Nike Inc. and Reebok Int’l Ltd. recently settled a high-profile dispute over the sale of NFL apparel bearing the name and jersey number of star New York Jets quarterback Tim Tebow. Nike had filed suit against Reebok in late March, alleging that Reebok’s sales of Tebow jerseys following his unexpected trade to the New York Jets was in breach of Reebok’s recently expired licensing agreement with NFL Players Inc. and violated Nike’s rights under its new exclusive licensing deal with the NFL. A federal judge issued a temporary restraining order blocking the sale of Reebok-brand NFL apparel bearing Tebow’s name and number, which it later extended into a preliminary injunction after finding that Nike had proven a likelihood of success on the merits of the underlying suit. See Nike Inc. v. Reebok Int’l Ltd., No. 1:12-cv-02275 (SDNY, Apr. 4, 2012).

Licensing agreements are a common theme in the world of professional sports. In order to manufacture and sell player jerseys, a company must obtain two distinct grants of intellectual property rights: (1) a license to use the trademarks owned by the sports league and its member clubs (e.g., the “NFL Shield” logo and the names, logos, and jersey designs for individual teams); and (2) a license to use players’ names and jersey numbers. The former is available only by going through NFL Properties, the licensing arm of the NFL, while the latter may be obtained either on an individual basis (i.e., directly from a particular player) or as a group license granted by NFL Players Inc., the licensing arm of the NFL Players Association.

In October 2010, it was announced that Nike would take over as the NFL’s exclusive provider of licensed uniforms and apparel, ending Reebok’s 12-year run in that role. Under its existing agreement, Reebok would continue to supply NFL uniforms and apparel until the expiration of its licenses from NFL Properties and NFL Players Inc. on April 1, 2012, and March 1, 2012, respectively. Under the staggered-expiration structure of these licenses, Reebok could continue to produce NFL gear from March 1 to March 31, provided that it manufactured no new apparel bearing player information during this time. Nike, meanwhile, would begin its exclusive five-year contract on April 1.

On March 21, quarterback Tim Tebow, America’s most popular professional athlete according to a January ESPN poll, was traded from the Denver Broncos to the New York Jets, sparking a rush by fans to purchase Jets-related apparel bearing the Tebow name. Although Nike had already obtained an individual license from Tebow granting it the exclusive right to use his name in connection with apparel, its agreement with NFL Properties would not begin until April 1, meaning that Nike did not yet have the authority to manufacture the sought-after apparel and could not immediately capitalize on the excitement generated by the trade. Naturally, Reebok hustled to fill the void, producing approximately 6,000 Tebow jerseys and 25,000 Tebow t-shirts.

Nike proceeded to file suit, claiming that Reebok had deliberately undercut Nike’s build-up to the April 3 unveiling of its new line of NFL apparel and seized a one-time opportunity for Nike to link its brand with the former Denver Broncos signal-caller, who had boasted the second-highest selling NFL jersey during the 2011 season. Nike argued that because Reebok’s license from NFL Players Inc. had expired, Reebok was not authorized to manufacture New York Jets merchandise featuring Tebow’s name and number. Nike therefore demanded an injunction barring further sales of Tebow-Jets jerseys and apparel, recalling any such merchandise that had been sold to retailers, and ordering the destruction of any unauthorized Tebow merchandise. In addition to the injunction request, Nike also sought punitive damages.

Reebok nevertheless defended its actions by pointing to a contract provision in the player license agreement permitting Reebok to sell its leftover inventory for 60 days following the expiration of the agreement. Under this provision, Reebok could sell, until March 31, 2012, any Denver Broncos merchandise bearing Tebow’s name and number that it had manufactured prior to March 1, 2012. Likewise, it argued, any “blank” New York Jets jerseys it had on hand at the expiration of the agreement qualified as leftover inventory, and Reebok’s addition of Tebow’s name to these jerseys did not affect their status for the purposes of this provision.

The federal court, however, rejected Reebok’s argument and granted Nike’s request for a preliminary injunction, noting that if one had looked at Reebok’s inventory on February 28, one would have found no New York Jets apparel bearing Tebow’s name, as the Tebow trade had not yet taken place and Tebow remained a Denver Bronco as of this date. With the leverage shifted heavily in Nike’s favor, the parties ultimately settled the case in the weeks that followed. As part of the settlement agreement, Reebok agreed to remove any Tebow-Jets apparel from the sales chain and buy back any remaining apparel from stores.

Any company that is a party to complex licensing agreements should carefully consider Reebok’s recent challenges and take steps to have appropriate counsel review any such agreements, particularly as they approach their expiration. Proactive efforts to understand the nuances of these agreements may go a long way to avoiding potentially costly misunderstandings. For more information on licensing or intellectual property rights in general, please contact the attorneys listed at right.