July 7, 2019 | By: Oliver Herzfeld - Kawhi Leonard recently commenced a lawsuit against Nike. According to the complaint, in 2011, just after being drafted to the NBA, Leonard created a logo based on a tracing of his notably large hand. Inside the hand, Leonard drew stylized versions of his initials “KL” and the jersey number “2” that he had worn for much of his career. In 2014, as part of an endorsement deal with Nike, Leonard shared his so-called “Klaw” logo with Nike for use with merchandise within the scope of the agreement. After Nike proposed several revised versions that Leonard rejected, Leonard finally approved a version of his logo that was modified by Nike. Unbeknownst to Leonard, Nike filed an application for copyright registration of the modified logo and represented in the application that Nike had authored the logo.
After the expiration of his agreement with Nike in 2018, Leonard signed-on to a new endorsement deal with New Balance. That is when hostilities between the parties escalated. In a series of communications commencing in December 2018, Nike conveyed to Leonard that it owns all intellectual property rights in the logo and demanded that Leonard cease and desist from what Nike claimed was the unauthorized use of the logo. In response, Leonard brought the current legal action seeking a declaratory judgment that (i) Leonard is the author of the logo, (ii) his use of the logo is non-infringing, and (iii) Nike, in registering the copyright, committed fraud on the U.S. Copyright Office.
The complaint mentions that Leonard successfully registered a version of the logo as a trademark with the U.S. Patent and Trademark Office. However, as pointed out by Richard M. Mescher, Partner, Porter Wright in Technology Law Source, that registration will have little bearing on the outcome of the dispute because trademarks are primarily source-identifiers. The main function of a trademark is to identify to consumers goods and services that are of consistent quality and prevent consumer confusion among competing producers of goods and services. Trademarks alone do not provide ownership rights to logos, symbols, designs and other images included in the marks. Consequently, if Nike prevails, Leonard’s use of the logo as a trademark would still constitute copyright infringement.
In December 2018, John Matterazzo, Nike’s VP & Global Counsel for Sports Marketing, wrote to one of Leonard’s representatives, stating that Nike owns the logo pursuant to Leonard’s agreement with Nike and its copyright registration. That letter suggests that Nike is claiming the logo is a so-called “work made for hire.” A work made for hire is an exception to the default rule under copyright law that the person who actually creates a work is the legal owner of that work. In particular, Nike seems to be claiming that Leonard conveyed ownership in the logo as part of the “personal services and expertise in the sport of professional basketball and endorsement of the Nike brand and use of Nike products” that Leonard was paid for under the endorsement agreement. Unfortunately for Nike, the circumstances in which a work is considered a "work made for hire" are strictly limited to either:
(1) a work prepared by an employee within the scope of his or her employment; or (2) a work specially ordered or commissioned for use as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas, if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.
Applying this definition, one must first consider whether a work was prepared by an employee or an independent contractor. If an employee created the work, the work will generally be considered a work made for hire. According to the U.S. Supreme Court, in determining whether a hired party is an employee:
we consider the hiring party's right to control the manner and means by which the product is accomplished. Among the other factors relevant to this inquiry are the skill required; the source of the instrumentalities and tools; the location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the hired party; the extent of the hired party's discretion over when and how long to work; the method of payment; the hired party's role in hiring and paying assistants; whether the hiring party is in business; the provision of employee benefits; and the tax treatment of the hired party.
Community for Creative Non-Violence v. Reid, 490 U.S. 730 (1989)
Based on these factors, Leonard would likely not be regarded as an employee of Nike. Further, according to the U.S. Copyright Office, if an independent contractor created the work, it will be treated as a work made for hire only if (i) it was specially ordered or commissioned, (ii) it falls within one of the nine categories of works listed in the second part of the definition above, and (iii) there is an explicit written agreement between the parties specifying that the work is a work made for hire by use of the phrase "work for hire" or "work made for hire.” All of the above criteria must be present for a valid work for hire. Otherwise, ownership in the work will remain with the creator - even if the creator is paid for the work. Based on Leonard’s allegation in the complaint that he never transferred to Nike ownership rights to the logo, it is not unreasonable to assume Leonard’s endorsement agreement with Nike was silent on the issue of ownership and did not include the required wording. In such event, the logo will likely be deemed not to be a work made for hire owned by Nike.
If the logo is deemed not to be a work made for hire, Nike may try to claim it is an authorized derivative work. A derivative work is a work that incorporates some or all of a preexisting work and adds new original copyrightable authorship to that work. Although a derivative work refers to the work as a whole, and not just to the modifications, according to the U.S. Copyright Office, "The copyright in a derivative work covers only the additions, changes, or other new material appearing for the first time in the work." Protection does not extend to any preexisting material owned by the author of the original work. In other words, the preexisting material in the original work is part of the derivative work, but the copyright in the derivative work extends only to the new material contributed by the author of the derivative work, as distinguished from the preexisting material employed in the work. In this case, if the logo registered by Nike is deemed to be an authorized derivative work, Leonard's original logo would be deemed part of Nike's copyrighted derivative work as a whole and Leonard would not be permitted to use the modified logo without Nike's consent. But Nike would not obtain any copyright rights in, and would not be legally able to prohibit Leonard from using, Leonard's original logo.
Apart from work made for hire and derivative work claims, another possible response by Nike would be to assert its modification of Leonard’s original logo was “transformative.” Transformative use is a relatively new addition to copyright law, having been first raised in a U.S. Supreme Court decision in 1994. A derivative work is transformative if it uses a source work in completely new or unexpected ways "altering the original with new expression, meaning, or message." For Nike to prevail, it would have to claim its modified version of Leonard’s logo was sufficiently transformative such that it represents a completely new creative work. If successful, such a claim would provide Nike with ownership of its entire modified logo, not just the additions and changes provided by Nike, and once again, Leonard would not be permitted to use the modified logo without Nike's consent. But Nike would still not obtain any copyright rights in, and would not be legally able to prohibit Leonard from using, Leonard's original logo. At this point, however, it remains unclear as to whether Nike will be able to support such a claim.
According to Marc Schneider, CFO and COO of Beanstalk (where I work), "It is usual and customary to formally and clearly address ownership of work product in license and endorsement agreements with athletes and other famous personalities." That is why this case is a wake-up call to contracting parties to avoid simply filling in the blanks of generic endorsement and other agreements using “off the shelf” form language. The time, resources and costs devoted to this dispute could have been avoided with some more thoughtful drafting to memorialize the parties’ intent regarding ownership of creations including the logo. Doing so would have allowed Leonard to focus more of his attention on using his famous “Klaw” hands on the basketball court instead of being distracted by this lawsuit in an attempt to claw-back ownership of his logo.