Federal Circuit Smells What COFC Was Cooking and Approves, Holds that Army’s Refusal to Allows Its Brand to Be Used in Advertising Featuring Dwayne “The Rock” Johnson Did Not Violate Contract; Authentic Apparel Group, LLC, Ron Reuben v. United States, Fed. Cir. 2020-1412

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COFC decision finding that Army did not breach a trademark license agreement is affirmed. The contractor had an agreement with the Army that allowed it to use the agency’s trademarks on apparel. The contractor alleged the Army breached the agreement when it refused to allow the company to use the agency’s trademarks as part of an advertising campaign featuring The Rock. The court found that Army had not breached in denying use of its trademarks. The license agreement gave the Army sole discretion to approve use and exempted the agency from liability arising from a denial of use. What’s more, the Army had actually approved more than 90% of the contractor’s proposed uses. Thus, the court could not find that the refusal of a fraction of proposed uses was arbitrary.

The Army granted Authentic Apparel Group, LLC a license to manufacture and sell clothing bearing the Army’s trademarks. The license agreement gave the Army sole and absolute discretion to approve use of its trademarks. The agreement exempted the Army from liability for exercising its discretion to refuse Authentic’s products or marketing materials.

Authentic submitted more than 500 requests to the Army for approval. The Army approved all but 41. In 2014, however, Authentic and its chairman Rob Reuben, sued the Army in the Court of Federal Claims, alleging that the agency had breached the licensing agreement by (1) denying the use of trademarks for advertising featuring Dwayne “The Rock” Johnson, (2) refusing to permit Authentic to advertise its contributions to Army recreation programs, and (3) delaying financing for a footwear line.

The COFC dismissed Reuben from the case for lack of standing. The COFC then granted the Army summary judgment on Authentic’s claims, finding that the company was not entitled to damages based on the Army’s exercise of discretion in approving its trademarks. Authentic appealed to the Federal Circuit.

Authentic alleged the COFC erred in dismissing Reuben. While Reuben was not a party to the license agreement, Authentic argued that Reuben was a third-party beneficiary of the agreement. Reuben’s previous company, All American Apparel, also had a license agreement with the Army. Reuben claimed that the Army breached that previous license agreement, which caused All American to go bankrupt. As a result, the Army decided to give Rueben’s new company, Authentic, a more favorable deal to compensate Reuben for the damages caused by the breach of the previous license.

The court, however, did not believe Reuben was a third party beneficiary of the second license. Even accepting Reuben’s allegations as true, he had at most demonstrated that his personal circumstances may have contributed to the Army agreeing to certain terms in the second license agreement. Nevertheless, it was not Reuben that received the benefit of paying a lower royalty rate; instead, Authentic received the actual benefit. While Reuben undoubtedly stood to benefit from the arrangement with Authentic, he hardly differed from any other business owner that benefits from the transactions of their company.

As to Authentic’s claim for breach, the court noted that the license agreement stated in no uncertain terms that Army had sole discretion regarding the use of its trademarks and that Authentic had no right to bring a cause of action based on the exercise of that discretion. Thus, Authentic agreed to bear the risk that the Army would exercise discretion to Authentic’s detriment. Although that detriment had come to pass, the court reasoned that this did not constitute a reason to uproot the parties’ agreement.

Still, Authentic contended that even if the Army had broad discretion under the agreement, that discretion could not be so broad as to allow the Army to refuse use of the trademarks for “trademarks purposes.” Essentially, Authentic argued that the purpose of a trademark is to identify for consumer’s the product’s source. Authentic alleged that it therefore had the right to identify the Army as the source/sponsor of the licensed goods.

But the court found that this argument missed the mark. As an initial matter, Authentic, not the Army, was the source of the goods branded with the Army’s trademarks. Authentic did not have right under a “trademark purposes” theory into misleading consumers into thinking that the Army was the source of the products.

What’s more, Authentic’s argument was based on an outdated view of trademark licensing. At one time, it was accepted that a trademark’s purpose was to identify a product’s source. But in the middle of the 20thcentury, a new theory developed conceiving of trademarks as also identifying product quality for consumers. Under this theory, the Army was required to maintain quality control over the products associated with its trademarks. Authentic had not alleged that such quality control measures were lacking in this case. In fact, Authentic’s entire complaint was based on the theory that the Army’s quality control measure were too strict. Thus, the Army actually fulfilled the obligation to allow use of its trademark for “trademark purposes.”

Authentic contended that the only way it could have capitalized on the goodwill of the Army’s trademarks would have been by giving consumers the impression that they were getting goods from the Army. But, the court reasoned, a trademark need not be in the name of the manufacturer of the goods, and the public need not know the name of the owner of the mark. A trademark may properly display only the name of the mark and the licensee.

The court concluded by noting that it could not say that the Army had abused its discretion in denying approval of it trademarked. The fact remained that the Army approved more than 90% of Authentic’s proposals. There was not dispute of material fact the Army acted arbitrarily or in bad faith in rejecting a mere fraction of Authentic’s proposed use of the agency’s brand.

Authentic is represented by J. Joseph Bainton, The government is represented by Borislav Kushnir, Jeffrey B. Clark, Robert Edward Kirschman, Jr., and Douglas K. Mickle of the Department of Justice as well as James Mackey Ives of the Army.

Fed. Cir. Authentic Apparel