Wednesday, August 19, 2015

Interesting Damages Issue in Michael Jordan Trademark Case

An article in this morning's Wall Street Journal discusses an interesting damages issue that has arisen in a trademark, false endorsement, and right of publicity action filed by former basketball superstar Michael Jordan against the (now-defunct) Chicago-area Dominick's supermarket chain.   I don't normally blog about non-patent cases, but the damages issue here is very interesting, and I can imagine (somewhat) analogous situations coming up in patent cases as well.

The facts of the case are these.  In 2009, Michael Jordan was inducted into the NBA Hall of Fame.  To commemorate Jordan's career, Time Inc., publisher of Sports Illustrated (SI) magazine, published a special issue on Jordan's career.  Prior to publication, Time approached various retailers and offered them free advertising space in return for the retailer's agreeing to stock and promote the magazine.  Two Chicago-area supermarket chains, Jewel and Dominick's, took up Time's offer, and the commemorative issue included ads by both stores congratulating Jordan on his induction.  Jordan filed separate actions against the two stores, claiming violations of Illinois state law (including Illinois's right of publicity statute) and the federal Lanham Act.  In the case against Jewel, the district court held that the ad was noncommercial speech (although the legal significance of this finding to the claims was a bit unclear), but the Seventh Circuit reversed.  See Jordan v. Jewel Food Stores, Inc., 743 F.3d 509 (7th Cir. 2014).  The case against Dominick's proceeded to trial and is, as of this morning, still pending.

Anyway, according to the Wall Street Journal article, Jordan is seeking damages in the millions of dollars, based on his claim that his standard fee for endorsing a product is $10 million.  The defendants contest this evidence, but let's assume for hypothetical purposes it's correct:  that Jordan would have refused an offer of less than $10 million, because he doesn't want to set a precedent of accepting a lower fee for his services.  If Dominick's is found liable, what should Jordan's damages be?

The answer, I suspect, is something well below $10 million.  I don't claim knowledge of the underlying facts, but let's assume that Dominick's would not have agreed to pay Jordan $10 million--it simply wouldn't have been worth $10 million to them to run the ad.  It seems to me that Jordan can't really claim $10 million in lost profits, because but for the infringement the defendant would not have run the ad at all.  (By contrast, in a typical patent case in which the value of the invention to the patent owner is greater than the expected value to a prospective user, the patent owner will refuse to license the invention and instead use the invention itself.  If the user infringes, it may deprive the patent owner of sales and hence the profit that would have been earned on those sales.  See Blair & Cotter, Intellectual Property:  Economic and Legal Dimensions of Rights and Remedies 52-54 (2005).  But here, it doesn't appear that the defendant's use cut into any sales that Jordan himself would have made.)  Similarly, a reasonable royalty (assuming that that remedy is available at all in trademark actions--my recollection is that in the Seventh Circuit it is) seems out of the question, at least if it is calculated according to the familiar hypothetical bargain, willing licensor-willing licensee framework.  On our hypothetical facts, the parties never would have reached an agreement at all.

That leaves restitution, and maybe that is the right remedy on these hypothetical facts:  the defendant should have to disgorge the profit it earned as a result of the infringement.  U.S. trademark law, unlike U.S. utility patent law, allows this remedy, though in most circuits (I'm not sure about the Seventh Circuit) the rule is that disgorgement is permitted only for willful infringement.  In any event, maybe disgorgement is the best fit here, because Dominick's (on our hypothetical facts) obtained the benefit of Jordan's services, and should compensate him for the profit earned as a result of the use.  But that profit would only be the marginal profit brought in by the SI ad, which I would have to assume is fairly low.

Perhaps the above analysis suggests a rationale for restitutionary recoveries in trademark and unfair competition cases that would be lacking in most patent cases, namely where the plaintiff would refuse to license its IP at a price the defendant would have been willing to pay, because it wants to maintain a degree of exclusivity, but lost profits are not available because the plaintiff didn't actually lose any profits from the defendant's use.  But is the defendant's conduct willful, assuming that's a requirement?  It was surely intentional, but the key may be the definition of willfulness.  Perhaps the defendant had a good faith, even if ultimately unsuccessful, defense (as did Jewel in the parallel case).  If so, permitting a restitutionary recovery risks overdeterring other actors from engaging in conduct that is in the gray area between clearly lawful and clearly unlawful, because if they guess wrong they are on the hook for the entire profit earned as a result of the undertaking.  In the long run, the scope of IP rights marginally expands as a result.  But maybe there's no better option on these unusual facts.

Now, for the possible patent parallel.  In recent papers, both Erik Hovenkamp (in a paper I mentioned here) and Jonathan Masur (in a paper I'll probably blog about soon; I haven't read it in its entirely yet) have noted that a patent owner may have an incentive not to license its patent to a prospective user, even when doing so would appear to be in both parties' mutual interest, if the value of the use to the user would be relatively low, because in licensing at a low rate the patent owner is potentially creating a precedent (in the form of a comparable license) that could be used in litigation against other firms who otherwise might have been willing to pay a higher fee.  That seems to be a parallel to our hypothetical version of the Jordan case:  the patent owner (if it's an NPE, let's say) cannot claim lost profits, but the parties also wouldn't have agreed to a royalty at a rate the patent owner would have accepted.  But under U.S. law the disgorgement of the defendant's profit is ruled out too.  Maybe the correct remedy is a reasonable royalty at a rate that would have been rational for the parties to accept aside from concerns over possibly diluting the value of the patent in other licensing transactions (unless the patent owner's interest lies in granting exclusive licenses, in which case the correct remedy might be the lost royalty income that the patent owner would have derived but for the infringement).  I'll have to think about this some more, and would welcome feedback from interested readers. 

Update (August 24, 2015):  I just heard that late last week the jury awarded Jordan $8.9 million.  Based on the analysis above, I'd like to believe this will be reduced either by post-trial motion or on appeal; I just don't see how an amount that large can be defended on a lost profits, reasonable royalty, or disgorgement basis.  (Regarding the latter, according to this story the benefit to Dominick's of using Jordan's name in the specific ad at issue was negligible.)  We'll see what happens . . .     


  1. There is lot of articles on the web about this. But I like yours more, although i found one that’s more descriptive.
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