Properties, Licensees Must Cover All Bases in License Agreement
May 2010

Recently, Upper Deck settled yet another case filed against the company for trademark infringement, this time involving Major League Baseball. This follows the settlement of a lawsuit filed against Upper Deck by Konami involving the sale of counterfeit Yu-Gi-Oh trading cards. The circumstances surrounding the MLB case unfold like a step-by-step instruction on what to do as a licensor. Though Yogi Berra once said, “In baseball you don’t know nothing,” this might be the one exception.

The relationship between MLB and Upper Deck lasted longer than many marriages and, after 20 years, MLB decided to part ways with Upper Deck late last year and enter into a new licensing agreement with Topps. Rather than discontinuing its use of MLB’s trademarks, Upper Deck began manufacturing and selling three new MLB trading card sets. MLB responded by filing suit in New York for trademark infringement. According to the consent judgment and its own press release, Upper Deck is allowed to sell off its remaining inventory but is permanently enjoined from making any further use of MLB’s intellectual property and must pay MLB an unspecified amount.

MLB’s complaint and the consent judgment reference provisions in MLB’s licensing agreement with Upper Deck involving the protection of its intellectual property that we believe are highly instructive.

Quality control

Like anyone who leases property to others, a licensor should keep a watchful eye on how a borrower, or in this case a licensee, is using the property, which is the key to protecting its value. In the world of IP, the purpose of quality control ultimately is to protect consumers, in part by assuring them that the level of quality that they have come to expect in certain merchandise is the same regardless of the true source of such goods. If consumers can no longer depend on a company’s trademarks or trade dress to indicate this level of quality, then they become useless. In other words, if a licensor fails to (or, in MLB’s case, is not given the chance to) oversee quality control, not only can the value of the IP diminish, but it also can result in outright abandonment.

To protect against this, MLB required Upper Deck in the licensing agreement to produce its trading cards in strict compliance with MLB’s branding guidelines and to furnish for prior approval samples of the licensed products. The concept of approval rights is not uncommon and is found in many licensing agreements. But what then? Assuming that a licensee is providing samples for approval, what should a licensor be looking for, and what contingencies should its license agreement contemplate?

Once again, MLB’s licensing agreement provides apt guidance.

Anticipate new marks

In addition to approval rights, MLB required Upper Deck to acknowledge in the licensing agreement that the licensed trademarks and any new arrangements and modifications are owned by MLB, and the right to create and use any derivatives of MLB’s trademarks required a separate license. This addresses a common scenario, wherein a licensee tries to change the licensed trademarks either by combining them with its own trademarks or altering the text or design for marketing purposes. Because such modifications can result in new combined marks arguably owned by both parties or derivative marks whose ownership is questionable, it is imperative for licensors to address these issues in their licensing agreement.

There are many other issues to be mindful of when negotiating a licensing agreement — for example, requiring trademark and copyright notices on materials, or ensuring that use of the intellectual property is within the scope and territory of the license — but what of the licensee? What should it be mindful of when acquiring a license to use someone else’s intellectual property? First and foremost, a licensee should ensure that it has acquired all of the necessary licenses to use the intellectual property needed to market and sell its products.

Additional licenses needed?

Often in the sports industry, multiple licenses are needed to utilize the full breadth of intellectual property rights associated with an athlete, team or league. For instance, merely because a team or league has granted a license to use its trademarks, this does not mean that the licensee has rights to use an athlete’s name, image and likeness. Likewise, if an athlete has granted a license to use his or her name, image and likeness, this does not mean that the licensee has rights to use an image of the athlete in uniform, which bears and embodies the trademarks and trade dress of the team or league.

This also came up in the MLB case. While Upper Deck may have obtained licenses from the MLB Players Association to display players’ likenesses on cards, such publicity rights are different from the rights to use MLB trademarks. Moreover, even if a licensee obtains proper licenses from the athlete, team and/or league, this does not mean that it has free reign to use any photo depicting the licensed trademarks or athlete. If the licensor does not own the copyrights in a particular photo a licensee wants to use, then a separate license must be obtained, namely from the photographer or from his or her employer/contractor.

Needless to say, as with licensors, there are a number of other issues that can arise for a licensee — such as requiring a licensor to register the licensed intellectual property and actively enforce its rights against others — but, as demonstrated by MLB’s swift and favorable settlement of its lawsuit against Upper Deck, a well-drafted license agreement that properly anticipates these issues puts a company in a much better position to enforce or defend its intellectual property rights should disputes arise.