Beginning in 1922 with the Supreme Court’s decision in Federal Baseball Club of Baltimore v. National League of Professional Baseball, professional sports leagues have been involved in antitrust litigation. In those cases, the parties often disagree about the relevant product market, and particularly whether the relevant product is the league as a whole that competes against other sports leagues and forms of entertainment, or whether the relevant product is the individual team that competes with other individual teams in the league?
The Northern District of California recently addressed this question in a challenge to the NFL’s licensing practices in Dang v. San Francisco Forty Niners, 2013 WL 3989946, at *1 (N.D. Cal. Aug. 5, 2013). Historically, the NFL had licensed, on a non-exclusive basis, teams’ collective trademarks and logos to clothing apparel manufacturers. In December 2000, however, the NFL entered into an exclusive licensing agreement with a single apparel manufacturer. The plaintiff in Dang, a retail purchaser of NFL-licensed apparel—the complaint did not identify the item purchased—alleged that the exclusive licensing agreement created both an unlawful horizontal conspiracy (among the NFL and the individual teams) and an unlawful vertical conspiracy (among the NFL, the individual teams, and the apparel manufacturer) to restrain competition in the markets for NFL licenses and NFL-licensed apparel.
The defendants moved to dismiss the complaint on the grounds, among others, that the plaintiff had alleged an impermissibly narrow, single-product relevant market of NFL-licensed apparel. According to the defendants, the relevant product market must also include other licensed apparel, such as for other professional sports teams, college sports teams, or popular designer name clothing.
The district court accepted the plaintiff’s argument that it had plausibly alleged that, absent the anticompetitive conduct, each individual NFL team would compete with other teams for licensing revenue from clothing apparel. Thus, the plaintiff had properly “allege[d] a market consisting of the intellectual property of at least thirty different and competing professional football teams as well as the intellectual property owned by the NFL itself.” Id. at *4.
The district court’s ruling sets up a difficult factual issue for the merits phase. The relevant market typically includes those products that the consumer considers reasonably interchangeable, i.e., products that have a high cross-elasticity of demand. At the merits phase, therefore, it appears the plaintiff will have to prove that consumers—football fans—are willing to change their allegiance based on a small but significant price increase of their favorite team’s clothing.
This would produce results that most football fans would find absurd: A five percent increase in the price of a New York Giants jersey would cause a Giants fan to switch to a Dallas Cowboys, Washington Redskins, or a Philadelphia Eagles jersey. In all likelihood, rather than buying a rival team’s apparel, a Giants fan would substitute, as the defendants argued in their motion to dismiss, apparel from his or her favorite college team, baseball team, or clothing designer.
The plaintiff seems to have anticipated this problem by identifying two classes of consumers who might be willing to switch their apparel choice based on price. The complaint alleges that consumers who are not professional football fans, and consumers who live in different metropolitan areas over the course of their lives, would both substitute one team’s apparel for another due to a change in price. Intuitively, however, it seems questionable that these consumers, if they can be identified, would comprise a large segment of the market for NFL-licensed apparel.
As the case progresses, it will be interesting to see the parties’ respective experts dig into the data to determine what portion of consumers are fans unalterably loyal to their team when choosing their apparel, and what portion would be influenced by a change in price.
