Unions and labor exemptions in sports.

It is not uncommon to hear complaints about seemingly anticompetitive conduct in professional sports leagues at the nexus of college and professional sports. In professional football, the complaint regards the requirement that an individual be three years removed from their last high school football season. In professional basketball, it is the requirement that an individual be one year removed from their last high school basketball season. In professional baseball, 18-year olds can declare for the draft. But if they choose to go to college, they must remain in college for three years.

In short, the complaints are right. It is literally a restraint of trade to require athletes to wait a certain number of years before they can declare for a professional sports draft. It is literally anticompetitive. But the antitrust laws in the United States are not literal. They are as nebulous as any body of law in the United States. A cursory reading of the statutory antitrust laws in this country would take about five minutes, and afterward one might get the impression that there are enforceable antitrust violations all the time.

While anticompetitive conduct is a fairly regular occurrence, unless something is anticompetitive without any plausible procompetitive justification, courts will generally give an antitrust defendant's argument deference. Antitrust cases are notoriously difficult to predict, and extremely expensive. The antitrust defendant may not win, but unless the anticompetitive conduct is illegal per se -- illegal on its face -- the antitrust defendant will at least be able to provide a plausible procompetitive justification.

You may have heard about labor exemptions in antitrust law, but they are not well-understood. Hence, the abundance of complaints about athletes having to wait a certain number of years before declaring for a professional sports draft. Labor exemptions have been relevant the past few years. In the last two years alone, the NBA and NFL both had labor disputes. The NBA lost 18 regular season games in 2012. The NFL almost lost games in 2011, but came to an agreement at the 11th hour. 

There are two types of labor exemptions: Statutory and Nonstatutory. The Statutory Labor Exemption provides that unions can enter into agreements within the market (sport) that prevent the formation or competition from other unions. Basically, the National Basketball Players' Association (NBPA) or National Football Players' Association (NFLPA) can exist and operate without having to worry about competition from a rival union.

The Nonstatutory Labor Exemption basically provides that agreements made at arms' length between unions and management are exempt from antitrust law. This is called either a "collective bargaining agreement," or "CBA." So long as the NFLPA or NBPA collectively bargained for a particular agreement with the NFL or NBA, respectively, it will be exempt from antitrust law.

One of the items collectively bargained for is the number of years that amateur athletes must wait before declaring for a professional sports draft. The NBA made an agreement with the NBPA to not allow college players, or players from Europe, to enter the league before one year after the player's last high school season. The NFL made an agreement with the NFLPA to not allow college players to enter the league before three years after the player's last high school season. These agreements benefit the NFL and NBA because they are able to obtain more information about the mental capacity and physical capabilities of its future constituents. These agreements benefit the NFLPA and NBPA because preventing players from entering the league until they are more mature enhances player safety. It also protects their current constituency by limiting the number of amateurs that are able to oust current players from their jobs.

In 2002, former Ohio State freshman running back, Maurice Clarett, challenged the rule that a college player had to wait three years before being eligible for the NFL draft. Since the three year requirement was collectively bargained, Clarett's suit ended as quickly as it began. He was given virtually no opportunity to argue his claim, because the three year requirement was the subject of arms' length bargaining by the NFLPA and NFL. Clarett's situation was a vindication of the three year requirement, because he was constantly in trouble with the law, and it would have been a mistake for any NFL team to draft him.

In connection with the 2011 NFL labor dispute, the NFLPA "decertified," which essentially means it disorganized or disbanded. This decertification allowed the NFLPA to sue the NFL under antitrust law. Shortly before decertification, the NFL locked-out the players. Since the subject of the labor dispute was the subject of collective bargaining, it was a legal error that the NFLPA won an injunction at the district court level. The injunction prevented the NFL from "locking out" the players. The effect of this was to continue the previous collective bargaining agreement until a new one was in place. So, the players could go back to their jobs.

Obviously, the NFL would have lost a lot of bargaining power if the injunction remained in effect. But the NFL was able to defeat the injunction and enforce the lockout. If the case had gone to trial, I think it is almost certain that the NFL would have easily won the case. The court would have used the nonstatutory labor exemption to tell the NFLPA, in effect, "you made your bed, now sleep in it."

Are you a non-voting shareholder of a small company?

If you are a non-voting shareholder of a company, your rights are limited if the Board of Directors ("Board") subsequently takes action that you do not like. Ultimately, their conduct may be so egregious that you have rights to take action, but generally they are entitled to run the company in ways they see fit. As long as they are not violating the fiduciary duties of loyalty and care that directors owe a company, your hands may be tied.

If the Board is small, and the misbehavior involves only one or two directors, it is more likely that the duties of loyalty and care are being violated. This is simple human nature. If you have 10 people in a room, the likelihood that they are all taking advantage of their position at the expense of shareholders is fairly low. If you have two people in a room, the likelihood that they are both taking advantage of their position at the expense of shareholders is much higher, relatively speaking.

If you have the opportunity to become a shareholder of a small company, it is best to make sure that you are a voting shareholder. This might involve negotiation if the bylaws have not been written. Or it might involve purchasing a different class of stock. If you are becoming a shareholder of a larger company, it may not be in your best interest to have a vote, because there will be an ample number of voting shareholders overseeing the Board.

If you are already a non-voting shareholder of a small company, you are likely entitled to inspect the books and records of the company, depending on the state in which you are located. You generally have to provide notice of a certain duration as defined by state law, so your inspection does not unduly interfere with the company's business affairs.

When a small number of people enter into business relationships, they have competing considerations and different ideas about how a company should be run. In most cases, these disputes are resolved without resorting to the legal process. But even when people are conducting their business in good faith, they might run afoul of the expectations of their colleagues in the company. This could involve compensation or any number of things. In such cases, it is prudent to have a vote on the matter.

Your personal privacy in the digital and mobile worlds.

The privacy of your personal information is very important. The Fourth Amendment protects individuals from unreasonable searches by government officials. It does nothing to protect individuals from unreasonable searches by private persons or entities.

The Federal Trade Commission (“FTC”) is the federal agency overseeing consumer protection in the United States. This includes protection as it relates to privacy and personal information.

In general, the FTC does not regulate what of your personal information is accessible through the Internet via computers and mobile devices. Instead, the FTC enforces company privacy policies to ensure that customers are getting accurate information from those companies. The FTC also requires that businesses safeguard private customer information from unauthorized access. But if you give companies access to your personal information, they pretty much have carte blanche to take whatever information they want. The only proviso is that they must accurately disclose what information they are taking.

In the past two years alone, companies like Twitter, Facebook and Google have been slapped by the FTC over privacy or data security issues. Even though these likely affected you, you may not even have heard about them.

On November 16, 2012, Google settled with the FTC over charges that it misrepresented privacy assurances to Apple Safari Internet browser users. Google was also assessed a $22.5M civil penalty, because its conduct violated a previous FTC settlement from October 2011. In the earlier settlement, a consent order was entered prohibiting Google from future misrepresentations regarding the collection and use of customers’ private information.

On July 27, 2012, Facebook settled with the FTC over charges that Facebook deceived customers by telling them they could keep their information private, but shared that information beyond what customers allowed in their privacy settings. On March 2, 2011, Twitter settled with the FTC over charges that Twitter failed to safeguard users’ personal information.

These are not the only companies to be hit with charges from the FTC over privacy or data security. These are just a few of the most prominent ones. Most people in the United States use any or all of Google, Facebook or Twitter. So you were likely affected by their privacy policies, and continue to be affected by them.

The FTC website has good background information on mobile apps. If you allow an app to access your personal information when signing up for an app, they may be able to access: (1) your phone and email contacts; (2) call logs; (3) Internet data; (4) calendar data; (5) location data; (6) the device’s unique IDs; and/or (7) information about how you use the app itself. Earlier this year, the FTC issued “best practices” for mobile app developers. Posterity will show whether mobile app developers will follow these guidelines.

Given how much we use the Internet and mobile devices, it is important that you are aware of just how vulnerable your private information is. The FTC advises people to think of personal information as having monetary value. In other words, even free apps are paid for, because you exchange your personal information to use the app. The app developers use this information for advertising and other purposes. Your personal information is valuable in the hands of app developers and businesses. They consider your personal information a commodity to be bought and sold, so you should treat it the same way.

Cybersquatting on the Sooners.

The University of Oklahoma is suing a man in district court for cybersquatting. The story is replete with almost unparalleled levels of irony, because the school's nickname -- Sooners -- refers to settlers who squatted on land in what is now Oklahoma before Grover Cleveland proclaimed the territory open to settlement in 1889.

The University is undoubtedly suing under the Anticybersquatting Consumer Protection Act (ACPA), found in Title 15 of the U.S. Code. "Cybersquatting" occurs when one registers, traffics in, or uses a domain name that is identical or confusingly similar to a famous or distinctive trademark at the time of the domain name's registration, and the individual has a bad faith intent to profit. 15 U.S.C. § 1125(d)(1)(A). "Bad faith intent to profit" (BFIP) is a legal term of art. In determining whether a putative cybersquatter has BFIP, a court considers a variety of statutory factors. Here, the relevant statutory factors will be:

- the defendant's prior use, if any, of the domain name in connection with the bona fide offering of any goods or services;
- the defendant's bona fide noncommercial or fair use of the mark;
- the defendant's intent to divert consumers from the University's online location to the defendant's site that could harm the goodwill represented by the mark;
- the defendant's offer to sell the domain name or otherwise obtain financial gain;
- the defendant's provision of false or misleading information in registering the domain name; and
- the defendant's acquisition of any other domain names including famous or distinctive marks.

There are a lot of facts that remain in this case, and the above list will likely dictate the case's outcome. Most of the landmark cybersquatting cases occurred in the 1990s and early 2000s, when people still thought they could get away with taking domain names and selling them to other companies. Unless the site is a parody and it is clear from the outset, in which case there will be no BFIP, these cases do not end well for the defendant.

The University of Oklahoma does own the rights to the mark "Sooner," for clothing, sports apparel, t-shirts, hats, sweatshirts and the like. It also owns a number of other registrations where "Sooner" is juxtaposed with another word. I suspect that this individual registered the second-level domain name "SoonerNetwork" in order to profit off of the school's third-tier media rights, which are reserved to Big 12 member schools. However, if the individual is actually using the site for a bona fide purpose and has no BFIP, he may be able to keep it. I doubt this is the case, because the purported legitimate purpose, a site directing people to elderly care providers in the area, has no connection to the term "Sooner Network." Also, he apparently included information on the site at an earlier date that betrayed his fanaticism for the Texas Longhorns.

I suspect that, in addition to his motive for registering the site, he talked to someone with a rudimentary knowledge of the law, or an attorney, who advised him on the BFIP considerations. I doubt an attorney would have advised him that he should change the website's content, but an attorney might have let him know how a court would look at it (which led the individual to change the content on his own).

Secondary meaning in trademarks.

In the preceding posts, I mention how secondary meaning is a way in which geographically descriptive or deceptively misdescriptive trade names (“marks”) can gain federal trademark protection. I do not delve into the meaning of “secondary meaning.”

Secondary meaning is basically recognition in the marketplace. If a mark is not suggestive, arbitrary or fanciful enough to merit federal trademark protection initially, recognition in the marketplace is a way that a mark can overcome that obstacle. The more descriptive a mark is, the more evidence of secondary meaning is required.

Secondary meaning is established when the primary significance of a mark among consumers is to identify the source of the product rather than the product itself. Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 851 n.11 (1982). When a markholder claims secondary meaning for an otherwise unregistrable trademark, the way an applicant substantiates his or her assertion is through:

- Affidavits or declarations

- Depositions or other evidence showing duration of use of the mark in commerce

- Advertising expenditures in connection with use in commerce

- Letters or statements from the trade or public averring recognition in the marketplace.

37 C.F.R. § 2.41(a). There are occasions when a bad mark can overcome descriptiveness, geographic descriptiveness or deceptive misdescriptiveness, but substantial evidence of secondary meaning is required. I cannot foresee a situation when establishing secondary meaning would be easier than having an inherently distinctive trade name from the beginning.

Think you have a good business name?: On primarily geographically misdescriptive trade names.

Generally, a trade name ("mark") that is geographically descriptive cannot gain federal trademark protection under the Lanham Act. There is an exception for wine products, however, and marks that are geographically descriptive can gain federal trademark protection upon showing secondary meaning.

A mark is considered geographically descriptive if the primary significance of the mark is a generally known geographic location, the goods or services originate in the place identified with the mark, and consumers would be likely to believe that the goods or services originate in the geographic place identified with the mark. Trademark Manual of Examining Procedure (TMEP) § 1210.01(a) (October 2012).

If the geographic location is remote or obscure, the mark may not be rejected on the basis of geographic descriptiveness. Consumers are not likely to make associations with particular geographic areas when the location is remote or obscure. Id.

When looking at a mark for primarily geographically deceptively misdescriptive marks, it is the same inquiry as geographic descriptiveness, with two additions. First, the goods or services must not originate in the geographic location described. Second, the misrepresentation of origin is likely to be a material factor in consumers' decisions to purchase the goods or services. TMEP § 1210.01(b).

If you have a business suggesting a connection with a particular geographic origin, it generally cannot receive federal trademark protection. It is not uncommon for me to see business names that falsely suggest a connection with a particular geographic area, because the proprietor wants his or her consumers to see his goods or services as originating from a certain area. If the geographic misdescription is a material factor in consumers' decisionmaking regarding the goods or services, that is precisely the type of proprietor the United States Patent and Trademark Office intends to permanently refuse federal trademark protection.

Think you have a good business name?: Deceptive and deceptively misdescriptive marks clarified.

In my last post, I discussed deceptively misdescriptive marks and how they cannot be registered (unless they have secondary meaning in the minds of consumers). I wanted to add a little bit for more clarity. Deceptive marks can never be registered. All deceptive marks are deceptively misdescriptive. Not all deceptively misdescriptive marks are deceptive.

 

If the misdescription of the goods concerns a feature that would be relevant to the decision to purchase the goods or use the services, it is deceptively misdescriptive. If the misdescription is more than a relevant factor in purchasing decisions, but it is a material factor in purchasing decisions, it is deceptive. Trademark Manual of Examining Procedure, § 1203.02(c) (October 2012).

If the examiner is unclear about whether a mark is deceptive or deceptively misdescriptive, he or she is told to refuse registration on both grounds. Id.