Bloomberg Law
Free Newsletter Sign Up
Bloomberg Law
Welcome
Go
Free Newsletter Sign Up

Penn State Case Tests Sports Merchandising’s Legal Foundation

July 20, 2022, 9:15 AM

The logic a federal judge used to deny Penn State a quick trademark win would eviscerate the foundation of the multi-billion dollar sports merchandise industry, attorneys say.

Judge Matthew W. Brann let alleged infringer Vintage Brand LLC proceed with counterclaims that Pennsylvania State University’s “ornamental” use of its logos on shirts and other merchandise fails to function as trademarks.

The opinion summarized the decades-old history of sports and collegiate trademark licensing, and suggested the modern licensing regime imposed on apparel makers may be, legally speaking, “built on sand.”

At the heart of the debate is whether designs on apparel function as trademarks—indicators of who made or sponsored the product. But Brann noted that consumers have been conditioned to believe, possibly falsely, that you can’t reference a team on a shirt without a license from the team. He pointed to scholars who say trademark law wasn’t designed to grant rights to all decorative trademark uses, and who note that cutting off competition inherently results in higher prices and lower quality merchandise.

One of those scholars, law professor Mark Lemley of Stanford University, agreed that until the 1970s, no one would have thought trademark rights allowed sports teams and academic institutions to block ornamental uses of their trademarks on clothes.

“Everybody in the industry assumes ‘this is ours, we have a right to it,’” Lemley said. “But the case law doesn’t really bear that out, and the logic of trademark law doesn’t bear that out.”

But trademark attorney Jennifer Van Kirk of Lewis Roca Rothgerber Christie LLP said it was “a pretty strange opinion” that read like a law review article, “calling into question the basic tenets of merchandising.” She said licensing is critical to sports teams and universities and noted that brands like Nike and Louis Vuitton often don’t make their own products either.

“It’s strange and out of touch with how business happens, in terms of affixing a trademark on products,” Van Kirk said. “Under this court’s reasoning, because that shoemaker is not the manufacturing source of the product, maybe that is not protected.”

Circular Logic?

The US Court of Appeals for the Ninth Circuit held last year that “Lettuce Turnip the Beet” didn’t merit trademark protection because the phrase on a shirt was ornamental and aesthetically functional—its primary purpose wasn’t what it said about who produced it.

Vintage—which sells college sports merchandise, often using outdated college logos—likewise argues consumers don’t care who made or even licensed fan gear; fans just want to express support for their team. Like Penn State, several other universities have sued the company.

Brann’s decision denied Penn State’s motion to quickly ax Vintage counterclaims seeking to cancel their marks. He refused to accept on its face that the marks functioned as trademarks, saying there at least needs to be a fact-intensive inquiry about consumer perception and the degree to which Penn State exercised control over the products’ quality.

But Brann went further, questioning the underpinning of the “modern collegiate trademark- and licensing-regime.” He said courts have struggled with whether brand owners can impose trademark rights when “consumers are purchasing the products not for their guaranteed quality, but to signal their support for or affiliation with the trademark holder.”

Trademark law hinges on consumer perception, and Van Kirk said consumers generally know that fan gear requires a team license. But Brann called the logic “circular” because consumer perception perhaps stemmed from an incorrect interpretation of trademark law, and it “would seem perverse to award market exclusivity based on a fake-it-until-you-make-it approach.”

Trademark attorney Antony J. McShane of Neal, Gerber & Eisenberg LLP said Brann’s “circular” claim was, itself, “circular.” He said the desire to buy and wear something with a trademark on it, ornamental or not, ties directly to the work the entity did creating and building up the brand.

“One person’s fandom is another person trading on another person’s mark,” McShane said, noting that anyone can make and wear their own Penn State merchandise, just not profit off the school’s goodwill. “I think he’s created an intellectual loop that doesn’t go anywhere. And it undermines the concept of developing a brand and expanding it.”

He and Van Kirk noted that the US Patent and Trademark Office recognizes a mark can indicate a “secondary source” of a product. To obtain that kind of protection, a brand owner has to have registered their mark for other services—like sports entertainment or educational services—and consumers must recognize the mark as indicating the source or sponsor.

“Penn State has certainly already registered for its primary business of education,” McShane said. “I think this is a case where Penn State wins ultimately.”

Lemley, the Stanford professor, said the reach of trademark law has gotten out of hand. He pointed to a fight between universities and Smack Apparel. The Fifth Circuit found in 2008 that shirts using school colors and referencing their football teams’ accomplishments or upcoming games—without even naming the school or using any trademarks—clearly nodded to the schools and would likely cause confusion.

“To say the university is the only one that can communicate a message about the university is a problem,” Lemley said. “The thing the trademark owner is trying to own isn’t a connection between its brand and the product sold, it’s the image and the word itself.”

Surveying the Landscape

As the case proceeds, both sides will try to introduce survey evidence supporting their views of consumers’ perceptions, and their approaches will be critical, attorneys said.

Brann appeared to push back on the notion that merely showing consumers believe a license was required would be enough for Penn State, trademark attorney John Strand of Wolf, Greenfield & Sacks PC said. Instead, the judge signaled the inquiry would be whether Penn State gave its stamp of approval and put its reputation on the line, he said.

“If a consumer buys a shoddy Penn State sweatshirt, are they going to think less of Penn State or their products?” Strand said. “If yes, there may be good reasons Penn State has trademark protection, and the right to stop people from creating ornamental shirts.”

Vintage, meanwhile, will want to show consumers don’t care who made their Penn State shirt, or even don’t believe a license is required.

But Van Kirk said that shouldn’t matter. The question is whether average consumers would assume a trademark owner sponsored a product, she said.

“Under that logic, counterfeiting is okay too. People buy fake luxury handbags knowing they’re fake, wanting to look like they have a Louis Vuitton bag or whatever,” Van Kirk said. “But that doesn’t make it okay.”

‘Big Evil University’

Strand said he doesn’t necessarily see a clear legal winner if surveys say consumers both believe a license is required—but also don’t care and view the marks as ornamental expressions of their fandom. A jury decision could set the stage for more challenges by other potential competitors.

He also said that while the core questions at issue invoke all trademarks, Vintage has generally steered clear of using the primary logos currently predominant in university merchandise.

“I think it helps them with a story for the case that ‘this is a big evil university trying to crush competition,’” Strand said. “‘Penn State had these old logos and doesn’t use them anymore. We think they’re great logos and want to sell them on t-shirts and they’re not letting us do that.”

Lemley said Penn State may want to keep pushing its case to lock in its rights over Vintage, but it also may deem the risk of an adverse precedent too great. If the Third Circuit issued an opinion that adopted Brann’s reasoning, it could upend the school’s licensing rights and force it to compete with other sellers of Penn State gear.

“It’s very much going to be a case to watch. The trademark bar and sports associations are going to be interested in it,” Lemley said. “Unless the parties run quickly to settle, we’ve not heard the last of it.”

To contact the reporter on this story: Kyle Jahner in Washington at kjahner@bloomberglaw.com

To contact the editors responsible for this story: Adam M. Taylor at ataylor@bloombergindustry.com; Jay-Anne B. Casuga at jcasuga@bloomberglaw.com