Nike Sues as Reebok Jumps the Gun on Tebow-Mania

By Chris McAndrew, a Junior Journalism/Pre-Law major at Temple University

Tim Tebow's jersey was one of the hottest selling items in Denver, but his trade to the New York Jets prompted a bitter battle between Nike and Reebok over rights to the coveted Tebow jersey.

The NFL has rules and regulations for on and off the field, and sometimes it seems as if the league is battling more than the players themselves. When it comes to the NFL’s merchandise agreements, companies put up enormous amounts of money to become the “Officially Licensed” retailer of NFL gear.

When Tim Tebow was traded to the New York Jets on March 21, Reebok began capitalizing on the renewed Tebow-Mania by producing Jets-Tebow shirts and other apparel as quick as possible. There was one problem — Reebok was no longer officially licensed to sell NFL gear or any apparel that was player-related. Nike had taken over that license in early March of 2012.

Nike filed a formal complaint against Reebok calling for permanent injunctive relief, compensatory damages, punitive damages and attorney’s fees arising from the suit. Nike also claims that Reebok violated the terms of the Lanham Act (unfair competition), misappropriation of rights of publicity, tortious interference with current and prospective business relationships, and unjust enrichment.

Nike and Reebok settled in April (Nike Inc et al v Reebok International Ltd, U.S. District Court, Southern District of New York, No. 12-02275) with Reebok agreeing to halt the sale of Jets-related apparel bearing the Tebow name and buy apparel already shipped to retailers. In court papers, Reebok said it had made 6,000 jerseys and 25,000 T-shirts bearing Tebow’s name and number, as well as the Jets and NFL logos.

There have been multiple suits against trademark use and the unlawful selling of NFL merchandise, mostly directly from the NFL itself. Such suits can be seen in National Football League Properties, INC and New York Giants, INC vs. New Jersey Giants, INC. These suits against illegitimate merchandising companies are not uncommon, but a lawsuit against a nationally recognized retailer for the illegal use of NFL merchandise is surprising and could greatly impact this area of the law despite the settlement.

To discuss further legal complications within this case, The Legal Blitz spoke with Mary LaFrance, Professor of law at William S. Boyd School of Law at UNLV. She received her J.D. with High Honors from the Duke University School of Law in 1986, where she served as Executive Editor of the Duke Law Journal. Professor LaFrance has authored three books: Intellectual Property Cases and Materials (West 3d ed. 2007) (with David Lange and Gary Myers), Understanding Trademark Law (LexisNexis 2005), and Copyright in a Nutshell (West 2008), and her teaching and research interests include domestic and international intellectual property law, as well as the taxation of intellectual property.

What types of remedies are available in this situation (injunction to stop making the shirts, payment to recall jerseys, punitive damages, etc.)?

The most likely remedy is an injunction preventing Reebok from making or selling any more of the unauthorized merchandise. Distributors that still have the unauthorized goods in inventory will not be covered by the injunction if they are not defendants in this particular suit, but they could be sued separately if they continue to sell their remaining inventory. An injunction could require Reebok to notify its distributors of this potential liability, and to offer to repurchase the merchandise at the same price the distributors paid. If Reebok still has control over some of the merchandise that has entered the distribution chain, then Nike could obtain a court order requiring Reebok to recall the unauthorized goods. However, to the extent that some of the unauthorized goods have been sold unconditionally to distributors, then Nike will have to sue the individual distributors to prevent them from selling off their inventory. In either event, consumers that have already purchased the Reebok shirts will be free to keep them and wear them. They just can’t resell them.

Nike could also recover its actual damages as well as Reebok’s profits from the unauthorized sales. In the case of Nike’s federal claims, the courts have discretion to increase the awards of damages or profits if necessary to adequately compensate Nike for its injuries.

While punitive damages are not available for the federal claims, they could be awarded for some of the state law claims. Nike might also recover its attorneys fees, which could be considerable.

Prof. LaFrance

Within the NFL merchandising agreement, there are two ways of obtaining the right to use an NFL player’s name and number on merchandise; acquire direct permission from an individual player, or enter into a “group license” with NFL Player Incorporated. Although Reebok no longer has the official license for NFL gear, can Reebok get specific permission from Tim Tebow himself to produce his Jets apparel?

Reebok can obtain that permission from Tim Tebow only if Tim Tebow still controls that right. If Tebow has already assigned or exclusively licensed the right to use his name and number, then he no longer has the power to convey that same right to Reebok or to anyone else, even on a non-exclusive basis. Of course, if different kinds of merchandise are involved, Tebow could grant exclusive rights to Nike for one class of goods, and grant exclusive rights to Reebok or someone else for other kinds of goods.

Can Nike also sue Reebok’s contracted retail stores, such as Modell’s, for agreeing to sell illegitimate NFL apparel?

Nike can sue them only if they offer for sale merchandise that infringes Nike’s exclusive rights. So it all depends on the scope of Nike’s exclusive rights. If Nike controls all uses of NFL marks on apparel, then Nike can sue a retailer that sells, or offers to sell, unauthorized NFL apparel. Merely possessing such apparel, or agreeing to sell it at some point in the future, is not actionable because it does not involve offering the goods for sale.

Can Reebok be potentially liable for lawsuits from consumers who purchased the illegal Tebow apparel?

Probably not. Consumers generally do not have standing to sue the purveyors of unauthorized merchandise. Also, it is difficult to see any injury to consumers in this case. They wanted Jets jerseys with Tebow’s name, and that is what they got.

Under the Lanham Act, which is part of Nike’s complaint of Reebok’s violation, it states that “the scope of this act is independent and concurrent with state common law.” How can this affect the outcome of the law suit?

A claim under section 43(a) of the Lanham Act is very similar to a common law claim for trademark infringement under state law. Typically a plaintiff wins both claims or loses both claims. So Nike could sue Reebok under both state and federal trademark law. The elements of proof would be virtually identical, but the remedies could be different. However, the elements of Nike’s state law claims for infringing the right of publicity, tortious interference, and unjust enrichment are different from the elements of a trademark claim. Nike can bring all five of these claims in a single action against Reebok. The Lanham Act does not preempt any of Nike’s potential state law claims.

What happens to old apparel that stores still have from the previous licensed suppliers? Is it legal to continue selling the apparel until it’s sold out?

If the apparel was still licensed when the store acquired it, then under the first sale rule the store is entitled to resell it even after the manufacturer’s license expires. If the apparel was manufactured after Reebok’s license had expired, then the retailer has no right to resell it. There is a potential gray area, however, with respect to any goods which Reebok manufactured under license, but which Reebok sold to distributors after that license had expired. Whether or not the first sale rule applies to those goods probably depends on whether Reebok’s license from Tebow allowed it, post-expiration, to sell off goods that were manufactured before expiration. Since contract expiration is a foreseeable event, this situation should be addressed in the contract itself.

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