Trademark and Licensing Case Set For Trial

Tim Burke, Manley Burke, tburke@manleyburke.com

As colleges and universities have found, licensing the use of their trademarks, mascots, names and the like, can be extremely lucrative.  Licensing the use of such marks can also help an organization owning the marks ensure that their name and insignia are only on products of good quality and used in a way the organization deems appropriate and consistent with the purposes for which the organization exists.

Such licensing can also be very lucrative for fraternities and sororities.  It is for that reason that current litigation against an unlicensed purveyor of products using such trademarks is being closely watched.

That lawsuit, seeking to enforce the trademark rights of some 32 fraternities that has been pending since 2008, is now scheduled to go to trial in September.

Paddle Tramps sued 32 fraternities and sororities after the Greek groups demanded Paddle Tramps enter into licensing agreements that would have permitted Paddle Tramps to utilize certain trademarked property of the fraternities and sororities.  Paddle Tramps would, of course, had to have paid for that right.

Founded in 1961, Paddle Tramps was a response to the perception that fraternity and sorority members did not have a place to go to obtain ceremonial paddles and the Greek letters or crests with which to direct those paddles.  What started as a small local effort at Texas Tech University ultimately grew into a nationwide operation with Paddle Tramps’ goods being sold in retail stores throughout the country and, more recently, through its own website.

Prior to this controversy, Paddle Tramps never sought a licensing agreement.  Likewise, the Greek organizations whose names and materials were being used never attempted to stop Paddle Tramps from continuing its business throughout the first several decades of its existence.  Ultimately, after the fraternities and sororities entered into contracts with Affinity Marketing Consultants to manage the licensing of their Greek letters, insignias, crests and symbols, Affinity negotiated some 10,000 licensing agreements.  Paddle Tramps refused to enter such an agreement.

Paddle Tramps’ suit seeks a declaratory judgment arguing that its business did not constitute trademark infringement. The Greek organizations responded with counterclaims for trademark infringement, unfair competition and trademark dilution.

Having previously ruled that Paddle Tramps’ conduct was trademark infringement, in July, the court issued a 50-page decision denying Paddle Tramps’ Motion for Summary Judgment.

Paddle Tramps argued that the Greek organizations were barred by the legal doctrine of laches, an inexcusable delay that results in prejudice to Paddle Tramps from enforcing their trademarks against Paddle Tramps, which had been doing business for decades.  Paddle Tramps also argued that the Greek organizations had acquiesced in Paddle Tramps’ use of their marks and thus could not now prohibit such use.

Both of these arguments are regarded under the law as equitable defenses, and the Greek groups argued that Paddle Tramps was not entitled to assert such defenses because, having deliberately violated the rights of the Greek groups, Paddle Tramps did not have “clean hands.”  Paddle Tramps retorted that it was not its intention to  unfairly capitalize upon the good will of the Greek organizations, but rather to provide a service to members of Greek organizations and, therefore, it was not operating in bad faith and did not have unclean hands.

The court indicated it took “into serious consideration the fact that Paddle Tramps is using virtually identical marks of the Greek organizations being used by other groups in the same markets that were licensed to legitimately engage in such sales.”  But the court found that it would be the task of a jury to determine whether or not Paddle Tramps’ conduct rose to the level of unclean hands, barring it from relying upon the defenses of laches or acquiescence.  Alternatively, a jury could find that Paddle Tramps was serving the need of the market and could defend on those grounds.

Analyzing the legal basis for both acquiescence and laches, the court determined that both doctrines required a careful determination of disputed facts and found that those were best determined by a jury after having heard the complete testimony and evidence of both sides in this hotly disputed case.  The court noted that, if Paddle Tramps was found to have unclean hands, the question of whether or not the defenses of laches and acquiescence were valid would be irrelevant since an entity that comes to court with unclean hands may not assert such defenses.  But Senior Judge Royal Furgeson said,  “for the time being, however, the court shall not grant summary judgment on the merits of these defenses,” finding it critical to have the jury as a fact-finder, decide whether or not Paddle Tramps had unclean hands.

The Greek groups argued that even if Paddle Tramps was protected by a valid claim of laches or acquiescence from having to pay damages for their past trademark infringements, the Greek groups were entitled to injunctive relief to prohibit Paddle Tramps from continuing infringement in the future.  The court acknowledged that there was case law to support arguments on both sides of that question, again finding it best to wait for a jury determination on the disputed issues of fact.

Summing up its decision to deny summary judgment, the court noted that a jury will have “three overarching tasks” – 1) determine if Paddle Tramps possesses the bad faith intent necessary to bar the application of equitable defenses; 2) if no bad faith, Paddle Tramps can assert equitable defenses, but it must meet its burden of proving that laches and acquiescence protect them; and 3) determine the issues of fact necessary to find what relief is appropriate in this case.

The trial in this case is now scheduled for September 12, 2011, beginning at 9:00 a.m. in the court of Senior United States District Judge Royal Furgeson.

1 Thomas Kenneth Abraham, dba Paddle Tramps Mfg. v. Alpha Chi Omega, et al., United States District Court, Northern District of Texas, Dallas Division, Case No. 3:08-CV-570-F.