By: Tyler Dysart
While this year’s Super Bowl held in Tampa, Florida looked quite different in many aspects from previous Super Bowls due to the COVID-19 pandemic, some things remained the same: Tom Brady hoisting a Lombardi trophy and counterfeit sports merchandise flooding the largest sporting event of the year.[i] At this year’s Super Bowl alone, the Department of Homeland Security (DHS) announced that they had seized 169,000 items of counterfeit, unlicensed sports merchandise worth approximately $44 million, ranging from fake #12 Brady jerseys and Super Bowl rings to COVID-19 masks. [ii] This blog post will (i) introduce the problem of counterfeit sports merchandise, (ii) provide a summary of trademark policy rationales and how they have been applied in the sports apparel context, and (iii) offer a proposed solution to the problem.
(i) Introduction to the problem of counterfeit sports merchandise.
The events that unfolded at this year’s Super Bowl were not new for the DHS, who just two years ago at Super Bowl LIII in Atlanta seized “nearly 285,000 counterfeit sports-related items worth an estimated $24.2 million,” showing that despite government agency efforts, the prevalence of counterfeit merchandise that infringes on sports team trademarks remains a constant problem.[iii] It is estimated that counterfeit merchandising costs American businesses $200 Billion each year,[iv] and in 2012 alone it was estimated that sports leagues lost $13 billion in revenue from fake goods.[v] Thus, the market for counterfeit sports apparel in the United States is quite large.
These problems are catalyzed by online marketplaces ranging from major retailers like Amazon to smaller websites such as DHGATE.com that serve as a safe haven for vendors peddling knockoff, unlicensed apparel imported from China at a significant discount compared to officially licensed products.[vi] For example, the lowest price Nike replica Atlanta Braves Jersey is $134.99 on the Braves’ official website, while an “authentic” Jersey will run fans $359.99.[vii] As an alternative, fans can purchase a knockoff or counterfeit jersey virtually identical to these on DHGATE.com, a marketplace frequented by counterfeit vendors and customers, for $21.53.[viii] This massive dichotomy in prices forces fans to choose between the Scylla of paying hundreds of dollars for a jersey to support their favorite team because of sports licensing monopolies, and the Charybdis of perpetuating trademark infringement by knowingly or unknowingly patronizing these shady, unregulated vendors.
(ii) Policy rationales behind trademark law and their application in the sprots apparel context.
The fact that consumers end up with the short end of the stick when purchasing sports apparel goes against the modern policy rationales behind trademark law, which is to protect consumers. In Scandia Down Corp. v. Euroquilt, Inc., the court summarized the modern purpose behind trademark protection in that they “help consumers to select goods . . . [b]y identifying the source of the goods, they convey valuable information to consumers at lower costs.”[ix] The court continued, stating that “easily identified trademarks reduce the costs consumers incur in searching for what they desire, and the lower the costs of search the more competitive the market.”[x]
Additionally, modern trademark law serves to protect consumers by allowing incentives for producers to adhere to a consistent quality of goods.[xi] Therefore, the modern policy rationale behind trademark protection can adequately be described as a means to reduce transaction costs for consumers and produce higher quality and consistent goods.[xii]
While these policy goals are plainly present in other markets, as it is evident that the primary purpose of a ‘Ford’ badge on a vehicle is to convey to consumers intrinsic information about the car itself, for instance that it was manufactured by a major company in Detroit, that goal is uniquely absent in the sports apparel market, where the purpose of a Dallas Mavericks logo on a hat is not to convey intrinsic information about the hat, but information about the wearer of the hat – that they support the Dallas Mavericks NBA team. Therefore, the current framework surrounding sports team trademarks does little to further the traditional trademark goals of consumer protection while creating a monopolistic market where the major sports leagues sell their trademarks at the highest price possible, driving up prices and further incentivizing fans to patronize the online counterfeit industry.[xiii]
Epitomizing these incongruities, in a survey done by the website smartprotection.com, nearly half (44.15%) of respondents reported purchasing counterfeit sportswear online, most of whom knew that the products were unlicensed.[xiv] Further, when these consumers were asked how they could be convinced to buy genuine, licensed products as opposed to the knockoffs, the top answers were lower prices, more availability, and better discounts and sales.[xv] Therefore, it is apparent that fans of sports teams do not care as much about who manufactured the product and more about getting a better deal on items that allow them to show support for their favorite sports team. Thus, the solution to the puzzle of providing consumers with more affordable, quality sports apparel while diminishing the black market would seem to be to lower licensing costs, thus bridging the chasmic price gap between officially licensed merchandise and the counterfeits.
Instead of pursuing a route of lowering licensing prices to compete with the counterfeit market, sports teams and universities such as Duke have instead been using trademark law as a sword to maintain the status quo of licensing monopolies, filing federal lawsuits alleging trademark infringement.[xvi] It is hard to blame them for this strategy, when teams and leagues continue to work hard to build loyal fanbases that rally around their marks, which in turn generates increasing royalty revenue ($698 million from royalties alone in 2013) from licensing out their trademarks.[xvii] However, this strategy again misaligns the purposes behind trademark law, focusing on protecting the profitability of sports franchises rather than protecting consumers.
One method a court could use in attempting to solve this problem would be to remove trademark protections from sports trademarks altogether. This has been done in isolated cases which have found either that sports marks have no secondary meaning (a prerequisite to trademark protection) in the soft goods market,[xviii] that sports marks have ‘aesthetic functionality’ that would bar trademark protection[xix], or that the use of disclaimers of affiliation could save a reproducer from infringement liability.[xx] While these arguments have some legal merit, they have not been used successfully in recent decades.[xxi] Further, they do not provide a perfect solution, because while removing trademark protection for sports marks altogether would certainly lower the price of apparel, teams would lose all the value associated with their marks, and further still, fans would find themselves in an even more unregulated apparel market with no oversight of cheap goods that could be harmful to consumers.
(iii) Proposal to re-align sports trademark rights to protect consumers.
If the better solution of lowering licensing costs isn’t going to come from the courts, then it must come by way of legislation and oversight. The solution must start with the premise that the goals are lower prices for consumers, eliminating the licensing monopoly, diminishing the counterfeit market, continuing to allow teams to earn royalties off their brands, and continuing to provide consumers with safe, reliable products. To achieve such goals, a federal administrative system through which all sports marks are able to be licensed by manufacturers at specified rates (based on production volume, retail prices, overall revenue, etc.) could be created, with the revenue going both to teams in the form of royalties and to agencies like DHS that are directly combatting the flow of counterfeit products. This agency could also be tasked with making sure that manufacturers who license out goods maintain certain levels of quality.
This solution certainly isn’t perfect, but it would be better than the inequities that the current system creates. Further, while it might appear anticompetitive on its face, as teams and leagues would lose grasp of their monopoly over licensing, it would in fact introduce more competition into the market. Manufacturers who previously couldn’t afford to compete for the exclusive deals awarded to the largest brands like Nike, UnderArmour, or Adidas would now be on a level playing field in terms of accessing sports logos. Further, these manufacturers would still reproduce their own brands and logos on the merchandise, informing consumers about the intrinsic quality of the product and lowering overall transaction costs, in line with the policies behind trademark law. Further still, teams would continue to profit not only through royalties, but also through exclusive deals with manufacturers as an additional source of revenue – deals not for the team logo itself, but for things like exclusive rights to sell the manufacturer’s apparel at their stadium or on their website.
In all then, while achieving the trademark goals of consumer protection and eliminating the black market for sports apparel will come at a cost, those costs shouldn’t be in the form of attorney’s fees for federal infringement lawsuits and $359.99 for a Ronald Acuña jersey.[xxii] Instead, it should come through a universally accessible federal system of sports trademark licensing that meets the consumer protection purposes of trademark law while eliminating the monopolies that professional leagues currently enjoy and, in turn, the black market that the monopoly has created.
[i] DHS Seizes $44M in Counterfeit Super Bowl LV Sports Goods, Loss Prevention Media (Feb. 5, 2021), https://losspreventionmedia.com/dhs-seizes-44m-in-counterfeit-super-bowl-lv-sports-goods.
[iii] ICE, CBP operation nets over $24 million in fake sports-related merchandise, U.S. Immigrations & Customs Enforcement (Jan. 31, 2019), https://www.ice.gov/news/releases/ice-cbp-operation-nets-over-24-million-fake-sports-related-merchandise.
[iv] HSI Boston, IPR Center, partners rack up major league results against counterfeit dealers in 2018 World Series enforcement effort, U.S. Immigrations & Customs Enforcement (Nov. 7, 2018), https://www.ice.gov/news/releases/hsi-boston-ipr-center-partners-rack-major-league-results-against-counterfeit-dealers.
[v] Mary Helen Sprecher, Merch Madness: Counterfeiters vs. Customs Agents at the Super Bowl, Sports Destination Mgmt. (Jan. 7, 2020), https://www.sportsdestinations.com/management/economics/merch-madness-counterfeiters-vs-customs-agents-sup-17803.
[vi] Trevor Little & Tim Lince, Notorious Markets List 2020: USTR resists call to include US platforms as Alibaba and Amazon remain, World Trademark Review (Jan. 15, 2021), https://www.worldtrademarkreview.com/anti-counterfeiting/notorious-markets-list-2020-ustr-resists-call-include-us-platforms-alibaba-and-amazon-remain
[ix] 772 F.2d. 1423, 1429 (7th Cir. 1985).
[xi] Barton Bebe, Trademark Law: An Open-Source Casebook 24-25 (2019).
[xiii] Major League Baseball IP Licensing, Value Discovery (Nov. 6, 2018), https://valuediscovery-55286.medium.com/mlb-ip-licensing-7fc53447814d.
[xiv] Research study: 44% have bought counterfeit sportswear online, Smart Protection (Dec. 11, 2019), https://smartprotection.com/en/brand/research-study-44-have-bought-counterfeit-sportswear-online/.
[xvi] Jake Satisky, Duke joins pro sports leagues, other universities in fighting counterfeit goods, The Chronicle (July 29, 2019) https://www.dukechronicle.com/article/2019/07/duke-university-nba-nfl-mlb-nhl-counterfeit-goods-lawsuit.
[xvii] Darren Heitner, Sports Licensing Soars To $698 Million In Royalty Revenue, Forbes (June 17, 2014), https://www.forbes.com/sites/darrenheitner/2014/06/17/sports-licensing-soars-to-698-million-in-royalty-revenue/?sh=3d73cd1a756b.
[xviii] Univ. of Pittsburgh v. Champion Prods., 566 F. Supp. 711 (C.C.W.D. Pa. 1983).
[xx] Univ. of Ga. Ath. Ass’n v. Laite, 756 F.2d 1535 (11th Cir. 1985).
[xxi] See, Bd. Of Supervisors for the La. State Univ. Agric. & Mech. College v. Smack Apparel Co., 550 F.3d 465 (5th Cir. 2008).
[xxii] Atlanta Braves Official Shop, supra note v.