By James Vicini

WASHINGTON, Jan 13 (Reuters) - The U.S. Supreme Court considered on Wednesday 13 January whether a lawsuit against the National Football League under federal antitrust law should go forward in a dispute over an exclusive licensing deal for sports merchandise.

Photo: www.colts.com/A.J.Macht 2009

In a closely watched case, the high court during the arguments seemed unlikely to issue a broad ruling sought by the NFL giving it immunity from such lawsuits and protecting professional sports leagues from antitrust scrutiny.

Instead, the justices appeared likely to rule more narrowly, sending the case back to a lower court to determine if the deal at issue had been reasonable under antitrust law. Such a ruling still would be a defeat for the NFL.

Justice Sonia Sotomayor questioned the argument by the NFL's attorney: "You are seeking from this ruling what you haven't got from Congress -- an absolute bar on antitrust claims."

After the arguments, the Supreme Court took the case under advisement, with a ruling expected by the end of June.

Glen Nager, an attorney for American Needle Inc, a clothing manufacturer in Buffalo Grove, Illinois, argued the NFL and its 32 teams can be sued under the antitrust laws for signing an exclusive licensing deal with Reebok International in 2001.

American Needle, a former licensee of the NFL, challenged the deal, which offered Reebok an exclusive license for 10 years. It argued the NFL was 32 separate business entities and not a "single entity" as the professional sports league said.

Germany's Adidas AG (ADSG.DE) bought Reebok in 2006 for $3.8 billion in a move to boost its U.S. presence.

American Needle said basic fitted caps now sell for $30, up from $19.99 a few years ago.

A federal judge in Chicago and then a U.S. appeals court ruled against American Needle, prompting its appeal to the Supreme Court.

The Obama administration partly sided with American Needle and urged the Supreme Court to rule that judges should review sports antitrust disputes on a case-by-case basis. It said the case should be sent back to Chicago for further proceedings.

Gregg Levy, representing the NFL, argued the league's decision about how best to promote NFL football was by a single entity and that, as a result, the lawsuit had been properly dismissed.

NFL SAID TO SEEK ANTITRUST IMMUNITY

Sotomayor, Justices Stephen Breyer and John Paul Stevens and Chief Justice John Roberts all asked questions on why the lawsuit should not be sent back to determine if the deal had been reasonable or had hurt competition.

Roberts said a trial may be necessary to resolve a factual dispute about whether the deal's purpose was to make more money for the league, as American Needle argues, or to promote football, as the NFL says.

The justices asked a number of hypothetical questions.

Breyer asked whether the teams compete against each other on sports merchandise and used the Boston and New York baseball teams in his example. "I don't know a Red Sox fan who would take a Yankees T-shirt if you gave it away," he said.

Justice Anthony Kennedy asked whether the NFL could be sued for a rule change that gives the quarterback more protection and hurts teams that run the football more.

Under antitrust law, owners can be liable for triple damages. "This is serious stuff," Kennedy said.

Attorneys for the NFL Players Association did not take part in the oral arguments. But they said the 32 teams are separately owned business entities that compete vigorously against one another in numerous markets.

Of the $7.6 billion in total revenue generated in 2008 by the NFL, about $4.5 billion came from revenue sources with prices independently set by individual teams, they said.

The National Basketball Association and the National Hockey League have supported the NFL before the Supreme Court. The case would not affect Major League Baseball, which already has an antitrust exemption on many issues.

The case is American Needle v. National Football League, No. 08-661. (Additional reporting by Ben Klayman in Chicago; Editing by Matthew Bigg and John Wallace)