By Rishi Sehgal and Andres Munoz, of Romano Law
In the modern collegiate merchandising industry, colleges and universities monetize their trademarks by agreeing with third party merchandisers to sell merchandise using the college’s marks in exchange for a percentage of that merchandiser’s sales of those goods. Colleges do not technically ‘source’.
This creates friction with the traditional purpose of trademark law, which is to identify goods or services to consumers that purchase the goods. When a consumer buys a t-shirt with a Penn State University logo on it, for example, does that consumer think Penn State is guaranteeing the quality of the shirt, or is the consumer merely buying the shirt to signal their support for Penn State?
In July 2022, a federal district court in the Middle District of Pennsylvania decided a motion to dismiss dealing with this question, and in so doing expressed serious doubt on the validity of the collegiate merchandise licensing scheme under modern trademark law.
The Penn State Lawsuit
In 2021, Penn State sued Vintage Brand, LLC (Vintage), an online retailer of screen-printed goods and an alleged “serial infringer” that has faced similar lawsuits from thirteen other colleges. Penn State alleged that Vintage infringed its trademarks, among other claims, when Vintage sold goods bearing a number of Penn State’s retro logos and word marks without any license from Penn State.
In its answer, Vintage admitted that it sold goods with Penn State’s marks on them, but generally denied the allegations. Vintage also asserted four counterclaims against Penn State primarily seeking to cancel Penn State’s trademarks and thereby defang the infringement claims. Vintage’s primary counterclaim was that Penn State’s marks are merely “ornamental,” and do not identify Penn State as the source of the goods in question. As a result, Vintage argued that Penn State’s trademarks “fail to function” as trademarks and should be cancelled.
Penn State moved to dismiss Vintage’s fourth counterclaim based on the failure to function doctrine, claiming that Vintage failed to properly establish that Penn State’s challenged marks solely serve an ornamental, as opposed to a source identifying, function.
Ornamentality challenges can cancel a trademark registration where the trademark’s commercial impression is “solely as attractive ornamentation” and where the trademark, despite being ornamental, is not “also a symbol that identifies and distinguishes a single source.” To evaluate whether a trademark’s use is ornamental, courts consider the size, location, and dominance of the symbol on the good in question, in addition to whether the symbol is marked with TM or ® indicators. Large, dominant, centrally located symbols are likely to be ornamental, whereas small symbols or stamps on goods are seen as non-ornamental and source-indicating. In its memorandum order, the court agreed with Vintage that its use of the Penn State marks was ornamental because the marks were large and dominant on the goods in question.
As for the source-identification prong, Penn State argued that the marks by their very nature identify and distinguish Penn State as the source of the merchandise because of the mental association consumers have with the college’s trademark, therefore fulfilling their trademark purpose of identifying a source of goods. Vintage responded that consumers purchase college-branded merchandise not because the marks denote the college as a source, but because the consumers want to signal support for that particular school.
In reaching a decision, the court noted that modern trademark law struggles with colleges’ exercise of exclusive trademark rights over their merchandise. Some courts have held that colleges and universities’ trademarks properly indicate the college as a source because a consumer only purchases college-branded merchandise based on the mental association between the college’s trademark and the college itself, or what the court termed the “per se” approach. Other courts have held that trademark law requires that consumers believe the trademark holder is the source or sponsor of the goods, rather than believe in an association between the mark and the college in question.
The Middle District of Pennsylvania ultimately rejected Penn State’s position, denied its motion to dismiss and permitted Vintage’s failure to function defense to proceed to summary judgment. The court offered two primary reasons for this holding: (1) circuits have stopped using the “mental association” approach in favor of an analysis of whether consumers tie the product to a trademark holder, rather than the symbol; and (2) purchasers could have a variety of beliefs as to the source of college-branded merchandise, and beliefs of those purchasers should be determinative.
Future Implications
The court then went beyond its holding and, in dicta, felt “compelled” to summarize criticisms of the existing college merchandising system, and the broad merchandising rights that support that system. Specifically, the court observed that exclusive college trademark control does not necessarily serve trademark law’s goals of investment in product quality or preventing consumer deception. In fact, the court observed that exclusive college trademark control might actually decrease competition. The court advised Penn State to have an answer to these criticisms at summary judgment.
The court further noted that trademark law appears to be trending in the direction of a more fact-intensive approach to determine consumer confusion where the alleged infringer does not claim that the trademark holder officially sponsors the goods. That situation, the court reasoned, could be remedied by a disclaimer as opposed to an injunction.
The court further directed the parties to address these questions on summary judgment:
(1) What percentage of consumers are confused about the source or sponsorship of Vintage Brand’s products?;
(2) Does consumer belief and confusion vary by logo or the type of merchandise at issue?; and
(3) Does consumer confusion stem from their belief that the law requires Penn State’s permission to sell the trademarked goods?
That said, the court’s holding focused on what it recognized was a narrow issue; specifically, that trademark holders like colleges cannot demonstrate that their marks identify the source of goods when the mark in question only creates an “association” between the mark and the trademark holder. Despite the court’s dicta, which admittedly reads as hostile to the collegiate merchandising industry generally, this is not the death knell to the industry that it could have been. Assuming the rationale of this holding gains traction in other circuits, colleges facing failure to function challenges to their marks will face fact-intensive inquiries to establish what customers believe about the source of the goods sporting the college logo. Penn State will have that opportunity, as will any other school.
If consumers’ beliefs are consistent with Penn State’s argument, colleges might be subject to a more rigorous analysis, but little is likely to change. If, however, consumers are buying college-branded merchandise primarily to show their support for their alma mater, this could lead to college trademarks coming under scrutiny, which could impact college merchandising sales and lead to more competition in the sports merchandising market. Both schools and merchandisers should monitor subsequent holdings in this case, which should clarify the court’s initial ruling. As the court held, the future of this case, and the “house of sand” of the collegiate merchandising regime generally, will turn on consumer belief.
