State of Affairs for IP in Sports

The Pennsylvania State University v. Vintage Brand, LLC

The Pennsylvania State University (“Penn State”) sued Vintage Brand, LLC (“Vintage Brand”) for trademark infringement, alleging Vintage Brand was selling merchandise featuring Penn State's trademarks without a license. Pennsylvania State Univ. v. Vintage Brand, LLC, No. 4:21-CV-01091, 2024 WL 456139 (M.D. Pa. Feb. 6, 2024). The alleged infringing merchandise featured retro iterations of the Penn State logo. Vintage Brand countersued, questioning the validity of some of Penn State’s trademarks and arguing that many of Penn State's registered trademarks are merely ornamental and don't function as source identifiers, rendering them invalid (before the United States District Court of the Middle District of Pennsylvania).

The Heart of the Dispute: Ornamentation vs. Source Identifier

The crux of the dispute centers around whether Penn State's older logos and designs primarily serve as:

• Ornamentation: Merely decorative elements on apparel that consumers enjoy but don't associate with Penn State as the source of the goods.
• Source Identifiers: Trademarks that clearly indicate to consumers that the merchandise is officially connected with Penn State.

Vintage Brand argues that Penn State’s marks are merely ornamental and accordingly should have their registration canceled. A registration fails on this ground when its overall commercial impression is “solely as attractive ornamentation” and not “also as a symbol that identifies and distinguishes a single source.”[1] In assessing aesthetic ornamentation, the first half of this conjunctive requirement, courts look at the symbol’s “size, location[,] and dominance,” and whether it is accompanied by a ™ or ®.[2] The Court must also consider whether the marks “identify and distinguish” the goods.[3] This last requirement focuses on the Lanham Act’s definition of a trademark, thus broadening the analysis to the fundamental trademark question: is the mark a source identifier?[4]

The parties disagree on where Penn State’s marks stand between ornamental or source identifying. Vintage Brand argues that consumers see the marks on Vintage Brand’s products as a vehicle to show their support for Penn State as opposed to Penn State producing or licensing the products themselves.[5] Conversely, Penn State claims the marks are not ornamental for various reasons, citing, specifically, Vintage Brand’s use of a trademark notice when using the S Lion logo.[6] Penn State further cites survey evidence from its expert witness showing that consumers perceive the marks as Penn State’s trademarks.[7]

Potential Impacts on Trademark Law

The outcome of this case could significantly impact how courts interpret trademark law, especially regarding sports merchandising. This decision would likely lead to universities and other entities needing to proactively prove that older marks still function as source identifiers. If Vintage Brand succeeds in its defense, moving forward the burden likely shifts from the unauthorized retailer having to prove it is not infringing upon a mark to the mark holder proving the marks are still source identifying and not merely ornamental.

There is hope this decision will provide more clarity on what constitutes "ornamentation" in trademark doctrine and how it impacts the validity of a registered trademark. Clarification on this will give organizations a better idea of how to protect their intellectual property. Merchandisers will also have a better idea of how to comply with the law and still turn a profit.

Implications for the Sports Merchandising Industry

This case could also drastically reshape the sports merchandising landscape. If Vintage Brand succeeds, it will significantly narrow protection for all universities’ marks, particularly retro designs and logos. Unauthorized retailers may begin using similar marks without needing a license. These unauthorized retailers will take a big chunk out of merchandising revenue for countless entities in and out of the sports industry. Universities and sports teams will need to invest time and money into bolstering their trademark defense to protect their intellectual property rights if the ruling favors Vintage Brand.

Warner Chappell Music, Inc. v. Nealy

Warner Chappell Music, Inc. v. Nealy is based on the following facts: Sherman Nealy (“Nealy”) composed a song in 1988 and registered the copyright in 2018. Nealy v. Warner Chappell Music Inc., 60 F.4th 1325 (11th Cir. 2023). In 2008, without authorization, his composition was allegedly incorporated into derivative works, benefiting Warner Chappell Music, Inc. (“Warner”). Nealy then sued for infringement in 2018, which raised the statute of limitations questions. The case sits before the Supreme Court, oral arguments have now concluded, and the parties await an opinion.

The Dispute at Hand

This case centers around the appropriate application of the copyright statute of limitations (17 U.S.C. § 507(b)) and the "discovery rule":

• Statute of Limitations: 17 U.S.C. § 507(b) states that civil copyright actions must be brought within three years of accrual of the claim.
• Discovery Rule: A legal principle stating that the limitations period begins when the plaintiff knows, or reasonably should know, that they have suffered harm (in this case, copyright infringement).

Lower Courts' Rulings

Both the district court and the 11th Circuit Court of Appeals favored Nealy. The courts held that the discovery rule applies, allowing Nealy to bring suit despite exceeding the three-year period because he allegedly was unaware of the infringement until 2016. The 11th Circuit’s decision follows the 9th Circuit’s application of the discovery rule.

The 9th Circuit first applied its interpretation rule in Starz Entertainment LLC v. MGM Domestic Television Distribution LLC, stating, “the discovery rule . . . allows copyright holders to recover damages for all infringing acts that occurred before they knew or reasonably should have known of the infringing incidents and that the three-year limitations period runs from the date the claim accrued, i.e., from the date when the copyright holder knew or should have known of the infringement.”[8] The 11^th Circuit followed the 9th Circuit’s rationale; however, the 2nd Circuit’s rationale conflicts with the 11th and 9th Circuit’s.

The 2nd Circuit has held that a party can bring a suit for infringement that occurred more than three years before the lawsuit is filed; however, a party cannot recover damages from those infringements. The 2nd Circuit cites the prior Supreme Court case Petrella v. Metro-Goldwyn-Mayer, Inc. in its rationale, stating that the Supreme Court “explicitly asserted that ‘a successful plaintiff can gain retrospective relief only three years back from the time of suit’ and that ‘[n]o recovery may be had for infringement in earlier years’.”[9]

Implications of the Supreme Court Review

The Supreme Court's decision holds major implications for the entertainment industry and copyright law as a whole. First, there is the issue of retrospective damages. If the Supreme Court upholds the lower courts' rulings in favor of applying the discovery rule, copyright holders could potentially seek damages for infringements far beyond the three-year statutory limitation. This ruling would motivate more copyright holders to come forward with historical claims, potentially leading to a surge in older copyright infringement lawsuits. A surge of cases could lead to significant judicial bandwidth issues around the country. Second, if the discovery rule is broadly applied, it could create uncertainty for publishers and licensees, especially regarding works created decades ago. It would become challenging to know whether someone has a potential infringement claim from the distant past, leading to significant uncertainty for artists and publishers.

Implications for the Sports Industry

This case primarily tackles copyright law in the music industry. While the case doesn't directly focus on sports, its implications could indirectly affect sports teams’ operations.

Teams often use music for various purposes, including playing entrance themes, in-game entertainment, and promotional materials. In recent years, there has been a massive uptick in copyright infringement cases against sports teams and leagues for their use of music in video content on social media and in live broadcasts.[10] Some leagues and teams have negotiated settlements with music publishing companies. However, it still remains a massive headache for teams as they try to provide content and in-game music to fans without violating copyright law.[11] The Nealy case, if the Supreme Court expands the discovery rule, could lead to even greater scrutiny of whether teams are properly licensed for the music they use. This could involve teams needing to review existing licenses, ensure proper rights are secured, and potentially seek additional licenses for specific uses.

If the Nealy case results in more copyright infringement claims, it will impact the overall licensing landscape for music across various industries, including sports. This would increase licensing costs for sports teams, requiring them to budget for potential changes in music usage fees.

Best Practices for Organizations Moving Forward

In the face of a potential surge in copyright infringement cases, it is important for teams and organizations to take the proper steps to insulate themselves from future damages. Teams need to draft clear contracts and clauses regarding intellectual property rights. Teams should ensure they have explicit agreements with music artists, publishers, or licensing entities for any music they utilize to avoid potential litigation.

Given the potential complexities of music copyright, especially with Nealy pending, legal counsel will likely need to play a more prominent role in advising sports teams on music usage. If a team’s legal department is not well-versed in copyright law, now is the time to understand the intricacies of this area in order to help the team navigate the coming legal issues in this area. With the requisite knowledge, legal counsels will be able to help navigate licensing agreements, address any potential infringement concerns, and ensure teams operate within legal boundaries regarding music use.

Teams should also explore alternative music sources, such as royalty-free music or independent artists, to mitigate potential licensing costs and copyright concerns arising from Nealy.

It's important to note that Nealy’s ultimate impact on sports teams remains uncertain. However, it highlights the growing importance of understanding and complying with copyright laws for music use in sports operations. Teams should be aware of potential changes in the legal landscape and take necessary steps to manage their music usage responsibly.

[1] J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition, § 7:81 (5th ed., June 2022) (McCarthy on Trademarks and Unfair Competition); see also Macy’s Inc. v. Strategic Marks, LLC, 2016 WL 374147, at *3 (N.D. Cal. Feb. 1, 2016); Bobosky v. Adidas AG, 843 F. Supp. 2d 1134, 1145 (D. Or. 2011).

[2] Bobosky, 843 F. Supp. 2d at 1145.

[3] McCarthy on Trademarks and Unfair Competition § 7:24.

[4] Id. § 7:81 (“The ‘merely ornamental’ rule is simply a facet of the basic trademark factual question: is the disputed feature in fact perceived by customers as a trademark or not?”).

[5] Defendant’s Reply Brief in Support of Defendant’s Motion for Summary Judgment at 1.

[6] Plaintiff’s Reply Brief in Support of its Motion for Partial Summary Judgment at 3.

[7] Id.

[8] Starz Ent., LLC v. MGM Domestic Television Distr., LLC, 39 F.4th 1236, 1244 (9th Cir. 2022).

[9] Sohm v. Scholastic, Inc., 959 F.3d 39, 49–52 (2d. Cir. 2020) (quoting Petrella at 677, 134 S.Ct. 1962).

[10] Jonathan Jones, Music industry cracking down on copyright issues could change how NFL and other leagues distribute content, CBS Sports (Nov. 18, 2020 4:00 PM ET),

https://www.cbssports.com/nfl/news/music-industry-cracking-down-on-copyright-issues-could-change-how-nfl-and-other-leagues-distribute-content/.

[11] Id.