Introduction to the Kawhi Leonard-Nike Controversy

 

Introduction to the Kawhi Leonard Logo Controversy

SMU Sports & Entertainment Law Association

Nolan McCarthy

June 12, 2019

Kawhi Leonard

Image From: Kawhi Leonard (@kawhileonard), Twitter, https://twitter.com/kawhileonard?lang=en.

 

The day after a Game 2 loss in the NBA Finals, Kawhi Leonard’s name appeared in the news for non-basketball reasons. On June 3, 2019, the NBA superstar filed a copyright infringement lawsuit in Southern California’s Federal District Court against his former sponsor and sports apparel conglomerate, Nike. The dispute arose after the parties’ seven-year business relationship came to an end in September 2018 and Leonard signed an endorsement deal with New Balance. The Complaint concerns the ownership rights to Kawhi Leonard’s personal logo (the “Leonard Logo”) pictured above.[1] Leonard plans to use the logo in connection with his charity events and sports camps, and on merchandise that he is developing and hoping to bring to market.[2] According to the Complaint, Nike ordered Leonard to cease using the logo on any non-Nike merchandise, and claimed ownership of all intellectual property rights in the Leonard Logo.[3]

Pursuant to a contractual agreement, Leonard provided “personal services and expertise in the sport of basketball and endorsement of the Nike brand and use of Nike products” from October 2011 until September 2018.[4] At some point in late 2011 or early 2012, Leonard claims to have designed the logo at issue and to have been contemplating its design since he was in college.[5] After failed attempts to collaborate with Nike to design a new personal logo to use for merchandise, he “forwarded to Nike the Leonard Logo which Leonard said he would permit Nike to use during the term of the Nike Agreement (under his supervision and control).”[6] After Nike offered amendments to the design in Spring 2014, according to Leonard, the parties agreed on a version of the logo based upon Leonard’s original design, for Nike to affix on merchandise for the duration of the contract.[7]

Even though Nike claims to have authored the logo in 2014, Nike did not receive a copyright for the logo until May 2017.[8] The Complaint claims that Nike knew the logo was not the exclusive property of Nike and supports this by mentioning various communications in which Nike representatives referred to the design as “Kawhi’s logo” and by noting that Nike allowed Leonard to continue using the logo on non-Nike apparel during the duration of the business relationship—without objection.[9] According to the complaint, Nike filed for the copyright without ever informing Leonard of its intention to register the Leonard Logo as their property.

Leonard seeks Declaratory Judgment that: (1) he is the sole author of the Leonard Logo, (2) Leonard’s use of the logo does not infringe on any of Nike’s rights, and (3) Nike committed fraud in registering the copyright.[10] The Complaint utilizes two statutory provisions to justify this result. The Copyright Act sets forth that the initial ownership of the copyright to a protected work is vested in the author of the work.[11] Leonard claims that he is the initial author of the work because he designed the logo while still in college, without the help of Nike. Additionally, Leonard asserts that the Logo does not constitute a “work made for hire” which is defined as:

  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.[12]

However, the Complaint merely states that the Logo did not fit within the definition of a “work made for hire” and failed to provide concrete evidence supporting Leonard’s position that the design was not prepared within the scope of his employment with Nike.

Judgment in this case will ultimately depend on the classification of the logo. If it is deemed a “work made for hire,” then the exception to the original author rule applies and the employer is considered the author and owner of the copyright, “unless the parties have expressly agreed otherwise in a written instrument signed by them.”[13] Accordingly, if the Leonard Logo is considered a “work made for hire,” Nike would be the rightful owner of the copyright, unless the contract specified a different arrangement. At this point in time, Nike has not responded to Leonard’s Complaint and the contractual terms of the business agreement regarding the allocation of intellectual property rights and the terms of the arrangement are not publicly available. According to experienced Intellectual Property Attorney, David Clark, the exact written terms of that business agreement and the nature of the employment relationship will be important factors in resolving this dispute.[14] Until the language of the contract is released, it is impossible to know which party has the stronger case.

At first glance, the timing of the lawsuit is strange, but it is actually the optimal time for Leonard to sue Nike. Playing at such a high level in the NBA Finals for the Toronto Raptors, a franchise that has never won an NBA Championship, Leonard’s brand has never been more recognizable and marketable. As a result, the public relations consequences that Nike will face if it decides to fight for the ownership rights of their former athlete’s personal logo will be disastrous to the brand that has already seen its name in the news for the wrong reasons in 2019.

This is the third significant, negative story involving Nike this calendar year. In February, Nike saw its market cap plummet $1.1 billion the day after college basketball phenom, Zion Williamson, was injured because his Nike shoe exploded at the beginning of a highly anticipated, and highly viewed, rivalry game between Duke and North Carolina.[15] Although Nike’s stock rebounded, the incident illustrated that one negative basketball-related event has the potential to drastically impact the financial position of publicly-traded Nike. One month later, Nike was again in the news after celebrity attorney Michael Avenatti, allegedly attempted to blackmail the company for around $20 million. While awaiting his trial, Avennati took his position public, claiming that Nike illegally bribed talented high-school athletes to attend Nike sponsored colleges for their collegiate careers.[16]  While no charges have been brought against Nike, the U.S. Attorney’s Office is currently investigating Nike’s possible role in a widespread college basketball recruiting scandal.[17] Interestingly, the allegations of illegal activities by Nike did not adversely impact Nike’s stock price and the stock was actually trading at a higher price at the end of the week of Avennati story.[18]

However, the dispute with Leonard could have greater ramifications if Nike does not handle it well. Over the past half-century, Nike sponsored the most iconic basketball players, including arguably the two greatest players in NBA history, Michael Jordan and LeBron James. Currently, Nike is competing for the opportunity to sponsor the next potentially transcendent basketball talent, Zion Williamson. Sonny Vaccaro, a former Nike and Adidas marketing executive, said in an interview that he anticipates the deal for Williamson’s services to be the “biggest bidding war ever.”[19] All of the big names in the industry are expected to compete for Williamson, including Nike, Adidas, Under Armour, Puma, Anta, and New Balance—Kawhi Leonard’s new sponsor.[20] For a company that is known to attract the most iconic figures in basketball, missing out on Williamson would be a devastating blow to the Nike brand.

Even if Nike has the superior legal argument for the ownership rights to the Leonard Logo—under the terms of the contract and the “work made for hire” classification, the costs associated with pursuing this litigation will probably outweigh any potential benefits resulting from a victory in court. If the lawsuit goes forward, the optics for the Nike brand are not good. Thanks in part to the strategic drafting of the Complaint by Leonard’s legal counsel, Nike could be viewed by the public as the billion-dollar company that is fighting to make extra profits by keeping an NBA Finals MVP from using his personal logo to support charities and youth camps. This despite the fact that Nike no longer sponsors Kawhi. In the business arena of sports marketing, public perception and relationships are vital to a brand’s success. Considering the increasingly competitive market for the Zion Williamson sponsorship, the shoe explosion incident, and the backlash from the Avennati claims, it is in Nike’s best interest to settle this dispute with Leonard to avoid putting its status of the premier basketball brand in jeopardy.

[1] Kawhi Leonard (@kawhileonard), twitter, https://twitter.com/kawhileonard?lang=en

[2] Compl. at ¶ 44, Leonard v. Nike, Inc., No. 3:19-cv-01035 (S.D. Cal. June 3, 2019).

[3] Id. at ¶¶ 45-47.

[4] Id. at ¶ 22.

[5] Id. at¶ 17-19.

[6] Id. at ¶ 25.

[7] Id. at ¶¶ 26-29.

[8] Id. at ¶ 37.

[9] Id. at ¶¶ 33-35.

[10] Id. at ¶ 56.

[11] 17 U.S.C. § 201(a).

[12] 17 U.S.C. § 101.

[13] U.S. Auto Parts Network, Inc. v. Parts Geek, LLC, 692 F.3d 1009, 1015 (9th Cir. 2012)(referencing 17 U.S.C. § 201(b)).

[14] See David Clark, Clawing Back Copyrights? Generic Fair Use (June 4, 2019), http://www.genericfairuse.com/2019/06/04/clawing-back-copyrights/#more-392

[15] Kate Gibson, Nike’s high-profile shoe fail costs $1.1 billion in stock value, CBS News (Feb. 21, 2019),

https://www.cbsnews.com/news/nike-stock-drop-zion-williamson-shoe-incident-and-injury-costs-1-1-billion-in-stock-value/

[16] Will Hobson, Michael Avenatti threatened to send Nike stock tumbling. So far, that’s not happening, The Washington Post (Mar. 29, 2019), https://www.washingtonpost.com/sports/2019/03/29/michael-avenatti-threatened-send-nike-stock-tumbling-so-far-thats-not-happening/?noredirect=on&utm_term=.efa8d8b99de1

[17] Mark Schlabach, Feds: Avenatti tried to extort $20M from Nike, ESPN (Mar. 26, 2019), https://www.espn.com/espn/story/_/id/26357332/feds-avenatti-tried-extort-20m-nike

[18] Hobson, supra.

[19] Scott Davis, Zion Williamson’s first NBA sneaker could start ‘the biggest bidding war ever’, Business Insider  (Apr. 2, 2019), https://www.businessinsider.com/zion-williamson-nba-sneaker-bidding-war-2019-4

[20] Id.

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