On July 17, 2019, Nike, Inc. (Nike) filed its Answer and Counter Claims in response to the complaint previously filed by Kawhi Leonard, now of the Los Angeles Clippers. Read about the complaint in our previous post, Kawhi Leonard v. Nike Inc.: How copyrights can trump trademarks?

In its Answer, Nike asks for a declaration that Nike is the sole owner of copyrights in the modified “KL2” logo, a finding that Kawhi’s use of the modified “KL2” logo infringes the copyrights owned by Nike, cancellation of Kawhi’s copyright registration to the modified “KL2” logo due to fraud in his copyright application, and a finding that Kawhi breached the “Men’s Pro Basketball Contract” he entered into with Nike on October 26, 2011.

Background

According to Nike’s Answer, Nike and Kawhi entered into an endorsement contract effective Oct. 1, 2011. The endorsement contract included standard terms and conditions including that:

“NIKE shall exclusively own all rights, title and interest in and to any logos, trademarks, service marks, characters, personas, copyrights, shoe or other product designs, patents, trade secrets or other forms of intellectual property created by NIKE (and/or its agents), CONSULTANT or ATHLETE in connection with this Contract”.

On or about April 14, 2014, Kawhi sent a sketch of his original “KL2” logo to Nike. Nike’s designers then created several proposed logos based on Kawhi’s sketch, including the modified “KL2” logo. Nike began selling merchandise branded with the modified “KL2” logo as early as spring of 2016. They then filed a copyright application for the modified “KL2” logo which issued as US copyright registration number VA0002097900 effective May 11, 2017.

The endorsement contract between Kawhi and Nike expired on Sept. 30, 2018. In November of 2018, Kawhi signed a new endorsement contract with New Balance, Inc. Not surprisingly, the “KL2” logo became an item of contention rather quickly. In December of 2018, Nike wrote to Kawhi that Nike owned the modified “KL2” logo pursuant to its US copyright registration and demanded that Kawhi cease use of the modified “KL2” logo on non-Nike merchandise. Kawhi responded in January of 2019 that he intended to continue using the modified “KL2” logo on non-Nike merchandise. In March of 2019, Nike responded that it owned all intellectual property in the modified “KL2” logo and demanded that Kawhi cease all unauthorized use.

On May 3, 2019, in the midst of the NBA finals, Kawhi Leonard filed his lawsuit against Nike. Kawhi’s lawsuit asked for a declaration that Kawhi is the sole author of the modified “KL2” logo, that his use of the modified “KW2” logo does not infringe the rights of Nike, and that Nike committed fraud in its copyright application for the modified “KL2” logo. Kawhi appears to have filed his own copyright application on June 3, 2019 which resulted in US copy Right Registration number VA0002153704.

Copyrights

Without the benefit of viewing the original “KL2” logo”, I previously indicated that there were three possible scenarios with regard to copyrights in the modified “KL2” logo. These were that modifications to the original “KL2” logo are:

  1. So minor that the modified “Kl2” logo, as a whole, is a copy or variation of the original “KL2” logo
  2. Significant enough that the modified “KL2” logo, as a whole, represents an original derivative work
  3. So transformative that the modified “KL2” logo, as a whole, represents an entirely new original work that is distinct from the original “KL2” logo

Original “KL2” logo Modified “KL2” logo

In comparing the original “KL2” logo” and the modified “KL2” logo (which are shown above), it is clear that the modifications to the original “KL2” logo are not minor and the modified “KL2” logo is not a copy or variation of the original “KL2” logo. For example, the wording “KL2” overlays an outline of a hand in the original “KL2” logo while the wording “KL2” forms a hand in the modified logo. It is important to note that pen names, pseudonyms, phrases, mottos, slogans, catchwords, advertising expressions and the like are not protectable by copyrights. If they are part of an original design or logo, however, the design or logo can be protectable by copyrights, but the copyrights cannot stop someone else from using the basic “words” in another way.

More broadly stated, copyrights do not protect facts or ideas; although they can protect the way those facts or ideas are expressed. The KL2 wording is expressed in a significantly different way between the two logos. Thus, we only need to review scenarios two (derivative work) and three (transformational) work in more detail.

Derivative Works

A derivative work is a new work that is based upon or derived from one or more pre-existing works. Common examples of derivative works are a translation of a book to a different language, a motion picture version of prior book or play, and a sequel movie that takes characters from a prior movie and tells what happened to those characters after the events in the prior movie. A derivative work must display some originality of its own separate from the pre-existing work. The derivative work cannot be an uncreative variation on the pre-existing work or it would simply be a copy of the pre-existing work.

As a result, a derivative work obtains copyrights separate from the copyrights of the pre-existing work. The copyrights in the derivative work protect only the new original elements in the derivative work that are created by the author of the derivative work. The copyrights in all the elements taken from the pre-existing work remain with the author of the pre-existing work.

The owner of the copyrights in the pre-existing work has the exclusive right to prepare and authorize others to prepare derivative works based on the pre-existing work. In the absence of contractual restrictions, a derivative work prepared under a grant to prepare a derivative work before termination of the grant is owned by the author of the derivative work, and the derivative work may continue to be utilized by the author of the derivative work under the terms of the grant after termination of the grant.

Without authorization from the owner of the copyrights in the pre-existing work, the creation of a derivative work is copyright infringement. However, the fair use doctrine protects transformational uses of pre-existing works without authorization from the owner of the copyrights in the pre-existing work.

Transformational Works

The fair use doctrine is a defense to copyright infringement that allows an otherwise “infringer” to make limited use of a pre-existing work without receiving authorization from the owner of the copyrights in the pre-existing work. In determining whether a particular use qualifies as fair use, four primary factors must be considered:

  1. Purpose and character of the use
  2. Nature of the original work
  3. Amount and substantiality of the portion used
  4. Effect of the use on the potential market for or value of the source work. However, courts also consider the concept of “transformation” which is sometimes referred to as the “fifth factor”

Transformative use is relatively new, being first used by the U.S. Supreme Court in 1994, in Campbell v. Acuff-Rose Music, 510 U.S. 569 (1994). A transformational work is like a derivative work in that it is based upon or derived from one or more pre-existing works. However, a transformational work uses the pre-existing work in such a completely new way or for such a completely new purpose that it is an original work separate and distinct from the pre-existing work. A transformational work is non-infringing of the pre-existing work even without authorization of the owner of the pre-existing work. Importantly, a work may be a transformational work even when all of the four statutory factors weigh against fair use. It is noted that the determination of whether a work is a transformational work is very fact intensive and very unpredictable.

Possible Outcomes

The parties appear to agree that Nike was authorized to modify the original “KL2” logo. Therefore, if it is determined that the modified “KL2” logo is a derivative work (the second scenario discussed above), Nike will own the copyrights to the modified “KL2” logo and can continue to use the modified “KL2” logo in the absence of any contractual restrictions stating otherwise. The endorsement contract does not appear to contain any such restrictions. This second scenario is not consistent with Nike’s copyright application because Nike did not indicate in its copyright application that the modified “KL2” logo was a derivative work. As a result, in this second scenario, Nike’s copyright registration is at risk of cancellation

If it is determined that the modified “KL2” logo is so transformative that the modified “KL2” logo, as a whole, represents an entirely new and distinct work of authorship (the third scenario discussed above), Nike will own the copyrights to the modified “KL2” logo and can continue to use the modified “KL2” logo in the absence of any contractual restrictions stating otherwise. The endorsement contract does not appear to contain any such restrictions. This third scenario is consistent with Nike’s copyright application because Nike did not indicate in its copyright application that the modified “KL2” logo was a derivative work.

Thus, Nike will prevail in each of these scenarios unless Kawhi can successfully establish that there was an express contractual provision in writing that overrides the above discussed copyright law and the endorsement agreement. Not surprisingly, Kawhi asserted in his complaint that he and Nike agreed that Nike could use the logo (although it is not clear which logo) “for the specific purpose of effectuating the Nike Agreement for the term of the contract”. If Kawhi can prove that there was such an agreement in writing with regard to the modified “KL2” logo, than Nike would no longer be able to use the modified “KL2” logo because the endorsement agreement has expired.

Even if proved, Kawhi still could not use the modified “KL2” logo because Nike would still own the copyrights in the modified “KL2” logo, unless Kawhi could prove that ownership of the copyrights in the modified “KL2” logo was transferred from Nike to him. A transfer of copyright ownership, other than by operation of law, is not valid unless the transfer of specifically identified rights is in writing and signed by the owner of the copyrights being transferred. It looks very unlikely that Kawhi will be able to use the modified “KL2” logo.

An alternative for Kawhi is to use the original “KW2” logo which he created prior to the endorsement agreement and independently of the endorsement agreement. Kawhi still owns copyrights in the original “KW2” logo. However, this use could result into a trademark controversy if Nike continues to use the modified “KL2” logo as a trademark, with the question being: Is Kawhi’s trademark use of the original “KL2” logo confusingly similar to Nike’s trademark use of the modified “KL2 logo?