Authentic Apparel v. US (Fed. Cir. 2021)
Authentic makes branded apparel, and had a non-exclusive license from the US Army to make Army branded items. (Signed back in Aug 2010). One line of clothing was going to feature The Rock (Duane Johnson) with Army-Style clothing. (Seriously though, tie those shoes).
The license included a requirement that any sale/distribution must first receive the Army’s “advance written approval” subject to the Army’s “sole and absolute discretion.”
The Army refused an expansion of The Rock line of clothing; rejected other proposal; and also allegedly delayed in approving other initiatives. Eventually Authentic sued the Army for Breach in the Court of Federal Claims (CFC).
On appeal, the Federal Circuit has affirmed the CFC’s summary judgment favoring the Army — holding that the “sole and absolute discretion” provision controls. The license agreement also included specific “exculpatory clauses” that indicated no remedy would be available for the Army’s refusal to approve proposals:
[Authentic] shall not have any rights against [the Army] for damages or other remedies by reason of [the Army]’s failure or refusal to grant any approval [of product line or] advertising.
Slip Op. (quoting the agreement). Authentic argued that the Army has an obligation of good faith and fair dealing in its contracting, and that complete enforcement of these covenants would contravene those principles. On appeal, the Federal Circuit agreed that it would be improper for the Army to act in an arbitrary or bad-faith manner when denying approval. That said, count found the provisions otherwise enforceable:
At bottom, Authentic agreed to give the Army broad approval discretion. . . . Authentic agreed to bear the risk that the Army would exercise that discretion to Authentic’s detriment, at least so long as the government did not act arbitrarily or in bad faith, a matter which we discuss below. Authentic’s allegation that the detriment has indeed come to pass is simply not a reason to uproot the parties’ bargain.
Who is the source of goods: One reason that the Army did not approve various advertisements was that the Army did not want to be recognized as the source of the licensed goods. Authentic argued that source identification is the key function of trademark law and is implicit in its license to use the Army mark “for trademark purposes.”
On appeal, the Federal Circuit disagreed noting that the licensee is the source of goods, and identifying the Army as the source would be factually erroneous:
Authentic’s argument is based on rights that Authentic did not have, namely, an alleged “right to identify [the Army] as the source/sponsor of the licensed goods.” Under the law, because Authentic was itself the source of the licensed goods, Authentic could not have had the right to mislead consumers to believe that the Army was the “source.”
The court then went on to hold that a decorative use of a Mark can still count as a trademark-use for licensing purposes.
In view of the clear shift in the law toward allowing trademark licenses, we do not agree with Authentic that a “decorative” use of a trademark is necessarily divorced from the goodwill associated with the trademark such that it cannot be considered a licensed use “for trademark purposes.” We recognize, of course, that a purely decorative design may not qualify for trademark protection in the first place. . . . But, again, this appeal does not involve a challenge to the validity of the Army’s trademarks, but rather a question of what limitations the Army may place on the use by a licensee of trademarks that the Army already owns.