Game Industry Gets Some Governmental Attention Today

Posted by Dan on March 6, 2009

As Game Politics has reported, today was a banner day for the game industry gaining notice in state and local legislatures. Mike and Jerry (or more commonly known as Gabe and Tycho) from Penny Arcade received honors from thw Washington State Senate commending them for the Penny Arcade Expo:

WHEREAS, Jerry Holkins and Mike Krahulik recently celebrated the comic’s 10th anniversary;
and WHEREAS, In 2004, Jerry Holkins and Mike Krahulik launched the first annual Penny
Arcade Expo, a gaming festival… and WHEREAS, The Penny Arcade Expo attracts thousands of tourists from around the globe to visit the city of Seattle…

 (continued, .PDF link)

In addition, the City of San Diego has named March 10th to be Sony Online Entertainment Day, for 10 years running Everquest. (Sony forum post)

Congratulations to all involved on their achievements.

Once place, however, where the game industry was not so well received was in Philly, where GamePolitics covered the latest video game violence hearings via Twitter. From the looks of it, it didn’t go so well, and there were some misconceptions. Similarly, in Britain, hearings about implementing the Byron report were apparently well received.

On the judicial side of things, the Supreme Court has requested the Solicitor General’s advisory opinion in the case of American Needle v. New Orleans Saints. SCOTUSblog has an excellent summary of the case:

The case raises a core question of antitrust law: what kind of joint ventures, perhaps including pro sports leagues, are immune to the Sherman Act because they may qualify as “single entities”?  To American Needle, it is all about whether it is going to be allowed to compete with Reebok International, Ltd.., to sell league-sanctioned sports apparel, like hats.

The NFL used to license American Needle to sell hats that bore the logos, the names or other insignia of pro football teams.  That was when NFL Properties was allowing various companies the right to produce goods bearing their trademarked imagery.  It was all part of an effort to build up the public exposure of pro football as an event on which the public would spend its entertainment dollars.

But, in 2000, the NFL opted to solicit bids for an exclusive license to produce caps and other headwear.  Reebok won the bidding, and in 2001 got an exclusive ten-year license.  American Needle’s license was not renewed. So it sued the NFL, all of its teams, NFL Properties, and Reebok.

American Needle’s case was thrown out by lower courts.  Most of the discussion there focused on the Sherman Act’s Section 1.  It outlaws “every contract, combination in the form of trust or otherwise, or conspiracy” that seeks to restraint commercial activity among the states.  If an entity sued is considered a single operation, though, there is no one to “combine” or “conspire” with but itself, so the Sherman Act does not apply, as a general rule.

The Seventh Circuit Court, in rejecting American Needle’s Sherman Act claims last August, focused upon a premise that clearly led to its conclusion: that is, the NFL and its 32 teams are just one entity, at least for purposes of licensing their protected images for sale on consumer goods for fans.

“Certainly,” the Circuit Court said, “the NFL teams can function only as one source of economic power when collectively producing NFL football.  Asserting that a single football team could produce a football game is less of a legal argument than it is a Zen riddle. Who wins when a football team plays itself?”

Selling identifying goods to build itself up in the entertainment market, the Circuit Court found, is part of selling its single product: pro football games.  It concluded: “The NFL teams are best described as a single source of economic power when promoting NFL football through licensing the teams’ intellectual property, and we thus cannot say that the District Court was wrong to so conclude.”

The case, from a sports perspective of law, may turn on what the Supreme Court meant in the 1957 decision in Radovitch v. NFL.  There, as American Needle notes in its petition to the Supreme Court, the Justices ruled that the NFL is subject to antitrust liability for violations of Sherman Act Section 1.  The Court declined to extend to pro football and other sports leagues the antitrust immunity that major league baseball alone has had since an idiosyncratic 1922 Supreme Court ruling.

But, for businesses beyond big-time sports, American Needle’s case may be seen as more important for what it might lead the Court to say about the present meaning of a 1984 ruling, in Copperweld Corp. v. Independence Tube Corp.  There, the Court ruled that a parent corporation and its wholly-owned subsidiary can be treated as a single entity for antitrust purposes.

Lower courts have extended this approach to other arrangements, including affiliated companies involved in joint ventures.  American Needle argued that it is time for the Supreme Court to get involved again, at least as to pro sports.  It argues that the Seventh Circuit ruling not only conflicts with the Radovitch decision, but with rulings in six other federal Circuit Courts.

“The Court has stated, on more than one occasion,” American Needle asserted, “that application of the Sherman Act to professional sports teams is wholly consistent with Congressional inent.”  The Seventh Circuit, it added, “stands alone” in concluding otherwise.

There’s no deadline as to when the Solicitor General will be expected to respond, and it’s more than likely that given the recent nomination of Harvard Law School’s Dean Elena Kagan to the seat, that more pressing issues (such as the indefinite detention of military prisoners, something Kagan has supported and been especially criticized for) will take precedence over this antitrust case; I wouldn’t expect to hear back from the SG’s office this term.

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