Implied License May Protect Licensee For Continued Use of Former Sponsor's Marks

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By Tamlin H. Bason

It is unclear if, after an official sponsorship agreement was terminated, a licensee still had an implied license to use a former sponsor's trademarks, the U.S. District Court for the Central District of Illinois held April 18 (All Star Championship Racing Inc. v. O'Reilly Automotive Stores Inc., C.D. Ill., No. 2:11-cv-02160-MPM-DGB, 4/18/13).

Because the implied license issue was unsettled, the court declined to grant the sponsor summary judgment on its Lanham Act trademark infringement and false designation of origin claims.

The court also refused to determine at this stage in the litigation whether the licensee's continued use of a formerly-licensed mark constituted use of a counterfeit mark. That issue “appears to be a matter of first impression in this Circuit, and, perhaps, the Federal judiciary,” the court said.

Are Sponsorship Agreements Like Franchise Agreements? Before determining, as a matter of first impression, that a licensee's continued use of a mark after the expiration of a franchise agreement can constitute counterfeit use of a mark, the court looked to case law involving holdover franchisees. The court rejected the notion that the two issues are analogous when it comes to making a determination on counterfeit use of a mark.

The court said that when a franchisee continues to use a franchisor's mark after the termination of a franchise agreement the concern is that consumers will mislead, and that “the franchisee continues to reap the benefits of the affiliation.” But with sponsorship agreements, the court said, the mark's owner is the one that accrues the benefit, and that benefit is provided through advertising and awareness. Thus, “At the moment the sponsorship is terminated, the value to the sponsor has already accrued,” the court said. “That exposure, in and of itself, cannot be made 'counterfeit' by a subsequent act,” the court said.

Auto Parts Store Stops Sponsoring Races

O'Reilly Automotive Stores Inc. d/b/a O'Reilly Auto Parts is a Missouri-based automotive parts store that first opened in 1957. The company now operates nearly 3,500 stores across the United States.

In 2006, O'Reilly agreed to sponsor the All Star Circuit of Champions racing seasons for 2007, 2008, and 2009. Under that agreement, the circuit's promoter, All Star Championship Racing Inc., was given license to use various O'Reilly trademarks to promote the races.

The parties agreed to renew the sponsorship for the 2010, 2011, and 2012 seasons, but in 2010, a disagreement arose as to the validity of the contract purporting to renew the relationship.

All Star filed a lawsuit alleging breach of contract in 2012. O'Reilly in turned counterclaimed and asserted, among other things, claims of trademark infringement and false designation of origin. O'Reilly moved for summary judgment on all of its counterclaims.

Possible Implied License

All Star argued that summary judgment was inappropriate on the Lanham Act claims because it had an implied license to use the marks from 2010 until 2011.

All Star admitted that it lacked formal permission to use O'Reilly's marks during the relevant time period, but it claimed to have had an implied license due in part to the fact O'Reilly allegedly provided All Star with promotional items to give to customers during the 2011 season.

Judge Michael P. McCuskey said that the ongoing contract dispute and the uncertainty over whether O'Reilly in fact provided All Star with promotional items represent genuine issues of material fact with regards to O'Reilly's trademark infringement claim.

However, the record is clear that All Star continued to use O'Reilly's marks from July 16, 2011 until September 30, 2011. This use was after a July 1 letter in which O'Reilly revoked authorization to use the marks. Thus, if All Star was a holdover licensee up until that time, the letter clearly revoked the company's permission to continue to use the marks. The court therefore granted O'Reilly summary judgment on both its trademark infringement and its false designation of origin counterclaims for All Star's use of the marks between July 16 and Sept. 30, 2011.

Was Use Counterfeit?

The court next turned to O'Reilly's argument that All Star's continued use of its marks after the expiration of the sponsorship agreement constituted use of counterfeit marks. The court noted that the Lanham Trademark Act of 1946 does not provide a separate civil action for use of a counterfeit mark. Rather, if a court determines that a counterfeit mark was used, then it may grant the mark's owner additional remedies such as treble damages, 15 U.S.C. § 1117(b), and attorneys' fees, 15 U.S.C. § 1117(a).

The problem, the court said, is that there is scant case law on whether All Star's alleged use of O'Reilly's mark in this case constituted counterfeit use of a mark. Indeed, “The question of whether a holdover licensee's use of a formerly-licensed mark denoting a sponsorship constitutes the use of 'counterfeit mark' appears to be a matter of first impression in this Circuit, and, perhaps, the Federal judiciary,” the court said. Despite this lack of guidance, “This court holds that it does if and only if the incident or product alleged to be infringing occurred or was manufactured after the alleged infringer no longer had authorization to use the mark.”

Thus, like O'Reilly's other counterclaims based on the Lanham Act, its claim that its marks were counterfeited can also not be determined on summary judgment, the court said. Clearly All Star lacked authorization to use the marks between July 16 and Sept. 30, 2011, but apart from that period it is unclear when authorization to use the marks was revoked, the court said. It thus determined that O'Reilly was entitled to counterfeit mark enhancements for infringements that took place between July 16 and Sept. 30, 2011, but it denied summary judgment for all other time periods.

All Star is represented by John Bramfeld, Champaign, Ill. O'Reilly is represented by Stephen R. Kaufmann of Hepler Bloom, Spingfield, Ill.

By Tamlin H. Bason

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