Lessons From the License to Drive (and Protect) Sports Illustrated

For years, Sports Illustrated (SI) has provided exclusive, in-depth looks into some of sports’ greatest games and players, with its voice and visuals providing great entertainment and information for sports fans around the world. As an example, a signed 1975 SI cover of Muhammed Ali and Joe Frazier is one of my most prized pieces of memorabilia. Meanwhile, I first learned about LeBron James when he graced Sports Illustrated’s cover in 2002.

But SI’s relevance has faded in recent years with athletes able to speak directly to fans through social media, and with the internet, cable news, and the 24-hour news cycle providing instant analysis to feed fans’ need to know. Thus in some ways, it may be of little wonder why Authentic Brands Group (ABG), the owner of the Sports Illustrated brand, recently revoked The Arena Group’s license to operate Sports Illustrated magazine due to a missed $3.75 million payment owed under the licensing agreement. Minute Media has since acquired the right to operate Sports Illustrated magazine.

Because licensing is the main source of income to Authentic Brands Group from the famous Sports Illustrated brand, ABG had to take action to protect SI’s value, considering the licensing-related risks it faces with its light asset approach. While ABG’s licensing of the SI brand is high in profit margins, the risks come if licensees do not pay accurate royalties or the relationships with licensees deteriorate.

That is why most licensing agreements contain provisions that allow termination if the licensor’s reputation is damaged. The licensors could use the licensees’ struggles, such as the competition social media has brought to Sports Illustrated’s bottom line, to pressure their way out of licensing agreements. Preserving the core business, brand, and reputation is exactly why many experts believe ABG would be willing to operate Sports Illustrated magazine at a loss to keep a quality product and brand alive. But it’s also not surprising that ABG has its new agreement with Minute Media.

The Legal Issues Surrounding Licensing

Maintaining a trademark’s reputation and policing the use of those marks are among the most important responsibilities of a licensor. Otherwise, they risk losing the protections of their marks. Licensors should keep quality control measures in place to protect their rights to their trademark. Allowing a licensee to use the mark outside the scope of the license or allowing a licensee to sell inferior products could result in a ruling of “naked licensing.”[1] “Naked licensing” also can be shown by failing to pursue trademark infringers.[2] Under any showing of naked licensing, the court would determine that the licensor involuntarily abandoned its mark because the acts of the licensor caused the mark to become generic.[3] Of course, a licensor can also be found to have intentionally abandoned its mark through nonuse.[4] If this is of particularly concern for the licensee, the licensee can find protection in a well-drafted license agreement that includes a right to “step-in” and enforce the licensor’s mark against infringers even if the licensor doesn’t.[5]

When enforcing a mark in court, the court can award a preliminary injunction “‘according to the principles of equity and upon such terms as the court may deem reasonable’ for violations of the Lanham Act.”[6] Considering the length of time that litigation can take, a preliminary injunction hearing is a critical stage in the proceeding; a preliminary injunction can put one party in a position of power while putting the other at a disadvantage while the litigation progresses. Of course, if a preliminary injunction can be granted, a permanent injunction may be granted at the end of the case if the plaintiff can show irreparable harm without an adequate remedy at law.[7] In trademark cases, “irreparable harm is presumed once infringement or dilution has been shown, based on the ensuing loss of goodwill and ability to control one’s reputation.”[8]

Enforcing a mark in court does not only leave the plaintiff with equitable remedies, the plaintiff can also receive monetary remedies. To receive monetary relief, the plaintiff must show “actual consumer confusion or deception” and the damages may include lost sales, reasonable royalties, or harm to brand value.[9] Proving lost sales or harm to brand value can be difficult. In those instances, reasonable royalties make sense, like in Gucci Am., Inc. v. Guess?, Inc., where the court calculated reasonable royalties by determining the profits the defendants made from their infringing products.[10]

ABG cannot bear all the blame for the loss in value of the licensed Sports Illustrated mark. A license is only as valuable as the mark being licensed; therefore, the Sports Illustrated brand licensees should have performed due diligence on the Sports Illustrated mark and licensor prior to entering into the licensing agreements. Surely the licensees did some level of due diligence, but unfortunately unanticipated developments in technology, the economy, and society undermined the licensee’s efforts.

Conclusion

Ultimately, the changing times are changing the sports media landscape. The iconic Sports Illustrated brand may also be going through some major changes as potential licensing disputes may develop. Looking ahead, there may be public negotiations related to Sports Illustrated licensees and the value of the brand. With the changing legal landscape and licensing agreements becoming front page news, licensors and licensees alike should work with legal counsel to ensure their best interests are protected under current and future licensing agreements.

——————————————————————–

This DarrowEverett Insight should not be construed as legal advice or a legal opinion on any specific facts or circumstances. This Insight is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. The contents are intended for general informational purposes only, and you are urged to consult your attorney concerning any particular situation and any specific legal question you may have. We are working diligently to remain well informed and up to date on information and advisements as they become available. As such, please reach out to us if you need help addressing any of the issues discussed in this Insight, or any other issues or concerns you may have relating to your business. We are ready to help guide you through these challenging times.

Unless expressly provided, this Insight does not constitute written tax advice as described in 31 C.F.R. §10, et seq. and is not intended or written by us to be used and/or relied on as written tax advice for any purpose including, without limitation, the marketing of any transaction addressed herein. Any U.S. federal tax advice rendered by DarrowEverett LLP shall be conspicuously labeled as such, shall include a discussion of all relevant facts and circumstances, as well as of any representations, statements, findings, or agreements (including projections, financial forecasts, or appraisals) upon which we rely, applicable to transactions discussed therein in compliance with 31 C.F.R. §10.37, shall relate the applicable law and authorities to the facts, and shall set forth any applicable limits on the use of such advice.

[1] Exxon Corp. v. Oxxford Clothes, Inc., 109 F.3d 1070, 1080 (5th Cir. 1997).

[2] Id. at 1079.

[3] Id.; see also 15 U.S.C.A. § 1127.

[4] See Burgess v. Gilman, 475 F. Supp. 2d 1051, 1054 (D. Nev. 2007), aff’d, 316 F. App’x 542 (9th Cir. 2008) for an interesting case that discusses trademark abandonment by nonuse.

[5] D.H. Pace Co., Inc. v. OGD Equip. Co., LLC, 78 F.4th 1286, 1296 (11th Cir. 2023).

[6] Gucci Am., Inc. v. Guess?, Inc., 868 F. Supp. 2d 207, 242 (S.D.N.Y. 2012).

[7] Id.

[8] Id.

[9] Id.

[10] Id. at 255.