Penn State Trademark Case Produces Potential Problems For Sport Teams And Merchandisers

Does trademark law provide college and professional sport teams with exclusive control over any and all merchandise featuring their brand name and logos? According to the District Court for the Middle District of Pennsylvania—no, it does not.

On July 14, 2022, the court in Pennsylvania State University v. Vintage Brand, LLC. (2022), denied a motion filed by Pennsylvania State University (PSU) that would have dismissed counterclaims filed by Vintage Brand, an online retailer, that sought to remove PSU’s exclusive control over the use of specific logos that identify the university and its sports teams.

In fact, the court decision described the a multi-billion dollar collegiate and professional sport merchandise industry as a house “built on sand”. Judge Matthew W. Brann delivered the decision for the court and what makes his ruling so troubling for sport brands and merchandisers is that, technically, Brann is correct.

Trademark law confers only a limited property right to those who own the marks. The reason for doing so is found in trademark law’s primary purpose—consumer protection. When consumers are repeatedly exposed to a business firm’s trademarks through advertising or packaging, an associative link is formed that connects consumer memories of branded products to the business firm’s trademark, which then serves as the stimuli for activating those memories upon consumer exposure to the mark in a commercial setting (like a product aisle in a shop or store).

Accordingly, the modern trademark regime protects a senior brand’s exclusive use of its trademarks only as a means for preventing consumers from becoming confused by a junior brand’s use of similar or appropriated marks. The reasoning is that consumers need to be protected from being confused by a junior brand’s use of a senior brand’s marks into thinking that the junior brand’s goods were produced by the senior brand, and therefore are of the same quality as the senior brand’s goods.

Thus, the legal standard for trademark infringement requires a showing of consumer harm in the form of consumer confusion as to the source of the manufactured goods. The problem for PSU and other college and professional sport teams is that they, typically, do not produce sport merchandise. Instead, sport teams enter into lucrative license agreements with third party manufacturers (e.g. NikeNKE
, Adidas), who then produce the goods sold at team stores and elsewhere.

Vintage Brand points to this reality with its legal argument that the use of PSU’s name and logos on its merchandise is purely ornamental. Therefore, Vintage Brand asserts that the alleged appropriation does not confuse consumers into thinking that PSU actually produced the merchandise. Without source confusion, Vintage Brand argues, there can be no trademark infringement.

Therein lies the problem, modern trademark law does not account for an industry dependent on third-party merchants who produce goods based on an exclusive license provided to them by a trademark owner. Judge Brann agrees, and that is why he stated that the merchandising industry is built on a foundation of sand. In fact, Judge Brann made only one mistake in his description of that industry, Brann called it a multi-million dollar business when it is, in fact, a multibillion dollar industry.

Judge Brann’s decision, if upheld on appeal, could turn that multibillion dollar industry on its head; at least within the Third Circuit. The United States Court of Appeals for the Fifth Circuit in Boston Professional Hockey Ass’n v. Dallas Cap & Emblem Manufacturing (1975) adopted a much different approach when it found that trademarks inherently identify the marks holder as the source or sponsor of the goods. Courts following this line of reasoning recognize that consumers purchase goods adorned with trademarks due to the mental association between the marks and their owner. For example, this line of reasoning posits that those who purchase PSU gear likely do so with the understanding that a connection exists a between the merchandiser and the school. The court in the present case identified the Fifth Circuit’s standard for handling cases in this manner as a “per se” approach.

Judge Brann rejected the per se approach to identifying source confusion and instead found that PSU must produce evidence that Vintage Brand’s use of PSU marks results in consumer confusion as to the source of the goods. According to the court, “[w]hether consumers believe that a university is the source, sponsor, or authorizer of merchandise bearing its marks should—minimally—turn on just that: what the consumers believe.”

To accomplish this purpose, PSU will likely conduct survey research similar to that used in Indianapolis Colts v. Metro. Baltimore Football (1994) (Indianapolis Colts) In that case, Judge Posner relied on consumer survey data produced by the Indianapolis Colts of the National Football League (NFL) in finding consumer confusion concerning merchandise produced by a Canadian Football League (CFL) team that used a similar team name (CFL Colts). Particularly, Judge Posner found that the data produced by the surveys indicated that enough consumers were confused into thinking that the NFL team either sponsored or produced the CFL team’s merchandise.

Judge Brann in the current case recognized results in cases like Indianapolis Colts (1994) that utilized consumer survey data that identified consumer confusion rates above 50 percent. In doing so, the court noted widespread consumer belief that products bearing the name of a person or entity are only permitted if prior permission was given by trademark owner. The court then noted the circularity of the situation because consumers build their belief based on an incorrect legal assumption that perpetuates findings of trademark infringement in surveys.

In addressing that circularity, Judge Brann requested from the parties evidence that answers several questions. First, what percentage of consumers are confused as to the source of Vintage Brand’s merchandise? Next, does consumer belief vary based on whether the appropriated trademark involves a name or logo? Lastly, does consumer belief stem from the belief that PSU is the actual source or sponsor of the goods, or is that belief instead based on a misunderstanding of extent trademark law?

The last of those three questions is the one that should give sport brands and merchandisers the most concern. There exists a very real possibility that consumer responses to survey questions may indicate an expectation of legal protection that Judge Brann believes is misinformed.

Although, there is another way of looking at consumer expectations that, arguably, should satisfy any trademark query. What if consumer expectations are interpreted so as to match commercial realities? Consumers may, intuitively, expect trademark protection because common sense demands that protection. We (consumers) have been conditioned by the market into thinking that trademark law provides brands with enough legal protection to prevent third-parties from making use of another’s trademarks without proper compensation. In this regard, consumer expectations, even if misguided, arguably make more sense than modern trademark law.

Moving forward, PSU will need to bring to court evidence in the form of data that answers Judge Brann’s three questions. Still, there remains a very real possibility that the Third Circuit could reverse Judge Brann’s decision and its reasoning on appeal. The problem for PSU is that the standard for reversal is clear error and the Third Circuit will have a difficult time finding clear error in Judge Brann’s reasoning. After all, Judge Brann, technically, followed the letter of the law.

Still, at some point, market realities need to come back into play that trump technicalities. The fact remains that for the current merchandise industry to function as it does now, brands must have property rights in their trademarks that permit them to license use to third-parties and prevent others from making use without compensation. Put another way, trademark owners should be permitted the legal right to control who can produce merchandise bearing its marks. Affording them that right not only matches consumer expectations, it allows brands to control for quality through the selection of manufacturers.

Otherwise, Judge Brann’s speculation will prove true and the multi-billion dollar merchandise industry will collapse under its great weight, as if it were built on a foundation of sand.