IP Law Daily, TRADEMARK—CDIll: All Star Championship Racing Infringed Trademarks of O’Reilly Automotive After Licensing Period Expired, (Apr 19, 2013)

By Mark Engstrom, J.D.

Automobile parts retailer O’Reilly Automotive Stores prevailed in its trademark infringement and false endorsement counterclaims against automobile racing and sponsorship organizer All Star Championship Racing—for the period between July 16, 2011, and September 30, 2011—because All Star had used O’Reilly’s marks without a license, during that period, the federal district court in Urbana, Illinois, has ruled (All Star Championship Racing, Inc., April 18, 2013, McCuskey, M.). Summary judgment of infringement was granted to O’Reilly for the 10-week period in 2011, but was denied for all other disputed periods because issues of fact remained.

In 2006, All Star acquired the right to display O’Reilly’s trademarks—for the 2008 through 2009 seasons of the “All Star Circuit of Champions” racing series—on marketing, advertising, and other affiliated materials. In 2007, the parties entered into a similar agreement for the 2008 through 2010 seasons of the “Midwest All Star” series. At some point in 2010, a dispute arose between the parties regarding the formation and validity of a contract that would have renewed All Star’s advertising rights for the 2010 through 2012 seasons of the “All Star Circuit of Champions” series.

The parties disputed the existence of an oral agreement that purportedly extended the trademark license through the 2010 racing season, but All Star admitted that it lacked consent to use O’Reilly’s trademarks after December 31, 2010. All Star also admitted that: (1) in November of 2010, O’Reilly told All Star that it had decided to discontinue its sponsorship relationship with All Star; (2) the O’Reilly marks had appeared on All Star’s website, in numerous places, between January 2011 and June 2011; (3) All Star had received a cease and desist letter from O’Reilly on July 1, 2011, stating that the parties did not have a licensing agreement; and (4) All Star continued to use O’Reilly’s marks, though August 22, 2011, on its website, on signs at the races it managed, and in website photographs of race winners that stood beside a sign that included the O’Reilly marks. All Star asserted, however, that its failure to remove the marks from its website was “simply an oversight.”

In 2011, All Star filed a complaint against O’Reilly in an Illinois state court. The complaint alleged that O’Reilly had breached its contract with All Star. O’Reilly removed the case to federal court and filed counterclaims for federal trademark infringement, false designation of origin (false endorsement), and three state law claims.

Trademark Infringement

O’Reilly alleged that All Star had engaged in trademark infringement when it used O’Reilly’s marks, without O’Reilly’s consent, in violation of 15 U.S.C. §1114. To prevail on its trademark infringement claim, O’Reilly had to establish that: (1) its marks were protectable; (2) All Star’s use of those marks was likely to cause consumer confusion; and (3) All Star’s use of the marks was not authorized.

Validity of marks. All Star did not contest either the validity of the O’Reilly marks or the ownership of those marks by O’Reilly. For the purpose of this case, the marks were deemed valid and protected.

Likelihood of confusion. The court noted that a special presumption existed for trademark licensees. More specifically, a likelihood of confusion existed as a matter of law if a licensee continued to use, after the termination of its license, marks that were owned by the licensor.

All Star argued that it had not “used” O’Reilly’s marks because All Star was unable to profit from them economically. That argument, however, added a trademark infringement element that did not exist: economic benefit to the alleged infringer (or economic damage to the trademark holder). Only three infringement elements existed, the court explained. Those elements were: (1) whether the mark at issue was valid; (2) whether the use of that mark was likely to cause consumer confusion; and (3) whether the alleged use was authorized. No economic harm or disadvantage to the holder of the mark was required.

All Star also argued that its continued display of the O’Reilly marks, in association with its own products, constituted “free advertising.” Because trademark infringement claims did not require an economic benefit to accrue to the alleged infringer, the “free advertising” argument was unavailing, according to the court.

Finally, All Star argued that infringement could not be shown because O’Reilly failed to allege that “anyone mistook the All Star racing circuit for O’Reilly.” According to All Star, “there [wa]s nothing in the advertising that would cause someone to go to All Star to purchase auto parts.” Therefore, “the inadvertent appearance of the O’Reilly name after the termination of the relationship d[id] not add to confusion of trademarks.”

The argument was spurious, in the court’s view. In an endorsement scheme, such as the one in this case, the “confusion” issue that arose (when an ex-licensee continued to use a licensed trademark after the license was revoked) was not whether consumers would confuse the ex-licensee for the licensor per se; the confusion issue was whether the consumer would think that the licensor was continuing to endorse the licensee’s product. The continuing (but incorrect) “illusion of an extant relationship between the two entities” was the source of the confusion, the court explained.

Consent. Because the 2007 through 2009 licensing agreement had no express terms that limited All Star’s use of the O’Reilly marks, or gave O’Reilly the power to engage in quality control, the court could not conclude that O’Reilly had granted All Star an express trademark license for that time period. The court thus concluded that O’Reilly “must have intended to grant All Star an implied naked license.” This conclusion was supported by O’Reilly’s own attachment of an “Additional Terms and Conditions” rider to the 2010 through 2012 agreement that, among other limitations, specifically revoked the license upon termination or expiration of the parties’ agreement.

It was O’Reilly, however, that argued that the 2010 through 2012 agreement was not countersigned, and therefore was not binding under the Statute of Frauds. The self-evident severability of the licensing terms from the sponsorship agreement also suggested that the unenforceable written sponsorship contract was distinct and independent from any implied license to use the O’Reilly marks, and the termination of the sponsorship agreement was neither a necessary nor a sufficient condition for the termination of the implied trademark license. In any case, the statute of frauds did not apply to an implied license because either party could have terminated the license within a year.

Accordingly, a genuine issue of material fact remained as to: (1) whether O’Reilly had granted All Star an implied license to use the O’Reilly marks and (2) when such a license would have been terminated. All Star admitted that it did not have “specific” permission to use the marks after December 31, 2010, but it denied that it lacked O’Reilly’s consent to do so. That admission, combined with the contested issue of whether O’Reilly had supplied All Star with promotional items to give away at the 2011 races, and whether O’Reilly had approved all promotional and advertising actions that were taken by All Star during the 2010 racing season and through November 2011, raised the question of whether an implied license was granted, thereby permitting All Star to use the O’Reilly marks for the 2010 and 2011 racing season.

All Star did, however, admit that it had received a July 2011 letter that revoked its authorization to use the O’Reilly marks. It also admitted that it had posted a news article on its website, in July of 2011, which stated that: (1) All Star had removed O’Reilly as its title sponsor and (2) all of O’Reilly’s trademarked material had been removed from “all logos, printed material, and social media from this date forward.” According to the court, this statement “appeared to be an implicit admission” that All Star’s authorization to use the O’Reilly marks had been rescinded as of that date.

The last date that All Star admitted to its website’s use of the O’Reilly marks was September 30, 2011. It thus became clear that All Star had continued to use the O’Reilly marks on its website after it should have ceased all use of those marks. Accordingly, the parties did not dispute that All Star had become a holdover licensee as of the earlier date that both parties agreed that permission had been revoked: July 16, 2011.

Because the ongoing validity of the licensing agreement was disputed for 2010 and 2011, summary judgment could not be granted for O’Reilly’s trademark infringement counterclaim for the contested portions of the 2010 season. Because the parties did not dispute the fact that All Star: (1) lacked a license to use the O’Reilly marks between July 16, 2011, and September 30, 2011, and (2) used O’Reilly’s marks in a way that was likely to cause confusion by operation of law, summary judgment was granted for the trademark infringement counterclaim for the period between July 16, 2011, and September 30, 2011, for all the O’Reilly marks.

False Endorsement

O’Reilly alleged that All Star had violated the false designation of origin provision of 15 U.S.C. §1125(a). A clearer name for this claim, as the Seventh Circuit had called it, was “false endorsement.” An act of false endorsement occurred when the identity of a person or entity was connected with a product or service in such a way that consumers were likely to be misled about that person or entity’s sponsorship or approval of the product or service. The court noted that the elements of a false endorsement claim were essentially the same as the elements of a trademark infringement claim. Because the two causes of action had substantially similar elements, and because the court had already found that All Star had infringed O’Reilly’s marks for the period between July 16, 2011, and September 21, 2011, O’Reilly’s motion for summary judgment of false endorsement was granted for the period between July 16, 2011, and September 30, 2011. It was denied, however, for all other periods.

Use of Counterfeit Marks

The use of a counterfeit mark in the context of the Lanham Act was not, in and of itself, a cause of action. Rather, in a civil action arising under §1114, a finding of counterfeiting allowed the harmed party to recover additional remedies, including seizure of the counterfeit goods, statutory damages, treble damages, and attorney’s fees. In this case, O’Reilly invoked the counterfeit mark provisions to receive those additional remedies.

The question of whether a holdover licensee’s use of a formerly-licensed mark constituted the use of a “counterfeit mark” appeared to be a matter of first impression in the Seventh Circuit (and perhaps in all of the federal judiciary). Based on an analysis of case law, a comparison of sponsorships with franchises, and the legislative history of the federal trademark counterfeiting legislation, the court ruled that a holdover licensee’s use of a formerly-licensed mark constituted the use of a counterfeit mark only if the allegedly infringing incident or product had occurred or was manufactured after the alleged infringer had lost its authorization to use the mark.

Because All Star was not authorized to use the O’Reilly marks after July 16, 2011, but had done so anyway, the counterfeiting enhancements were applicable.

Order

O’Reilly’s motion for summary judgment was granted in part and denied in part. The balance of the case was referred a magistrate judge for court-hosted mediation, and the parties were directed to contact the magistrate’s chambers to schedule a settlement conference.

The case is No. 11-CV-2160.

Attorneys: John Bramfeld (John F. Bramfeld Law Office) for All Star Championship Racing, Inc. Stephen R. Kaufmann (Hepler Broom LLC) for O’Reilly Automotive Stores, Inc.

Companies: All Star Championship Racing, Inc.; O’Reilly Automotive Stores, Inc.

Cases: Trademark IllinoisNews