The Supreme Court seemed likely to deny the National Football League its long-sought goal of broad protection from antitrust suits, the big issue behind a narrower case concerning a license for making souvenir caps.
Each of the NFL's 32 teams is separately owned, but they must operate collectively when it comes to the rules of the game or playoff schedules. That sets sports teams apart from other businesses, where agreements among competitors can run afoul of antitrust law if trade is restrained and consumers are hurt.
At oral argument Wednesday, the question was how far the league's business model requires that the teams be treated as a single entity. An Illinois cap maker says the NFL violated antitrust law by selling a 10-year monopoly license for making souvenir caps to a single outfit, Reebok, a unit of Germany's Adidas AG.
Gregg Levy, representing the NFL, argued that NFL souvenirs should not be treated as ordinary products under competition laws because they were conceived as a promotional tool for the sport rather than an independent source of profit.
"The purpose of the licensing here is to promote the product. It's to promote the game," he said.
Justice John Paul Stevens said that under Mr. Levy's theory, practically any joint venture by NFL teams would be immune from competition laws.
What if the NFL decided that selling houses was "the most effective way to raise the money to pay these players who make so much money?" he asked.
When Mr. Levy said such a venture was implausible, Chief Justice John Roberts replied that the other side "is just saying selling logos is closer to selling houses than it is to playing football." He suggested a trial was the place to sort out the facts. Lower courts ruled in the NFL's favor without requiring a trial.
Most of the justices seemed to agree with the chief justice. If the court's decision, expected by July, follows the justices' comments, the plaintiff, American Needle Inc. of Buffalo Grove, Ill., would get a chance to try to prove its claim at trial.
Beginning in the 1950s, American Needle licensed logos from NFL teams to make and sell souvenir caps. It lost the business after NFL Properties decided in 2001 to sell a monopoly license for nearly all teams—the Dallas Cowboys opted out—to Reebok. American Needle alleged a violation of the 1890 Sherman Antitrust Act.
The high stakes were underscored by the friend-of-the-court briefs filed. Major League Soccer, the National Association for Stock Car Auto Racing, the National Basketball Association, the National Collegiate Athletic Association and the National Hockey League all backed the NFL. Players' associations in the NFL, NBA, NHL and Major League Baseball all sided with American Needle.
A big win for the NFL could give team owners greater power to band together when negotiating contracts with players.
"No, your honor, that's not right," Mr. Levy said.
American Needle also took tough questions. Justice Stephen Breyer questioned the company's contention that requiring individual teams to make licensing deals would result in greater competition.
Using an analogy from baseball—a sport he and most justices are known to favor—Justice Breyer asked American Needle lawyer Glen Nager: "You want the Red Sox to compete in selling T-shirts with the Yankees, is that right?"
"The ability to compete, yes," Mr. Nager said.
"Okay. I don't know a Red Sox fan who would take a Yankees sweatshirt if you gave it away," said Justice Breyer, a former Harvard professor who once sat on the Boston federal appeals court.
Justice Anthony Kennedy suggested Mr. Nager was pushing for too broad a limit on the NFL's ability to act on behalf of the 32 teams, and said he was looking for a "zone" of NFL activity where it could be safe from antitrust scrutiny.
