The judgment is vacated, and the case is remanded with instructions to enter a judgment dismissing the suit with prejudice.
By law, the Copyright Royalty Board sets the terms and rates for copyright royalties when copyright owners and licensees fail to negotiate terms and rates themselves. As part of its statutory mandate, the Board sets royalty terms and rates for what is known as the § 115 statutory license. That license allows individuals to make their own recordings of copyrighted musical works for distribution to the public without the consent of the copyright owner.
In carrying out its statutory responsibilities under 17 U.S.C. § 115, the Board instituted a 1.5 percent per month late fee for late royalty payments. It also implemented a pennyrate royalty structure for cell phone ringtones, under which copyright owners receive 24 cents for every ringtone sold using their copyrighted work.
The Recording Industry Association of America challenges those two aspects of the Board’s decision, arguing that they were arbitrary and capricious for purposes of the Administrative Procedure Act. We conclude that the Board’s decision was reasonable and reasonably explained. We therefore affirm the Board’s determination.
Respondent National Football League (NFL) is an unincorporated association of 32 separately owned professional football teams, also respondents here. The teams, each of which owns its own name, colors, logo, trademarks, and related intellectual property, formed respondent National Football League Properties (NFLP) to develop, license, and market that property. At first, NFLP granted nonexclusive licenses to petitioner and other vendors to manufacture and sell team-labeled apparel. In December 2000, however, the teams authorized NFLP to grant exclusive licenses. NFLP granted an exclusive license to respondent Reebok International Ltd. to produce and sell trademarked headwear for all 32 teams. When petitioner’s license was not renewed, it filed this action alleging that the agreements between respondents violated the Sherman Act, §1 of which makes “[e]very contract, combination … or, conspiracy, in restraint of trade” illegal. Respondents answered that they were incapable of conspiring within §1’s meaning because the NFL and its teams are, in antitrust law jargon, a single entity with respect to the conduct challenged. The District Court granted respondents summary judgment, and the Seventh Circuit affirmed.
Held: The alleged conduct related to licensing of intellectual property constitutes concerted action that is not categorically beyond §1’s coverage. Pp. 4–20.
(a) The meaning of “contract, combination … , or, conspiracy” in §1 of the Sherman Act is informed by the Act’s “ ‘basic distinction between concerted and independent action.’ ” Copperweld Corp. v. Independence Tube Corp. , 467 U. S. 752 . Section 1 “treat[s] concerted behavior more strictly than unilateral behavior,” id. , at 768, because, unlike independent action, “[c]oncerted activity inherently is fraught with anticompetitive risk” insofar as it “deprives the marketplace of independent centers of decisionmaking that competition assumes and demands,” id. , at 768–769. And because concerted action is discrete and distinct, a limit on such activity leaves untouched a vast amount of business conduct. That creates less risk of deterring a firm’s necessary conduct and leaves courts to examine only discrete agreements. An arrangement must therefore embody concerted action in order to be a “contract, combination … or, conspiracy” under §1. Pp. 4–6.
(b) In determining whether there is concerted action under §1, the Court has eschewed formalistic distinctions, such as whether the alleged conspirators are legally distinct entities, in favor of a functional consideration of how they actually operate. The Court has repeatedly found instances in which members of a legally single entity violated §1 when the entity was controlled by a group of competitors and served, in essence, as a vehicle for ongoing concerted activity. See, e.g., United States v. Sealy, Inc. , 388 U. S. 350 . Conversely, the Court has found that although the entities may be “separate” for purposes of incorporation or formal title, if they are controlled by a single center of decisionmaking and they control a single aggregation of economic power, an agreement between them does not constitute a “contract, combination … or, conspiracy.” Copperweld, 467 U. S., at 769. Pp. 6–10.
(c) The relevant inquiry is therefore one of substance, not form, which does not turn on whether the alleged parties to contract, combination, or conspiracy are part of a legally single entity or seem like one firm or multiple firms in any metaphysical sense. The inquiry is whether the agreement in question joins together “separate economic actors pursuing separate economic interests,” Copperweld, 467 U. S., at 768, such that it “deprives the marketplace of independent centers of decisionmaking,” id. , at 769, and therefore of diversity of entrepreneurial interests and thus of actual or potential competition. If it does, then there is concerted action covered by §1, and the court must decide whether the restraint of trade is unreasonable and therefore illegal. Pp. 10–11.
(d) The NFL teams do not possess either the unitary decisionmaking quality or the single aggregation of economic power characteristic of independent action. Each of them is a substantial, independently owned, independently managed business, whose “general corporate actions are guided or determined” by “separate corporate consciousnesses,” and whose “objectives are” not “common.” Copperweld , 467 U. S., at 771. They compete with one another, not only on the playing field, but to attract fans, for gate receipts, and for contracts with managerial and playing personnel. See, e.g., Brown v. Pro Football, Inc. , 518 U. S. 231 . Directly relevant here, the teams are potentially competing suppliers in the market for intellectual property. When teams license such property, they are not pursuing the “common interests of the whole” league, but, instead, the interests of each “corporation itself.” Copperweld , 467 U. S., at 770. It is not dispositive, as respondents argue, that, by forming NFLP, they have formed a single entity, akin to a merger, and market their NFL brands through a single outlet. Although the NFL respondents may be similar in some sense to a single enterprise, they are not similar in the relevant functional sense. While teams have common interests such as promoting the NFL brand, they are still separate, profit-maximizing entities, and their interests in licensing team trademarks are not necessarily aligned. Nor does it matter that the teams may find the alleged cooperation necessary to compete against other forms of entertainment. Although decisions made by NFLP are not as easily classified as concerted activity, the NFLP’s decisions about licensing the teams’ separately owned intellectual property are concerted activity and thus covered by §1 for the same reason that decisions made directly by the 32 teams are covered by §1. In making the relevant licensing decisions, NFLP is “an instrumentality” of the teams. Sealy, 388 U. S., at 352–354. Pp. 11–17.
(e) Football teams that need to cooperate are not trapped by antitrust law. The fact that the NFL teams share an interest in making the entire league successful and profitable, and that they must cooperate to produce games, provides a perfectly sensible justification for making a host of collective decisions. Because some of these restraints on competition are necessary to produce the NFL’s product, the Rule of Reason generally should apply, and teams’ cooperation is likely to be permissible. And depending upon the activity in question, the Rule of Reason can at times be applied without detailed analysis. But the activity at issue in this case is still concerted activity covered for §1 purposes. Pp. 18–19.
538 F. 3d 736, reversed and remanded.
Stevens, J., delivered the opinion for a unanimous Court.
This case arises out of a complex set of contractual relationships between the Wisconsin Alumni Research Foundation, the patent-management entity for the University of Wisconsin; certain research scientists at the University; and Xenon Pharmaceuticals, a Canadian drug company. The Foundation and Xenon jointly own the patent rights to an enzyme that can lower cholesterol levels in the human body. The enzyme’s cholesterol-reducing benefits were discovered and confirmed by scientists at the University whose research was sponsored in part by Xenon. In 2001, pursuant to an option agreement between the Foundation and Xenon, the Foundation gave Xenon an exclusive license to commercialize this discovery and market any resulting products in exchange for a share of the profits.
The Foundation brought this suit against Xenon alleging violations of its contract rights and seeking damages and declaratory relief. First, the Foundation alleged that Xenon sublicensed its interest in the patented enzyme to a third party but refused to pay the Foundation a percentage of the sublicense fees as required under the 2001 license agreement. Second, the Foundation alleged that Xenon wrongly asserted ownership over a set of therapeutic compounds developed from the jointly patented enzyme; the Foundation claimed that it owned rights to these compounds pursuant to its network of written agreements with Xenon and the University researcher who confirmed the therapeutic benefits of the compounds. Xenon counterclaimed against the Foundation, and on cross-motions for summary judgment, the district court ruled in the Foundation’s favor on the breach-of-contract claim and in Xenon’s favor on the dispute over ownership of the compounds. A jury awarded $1 million in damages for the breach of contract; the Foundation accepted $300,000 after Xenon successfully moved for remittitur. Both parties appealed.
In 1983, NOVA Chemicals, Inc. and Sekisui Plastics, Co., Ltd. entered into a License Agreement under which NOVA was permitted to use a new process to produce a Styrofoam-type product called Piocelan. Under the agreement, NOVA was permitted to sell Piocelan products anywhere in the world, except in certain Asian countries. Nearly twenty years later, NOVA began selling Piocelan products in the Asian countries excluded from the License Agreement. After Sekisui objected that NOVA was in violation of the License Agreement, NOVA filed a complaint seeking declaratory relief. In granting summary judgment in favor of NOVA, the District Court determined that, based on the plain language of the License Agreement, all of its terms expired in 1995. Although we find certain portions of the License Agreement are ambiguous, we agree with the District Court that there is no reasonable interpretation of the agreement under which NOVA has any continuing obligations to Sekisui. Accordingly, we will affirm.