisee context and other affiliations.

Pink Supply Corp. v. Hiebert, Inc., 788 F.2d 1313 (8th Cir. 1986) (furniture supplier and sales agents).Oksanen v. Page Mem. Hosp., 945 F.2d 696 (4th Cir. 1991) (en banc) (hospital and its medical staff). William v. Nevada, 794 F. Supp. 1026 (D. Nev. 1992), aff’d, 999 F.3d 445 (9th Cir. 1993) (franchisor and franchisees). Day v. Taylor, 400 F.3d 1272 (11th Cir. 2005) (rental truck company and independent dealers).

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The Copperweld Doctrine

In many situations, even if Copperweld does not apply, when independent economic actors gather together to produce a new product, their conduct will be subject to rule of reason.

DOJ/FTC Competitor Collaboration Guidelines (Apr. 2002) (joint ventures may be pro-competitive).

Broadcast Music, Inc. v. Columbia Broad. Sys., Inc., 441 U.S. 1 (1979). Columbia Broadcasting System argued that blanket license fees imposed by ASCAP and BMI constituted per se price fixing; Court found per se analysis was inapplicable; Blanket license was not restraint of trade but rather accompanied the integration of sales, monitoring, and enforcement against unauthorized copyright use. (Id. at 20); “ASCAP, in short, made a market in which individual composers are inherently unable to compete fully effectively.” (Id. at 22-23)“Joint ventures and other cooperative arrangements are also not usually unlawful at least not as price fixing schemes, where the arrangement on price is necessary to market the product at all.” (Id. at 23)

NCAA v. Bd. of Regents, 468 U.S. 85, 117 (1984) ("a certain degree of cooperation is necessary if the type of competition that petitioner and its member institutions seek to market is to be preserved." However, NCAA’s restrictions on member institutions’ ability to enter into separate contracts to license games were unreasonable).

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Texaco Inc. v. Dagher, 547 U.S. 1 (2006).

Texaco Inc. and Shell Oil Co. operated a joint venture Equilon Enterprises to refine and sell gasoline in the western United States under their individual brand names.

Gas operator sued under § 1 for per se price fixing because gas pricing was uniform. Court reversed Ninth Circuit and found the joint venture constituted a single entity under

Copperweld. Texaco and Shell did not compete against each other in the relevant market, but rather

operated through the joint venture. “[T]he pricing policy challenged here amounts to little more than price setting by a single

entity – albeit within the context of a joint venture – and not a pricing agreement between competing entities with respect to their competing products.” (Id. at 6)

“As a single entity, a joint venture, like any firm, must have the discretion to determine the prices of the products that it sells, including the discretion to sell a product under two different brands at a single unified price.” (Id. at 7)

Joint Ventures as Single Entities

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Expansion of Copperweld to Sports Leagues

Generally, restraints imposed by sports leagues are subject to rule of reason analysis, and leagues have not been deemed to be single entities under Copperweld. See, e.g., Sullivan v. NFL, 34 F.3d 1091 (1st Cir. 1994); N. Am. Soccer League v. NFL, 670 F.2d 1249 (2d Cir. 1982); Los Angeles Mem’l Coliseum Comm’n v. NFL, 726 F.2d 1381 (9th Cir. 1984); McNeil v. NFL, 790 F. Supp. 871 (D. Minn. 1992); but see Seabury Mgmt. Inc. v. PGA, 878 F. Supp. 771 (D. Md. 1994), aff’d in relevant part, 52 F.3d 322 (4th Cir. 1994) (applying Copperweld to Professional Golf Association).

The Seventh Circuit left open the possibility that the NBA may be a single actor in Chicago Prof’l Sports Ltd. P’Ship v. Nat’l Basketball Ass’n, 95 F.3d 593 (7th Cir. 1996). Distinguishing NCAA, the court noted that “the NBA has no existence independent of sports[;] [i]t makes professional basketball; only it can make ‘NBA Basketball’ games; and unlike the NCAA the NBA also ‘makes’ teams.” In the context of selling broadcast rights and advertising, “‘NBA Basketball’ is one product from a single source,” and “when acting in the broadcast market the NBA is closer to a single firm than to a group of independent firms . . . .” Id. at 599.

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Expansion of Copperweld to Sports Leagues: American Needle

American Needle, Inc. v. NFL, 538 F.3d 736 (7th Cir. 2008).

The NFL is an unincorporated association of 32 separately owned and operated football teams. NFL Properties was formed in 1963 to develop, license and market the teams’ intellectual property and conduct advertising and promotional campaigns. The NFL and its teams granted NFLP the exclusive right to license their trademarks and logos, though each team retained ownership of its intellectual property.

American Needle sued the NFL and NFL Properties for decision to award exclusive license to Reebok, a competing headwear licensee.

District court granted the defendants summary judgment.

On appeal, American Needle argued that district court employed the wrong analysis. District court analyzed whether the NFLP acted as a single entity in licensing. The correct inquiry, according to American Needle, was whether the agreement to license “deprived the market of sources of economic power that control the intellectual property.” (Id. at 742) American Needle argued that if the individual teams can license independently of the NFL, the NFL, the NFLP and teams cannot be considered a single entity.

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Expansion of Copperweld to Sports Leagues: American Needle

The Court of Appeals disagreed with American Needle.

“[W]e are not convinced that the NFL’s single entity status in the present context turns entirely on whether the league’s member teams can compete with one another when licensing and marketing their intellectual property.” (Id. at 743)

NFL can only function when the activities are carried out jointly. “It thus follows that only one source of economic power controls the promotion of NFL

football; it makes little sense to assert that each individual team has the authority, if not the responsibility, to promote the jointly produced NFL football.” (Id.)

Nothing in Section 1 prohibits the NFL from cooperating so that the league can compete against other entertainment providers.

“[T]he NFL teams are best described as a single source of economic power when promoting NFL football through licensing the teams’ intellectual property.” (Id. at 744)

Parties appealed.

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Expansion of Copperweld to Sports Leagues: American Needle

American Needle – Supreme Court argument. Oral argument before Supreme Court (1/13/10). Justices seemed concerned about a per se legality rule immunizing NFL against all

challenges under Sherman Act Section 1. Justices questioned whether licensing of trademarks/sale of apparel and promotion of

football were one in the same. Questions suggested some Justices may be concerned that single entity defense

might prematurely cut off inquiry into conduct that should be subject to antitrust scrutiny under rule of reason.

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Counseling Tips:

Corporate form may not always insulate companies from antitrust scrutiny. Most cases have been decided on summary judgment motions – after discovery.

Courts will continue to look beyond the corporate form to determine whether the single entity defense applies. Courts will continue to ask: do the entities have disparate economic interests? Do the companies operate as one entity?

Continue to document the pro-competitive benefits of the venture. Ask if the restraint is necessary for the venture to operate. Is it an ancillary restraint to an otherwise legitimate venture?

American Needle will have profound effects if the Supreme Court sides with the NFL. Decision may not only affect NFL activities, but also other sports leagues and joint ventures generally.

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Professional Biography

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Svetlana S. Gans focuses her practice on antitrust and other complex commercial litigation, criminal antitrust matters, merger review, and client counseling.

Ms. Gans’ civil antitrust experience includes representing clients in federal and state courts (both in individual and class-actions) and before the Antitrust Division and Federal Trade Commission relating to various pricing, distribution, and advertising practices, spanning numerous industries. She has experience representing clients before the FTC on consumer protection issues such as the FCRA. She also represents companies and executives involved in DOJ grand jury proceedings, serves as counsel to trade associations, and assists clients with antitrust compliance programs, internal investigations and compliance reporting under DOJ and FTC consent decrees. Ms. Gans also has experience in complex litigation involving Racketeer Influenced and Corrupt Organizations Act (RICO) and unfair and deceptive trade practices claims.

Ms. Gans is active in the American Bar Association’s Antitrust Section Leadership. She has served as vice chair of the Books and Treatises Committee (2004-2008) and currently serves as vice chair of the Business Torts and Civil RICO Committee (2009-present) and the Young Lawyer Division Antitrust Committee’s liaison to the Antitrust Section (2009-2011). Ms. Gans serves on the firm’s associate life, professional development and pro bono committees. She previously served as an Honors Program Paralegal for the Antitrust Division’s Merger Task Force, as a judicial intern for Judge John L. Kane (D. Colo.), and speaks fluent Russian.

EducationUniversity of Denver College of Law, J.D., with high honors

Boston University, B.A., B.S., cum laude

Svetlana S. Gans,Associate202.639.4732