Grand Cards: The Grand Scheme Begs for the Mercy of the Court

Tuesday, February 2, 2010

The Grand Scheme Begs for the Mercy of the Court

The most surprising news in the history of everything
Upper Deck decided to release cards like this:
2009 Ultimate Collection #87 Wilkin Ramirez

And ended up with this
Several of Upper Deck’s 2009 and 2010 series cards depict players in uniforms, caps and helmets that prominently show Major League Baseball logos, even though its license to do so expired Oct. 31, according to a complaint filed yesterday in federal court in Manhattan.

Upper Deck, based in Carlsbad, California, has made trading cards under license from New York-based Major League Baseball since 1998 and owes $2.4 million under its last deal in 2006, according to the complaint. The association wants unspecified money damages and a court order recalling the disputed cards.

This, of course, is entirely unsurprising to anyone who remembers that Donruss got sued by MLB last year for doing the exact same thing. That case was settled--and this one may as well--but things look grim for Upper Deck. You can take a look at the Tigers cards from 2009 Ultimate Collection and see for yourself (I've got a 2009 Signature Stars gallery in the works too, and it is just as egregious). If someone were to ask you if these were licensed by MLB, you'd say yes, wouldn't you?

More interesting than the fact that Upper Deck got sued, which was really only a matter of time, was this little tidbit in the Bloomberg article: Upper Deck still owes MLB $2.6 Million from their last licensing go-round. For those of us that questioned MLB's decision making and motives when choosing Topps as a sole licensee, perhaps this sheds a bit of light. As someone who has done business with people who haven't paid their debts I can say this: when given the chance, businesses will cut ties with clients like this 90% of the time depending on the circumstances. If I were MLB, I wouldn't want to go through the hassle of dealing with a deadbeat company like Upper Deck and worry about damaging my brand when I have a perfectly good alternative available. (This also appears to close the door on my conspiracy theory that the card companies agreed to being sole licensees in different sports to effectively monopolize each sport's market for cards to raise profits across the board in some sort of perverse US v. Fabricated Pipe and Steel shady backroom dealing set up).

The question now is how fast this will move and what the implications will be.

If it moves quick, we could see an injunction halting the sale of these cards ASAP. The interesting thing is that in an industry where scarcity is king--and companies go to absurd lengths to create the illusion of scarcity--we could arguably see a surge in demand for these cards and the most coveted cards of the modern era. To some extent that is already happening, I think. We collectors aren't fools, and when we saw Ultimate and Signature Stars hit eBay with logos in full view, it was easy to put two and two together: these are Upper Deck shenanigans and they won't last long. How else can people justify spending $100+ on a Rick Porcello auto? Hey, I like Rick Porcello a lot, but I can get his John Hancock in other sets for less than half that.

That, combined with the fact that these cards (in Ultimate, especially) are really, really nice has made these the hot sellers. This lawsuit will only fan the flames. The bigger news is that 2010 Upper Deck--their flagship set--has started to leak onto eBay. I think that all bets are off and demand for that set will explode. There is little doubt that this is all part of Upper Deck's nefarious plan to stick it to the man and go out with a bang.

It's too bad, really The worst part of all of this is that I like Upper Deck. I always have. I love their flagship set for it's excellent photography and large team checklists. I love their high-end cards for their superior design and on-card autographs. Upper Deck is a company that makes good cards. Unfortunately, they're run by a huge dick who seems to have no regard whatsoever for the rule of law. The O-pee-chee thing, the Razor thing, the Konami thing and now this, Richard McWilliam has brazenly steered the company to the precipice of bankruptcy. That's pure speculation on my part, but it's not like the card industry is thriving so much that they've got a bunch of extra cash floating around to deal with lawsuits.

For that reason, I'd like to see Upper Deck sued into oblivion. The hell with them. I am so disgusted by the crap that they've been pulling that they deserve to die a painful death. I'm sorry. Like I said, I like Upper Deck--I wish they still had an MLB license, I like what they produce and I'd like to see them contribute to the market, but not like this. There is something called corporate ethics that we Americans tend to value. There's a reason that we're all pissed at the big banks etc. Upper Deck, while trying to stick it to "the man," is spitting in the face of the little guy as well. The hell with that.

But what if they're right? Interestingly, there is a possibility that Upper Deck is in the right. In that case, are they the Robin Hood of our era? Are they crusaders, trying to protect the helpless consumer from the monopolist regime of MLB? I don't know that I'd go that far, but I don't think that Upper Deck would have gone to these lengths if they didn't think that there was some legal ground to stand on. From a press release issued last week:
In its letter, Upper Deck said its “products are neither infringing nor unlawful. As you can see from even the most cursory inspection of the cards and packaging, Upper Deck has gone to great lengths to produce high-quality baseball trading cards that are respectful of MLBP’s trademark rights.”

Upper Deck also cites a U.S. Court of Appeals’ dismissal of an injunction from July 1998 that sought to prevent Pacific Trading Cards from distributing cards showing players in uniform. Those cards were approved by the MLBPA but not MLB Properties. Pacific stopped making baseball cards by 2001 and was out of business by 2004.

Now, I don't have much training in the law, but looking 1998 Pacific case in question I see this:
At the end of the day, the parties reported back to this panel in chambers. Pacific advised us that it would have difficulty raising the funds necessary to post a bond but stressed again that, if we were to grant the injunction and hear the appeal only in July, the financial effect would be ruinous, whether or not Pacific prevailed on the merits. Pacific and MLB then jointly informed us that they could settle the dispute but only if the district court's order and opinion were vacated. The parties jointly moved us to vacate the order and opinion and signed a stipulation to that effect.

In other words, that case was dismissed because both Pacific and MLB agreed to settle the case and petitioned that the order be vacated. Legally, simply settling the case is not grounds for vacating an order unless exceptional circumstances are such that the interest of all parties involved outweighed the social value of preserving the precedent. But the most interesting part comes next:
MLB was agreeable to a settlement but needed a vacatur because, in the course of defending its marks, it, like the INS in Motta, had to be concerned about the effect of the district court's decision in future litigation with alleged infringers. Under trademark law, MLB must defend its mark against all users or be subject to the defense of acquiescene

So, with our little foray into trademark law what do we learn? Um, by my legal analysis it is that Upper Deck may have misinterpreted the law. Granted, I'm not a lawyer so I could be way off base, but this is what I see:

1. MLB, in order to hold iron-fisted control over their trademarks, must "defend its mark against all users." By settling with Pacific, they did not test the merits of their case and would have risked the right to their trademarks.
2. Except the case was vacated, thereby eliminating the need for MLB to defend its marks.
3. Yet Upper Deck is citing (erroneously?) a case that was vacated, presumably under the assumption that the case was simply dismissed and therefore could give them a legal foot to stand on in a lawsuit against MLB.

So, with that legal foot presumably removed, what else might Upper Deck have to stand on? Oh, that's right. The big one.
In 2002, NFL Properties signed an exclusive 10-year contract with Reebok for licensed NFL apparel. The contract meant that only Reebok could make NFL-licensed apparel. American Needle argues this contract is illegal under federal antitrust law.
Sound familiar? American Needle is suing the NFL under antitrust law and is essentially arguing that this exclusive agreement is equivalent to competitors conspiring to fix prices--clear illegal monopoly behavior.

The sticking point is whether NFL is legally entitled to act as one entity, or it represents a 32 competitors that are making a cooperative decsion.

The parallels seem clear: By challenging the NFL's ability to create exclusive licensing agreements in this way they are illegally inhibiting competitions and hurting consumer choice. The same argument could follow for Upper Deck. MLB agreed to exclusively license one company with the rights to the trademarks for all 30 individually owned MLB teams. Should the Supreme Court rule in favor of American Needle, it could open the floodgates for all exclusive licensing agreements in sports to come under scrutiny. Upper Deck must be chomping at the bit.

Except for one thing:
American Needle argues that by agreeing to license only with Reebok, the NFL and its teams -- which have sometimes sued the NFL itself -- are competitors engaged in a Section 1 violation. An exclusive contract for NFL apparel shuts out American Needle and other apparel companies from negotiating with individual NFL teams and it means that Reebok, without competition from other those companies, can charge higher prices.
The basis of the American Needle case is that it is legally being prevented from negotiating licensing agreements with teams individually to design, manufacture and sell clothing with a given team's trademarks. I argue that, even if the court rules in favor of American Needle that Upper Deck is still out of luck.

Why? Well, trademarks are still trademarks and this case simply delineates what entities have the right to license them--is the the collective group (NFL) or the individual holder of the trademark (the team)? The result of that argument doesn't seem to make much difference in this case, mostly because Upper Deck appears to be explicitly violating the trademarks rights by producing cards without a license from MLB or the license of any individual team in MLB. Meaning, that if MLB wasn't suing Upper Deck, then each of the 30 teams in the league could. Secondly, the market for baseball cards is fundamentally different than that for apparel. The burden of negotiating individual licensing agreements with each of the teams in the league seems wholly unreasonable when you need all of the teams to agree to an agreement to make a legitimate baseball card set. Pulling the specifics of the baseball card market into it, I can't imagine that MLB would be found to have violated the "rule of reason" in analyzing Section 1 of the Sherman Act, especially considering that Upper Deck is still allowed to produce cards--just not ones bearing protected trademarks.

In all, I think that Upper Deck is up a creek no matter what. They don't have historical precedent on their side, and personally, I don't think that the result of American Needle v. NFL will matter either way, considering the vast differences between the market for Apparel and the market for Sports Cards. What's more, even if they were found to be in the right, Upper Deck has their own exclusive agreements with the NHL, NFL and NCAA, which would open that market back up to everybody.

The bottom line appears to be this. Upper Deck is using trademarks without authorization. MLB is suing them because they need to defend their trademark rights. Every case in which a card company has been sued by MLB has ultimately led to that company going out of business. Upper Deck has dug its grave.

Idiots.

Misc. Did everybody have fun with that? I did. I promise that I'll have more card pictures for you soon to make up for it.

5 comments:

  1. Yeah, I can't believe UD is doing this. They had so much else to work with (they have done a decent job with hockey and football cards, you know?) and there are BETTER ways to get around the MLB (Razor does with their cuts and whatnot, ITG does amazingly well with their hockey). And, I might add, they could fill the Inkworks void and give Rittenhouse and Topps better competition in the non-sports market.

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  2. Well written, and well researched. I was reading through that same court file this morning, and it made my brain hurt.

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  3. Great, in-depth analysis! I think you pretty much hit the nail on the head on everything. UD almost has to prove that MLBP is creating a monopoly with the exclusive rights, but they can't because A) it's not true - MLBP has just given Topps a huge competitive advantage and B) they'd be Plaxico Burress-ing themselves since they also hold an exclusive sports license.

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  4. I think you missed this part of the Pacific Case, that MLB was not likely to win.

    MLB moved to preliminarily enjoin Pacific from manufacturing and distributing the cards until MLB's claims were resolved. The district court denied this motion on the ground that MLB was not likely to prevail on the merits of its claims. See Major League Baseball Properties, 1998 WL 241904, at * 1.

    Other than that, good analysis.

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  5. Hmm...that does seem to be an important little tidbit. Does anyone know where I can find a link to that original decision so I can see what the argument was and why MLB was unlikely to prevail?

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