A federal judge in Pennsylvania has denied a sports marketing company’s motion to dismiss a complaint brought by The Basketball Marketing Company, Inc. (d/b/a “And 1”) and BMC Players, Inc., which alleged that the sports marketing company violated the terms of the distribution agreement it had with the plaintiff and that it used the defendant’s intellectual property after the contract had expired.
The defendant, Urbanworks Entertainment, had argued that the legal issues should be resolved through arbitration, pursuant to the agreement it had with And 1.
And 1 manufactures, distributes, and sells basketball related services and merchandise, such as footwear, apparel, DVDs, and videos of basketball events, all of which bear And 1’s name, likeness, logos, service marks, designs, trademarks, and copyrighted art work.
On March 1, 2002, And 1 entered into an 18-month Marketing & Manufacturing, Distribution contract with Urbanworks, which called for And 1 to provide a limited, non-exclusive right and license to Urbanworks to use its “trade names, trademarks, service marks, and the names and likenesses of all featured athletes and performer” in connection with the sale of videos and DVDs covering the And 1 Mix Tape Tour. The agreement reserved And 1’s rights, title, and interest in this intellectual property; and required that Urbanworks to obtain And 1’s approval prior to its use in connection with the packaging, advertising, or marketing of products.
In return, And 1 was to receive the net proceeds of the sale of the merchandise, minus certain manufacturing and packing costs, marketing costs, administrative fees, and a distribution fee. To ensure the accurate payment, the agreement required Urbanworks to keep all books and records of all transactions related to the agreement during the term of the agreement and for two years thereafter.
The agreement between And 1 and defendant also contained an arbitration provision.
Toward the end of the agreement, And 1 alleged that the defendant failed both to provide complete and accurate figures regarding revenue information and to justify the various reporting discrepancies. The dispute lingered past the term of the agreement when the And 1 alleged that the defendant continued, without permission, to promote, market, and sell a basketball DVD and other merchandise that utilized plaintiffs’ MIX TAPE trademarks.
And 1 sued on July 2, 2004.
The defendant countered with a motion to dismiss and to compel arbitration on all counts of the complaint.
Addressing the arbitration question first, the court relied heavily on Litton Fin. Printing Div. v. NLRB, 501 U.S. 190, 208, 115 L. Ed. 2d 177, 111 S. Ct. 2215 (1991), which provided guidance about whether grievances that arise after the termination of an agreement are subject to an arbitration clause within the expired agreement. Id. at 205.
“Despite this Court’s concerns with applying the Litton standard by analogy to general commercial agreements,” wrote the court in the instant case, “this Court finds the logic expressed in Litton applicable to general contracts. See Litton, 501 U.S. at 208 (noting that the exceptions as to when an arbitration agreement survives ‘is similar to the rule of contract interpretation which might apply to arbitration provisions of other commercial contracts’).”
Thus, Count 1 will be addressed through arbitration.
Turning to the remaining counts in the complaint, the court noted that And 1’s IP claims surfaced after the agreement had expired. “Indeed, the one specific allegation of the misuse of plaintiffs’ intellectual property occurred in May 2004, more than one year after the expiration of the agreement,” wrote the court.
While the legal waters were muddied by the fact that the parties did not explicitly limit the duration of the arbitration clause, the court found that the defendant’s interpretation of the arbitration provision as covering any and all post-agreement disputes “is untenable as a matter of law.”
“The breadth of an arbitration clause is only significant to the extent that the arbitration clause enjoys validity by surviving the expiration of the agreement,” wrote the court. “To conclude otherwise would result in the perpetual arbitrability of all future claims between plaintiff and defendant, thereby undermining the parties’ intent and eviscerating the Litton rationale that the purpose of an arbitration clause ‘s to enforce a contract rather than to transcend it.’Litton, 501 U.S. at 205.”
Thus, the court denied the motion to dismiss and granted the motion to compel arbitration only as it related to Count 1. The Basketball Marketing Co., Inc. at al. v. Urbanworks Entertainment; E.D.Pa.; 04-CV-3179; 11/10/04
Attorneys of Record: (for plaintiffs) Barry L. Cohen, THORP REED AND ARMSTRONG L.L.P., PHILADELPHIA, PA. (for defendant) Salvatore R. Guerriero, CAESAR REVISE, ET AL, PHILA, PA.