Published 11/05/2021 by CIONCA IP TEAM (SE)
In August 2010, the United States Army (“the Army”) had a license agreement with Authentic Apparel Group LLC (“Authentic”). Authentic was a brand management company that sold licensed merchandise.
The Army granted Authentic a non-exclusive license to manufacture and sell clothing bearing its trademarks in exchange for royalties to the Army. Under the License Agreement (the “Agreement”), the Army had absolute discretion to approve any product and materials having its trademarks or not. The Agreement also contained an exculpatory clause excluding the Army from liability if the Army exercises its discretion to deny approval of Authentic’s products and marketing materials.
Between 2011 and 2014, Authentic had sent up to 500 (five hundred) products for approval. The Army disapproved only 41 requests. However, in 2014, after frequent delays and instances of unpaid royalties, Authentic sent a notice to the Army that it would stop paying royalties.
In 2015, the Army terminated the Agreement. As a result, authentic and Ron Reuben (“Reuben”) filed a suit against the Army. Reuben was the chairman of the Authentic Apparel Group.
The suit was brought before the United States Court of Federal Claims ( the “claims court”). The action bothered on breach of contract by the Army. Authentic claimed denial of their right to goodwill on the Army’s trademark and refusal to permit them to advertise their contribution to the Army’s recreation activities. They also claimed the Army’s denial of using its trademark for advertising. Particularly the advertisement featuring Dwayne “The Rock” Johnson.
The claims court dismissed Reuben as a party of interest as it found that he lacked the standing to institute an action against the United States on contract claims since he is not in privity of contract with the government. The claims court also granted a summary judgment in favor of the Army. It found that the Army abided by the trademark licensing agreement, and the Army’s discretion of approval was in tandem with the Trademarks law.
Authentic appealed to the United States Court of Appeal for the Federal Circuit ( the “Federal Circuit”). The Federal Circuit upheld the dismissal of Reuben as a party holding that Reuben was undisputedly not in privity of contract with the United States as he was not a party to the Agreement. He was also unable to show convincing proof that the Agreement had a specific advantage that was intended to flow directly to him.
The Federal Circuit also upheld the grant of summary judgment by the claims court on the ground that Authentic failed to prove the Army’s liability. Instead, Authentic to have benefited from the goodwill associated with the Army’s trademarks.
It was further found that the Army ensured quality control in the exercise of its discretion. Hence, the Army had fulfilled its duty not to grant a naked trademark license.
The Federal Circuit was quick to take notice of Authentic’s argument, which was on the academic nature of trademark’s purposes. However, the argument was disposed of because it was based on the outdated source theory of trademark law. Overall, the Federal Circuit found Authentic’s arguments for dismissing the claim’s court decision unpersuasive and rightly upheld same.
Disclaimer: The views and opinions expressed throughout this blog are the views and opinions of the individual author(s) and/or contributor(s) and do not necessarily reflect the views and opinions of our firm, CIONCA IP Law. P.C.
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