Penn State Case Testing Sports Merch Industry Heads Before Jury

Penn State University and an unaffiliated sports apparel company face a jury next week in a trademark case that’s already sent a shot across the bow of the sports merchandise licensing industry.

Selling products bearing university and professional sports team trademarks has presumptively required a license ever since a 1970s Fifth Circuit opinion. But in 2022 Chief District Judge Matthew W. Brann declined to toss Vintage Brand LLC’s counterclaims that its items with retro Penn State logos made only ornamental use of them. In February he again left open the possibility that they didn’t function as source indicators, denying Penn State summary judgment.

Brann’s rulings that the licensing ecosystem may be “built on sand” left many trademark attorneys shocked, saying they undercut the right to control brands built with massive investments and threatened the basis of a multibillion-dollar industry. The rulings paved the way for a jury trial beginning Nov. 12 in the US District Court for the Middle District of Pennsylvania.

“Any lawyer I’ve talked about this case with, they’re scratching their heads over the position the court took,” attorney Josh Gerben of Gerben IP said. Brann’s logic would “turn the marketplace upside-down,” he added. “Why does another company get to exploit” schools’ investments in their brands, Gerben asked.

But a group of 18 law professors endorsed Brann’s suggestion the entire merchandising regime stems from conditioning consumers to assume a legally baseless licensing requirement. Many people wear sports merchandise for expressive purposes—raising First Amendment concerns—and not as source identifiers, they said in a friend-of-the-court brief backing Vintage, adding that treating the marks as ornamental would increase merchandise competition and quality.

“Trademark law has gone awry, and this court can help fix it,” they wrote. “A clear ruling from this Court curtailing an overbroad merchandising right would promote consumer interests and realign trademark law with its intended goal of enabling informed and competitive markets.”

Gerben called that line of reasoning “academic mumbo-jumbo,” adding that doctrines such as nominal fair use would prevent stifling truly expressive uses.

“It’s a fundamental truth people rely on to create brands: you create brand value, ultimately selling that,” he said. “If you take away brand rights, you’re going to hurt every business in the country.”

Precedent ‘Would Be Nice’

In 1975 the US Court of Appeals for the Fifth Circuit paved the way for sports brands to block any merchandise featuring their marks, holding that a Dallas cap maker’s use of 15 National Hockey League team logos infringed, as fans bought the hats because of the teams’ goodwill.

Brann set up “a blank slate for the jury” to indirectly reexamine that premise, IP attorney John L. Strand of Wolf, Greenfield & Sacks PC said. The judge barred mention of other universities’ lawsuits against Vintage, some of which settled.

Involvement of old logos rarely if ever used today make it a “more subtle case,” Strand said, but it “isn’t that big of a step” to extend a Vintage win to newer logos, too.

IP law professor Susan Scafidi of Fordham University said “it would be nice to have case law” from the appeal. as the questions raised carry profound implications.

“Is Vintage using these trademarks as source indicators, and if not, does Penn State have a leg to stand on?” she said.

‘Mind Blowing’

The case shouldn’t have gotten this far, IP attorney Preetha Chakrabarti of Crowell & Moring LLP said.

“That this is going to a jury is just mind blowing to me,” she said.

She said it’s a “slippery slope” to divorce trademarks on items from source identification, as consumers often have an “emotional connection to the brand” and perceive a link, the law professors’ position notwithstanding.

Extending Brann’s logic beyond team logos illustrates its flaws, Gerben said, suggesting slapping a Nike swoosh on the front of a shirt could be considered ornamental, expressing a message of “I like Nike.” He said he wondered, “Is there just an exception” to trademark law for universities and sports teams.

“The court went into the forest and got lost,” he said.

Aligning Law & Practice

Even if Penn State loses, Scafidi said she doubts the entirety of sports licensing is “built on sand.” Schools could still obtain copyrights on logos, she said, and could pivot to also using their marks to co-label with the producer and encourage supporters to “buy authentic.”

But in any case, teams would face diminished licensing value and more competition, she said.

She said she also could see Congress stepping in for business and “propertizing” trademarks. Treating them as assets—as they already are commercially—rather than mere source indicators would let brand owners block more non-source indicator use, she said.

“It might align what’s protected under the law and commercial practice,” she said.

The case is The Pennsylvania State University v. Vintage Brand LLC, M.D. Pa., No. 21-cv-01901.