Top 10 Issues in Sponsorship and Licensing Agreements and How to Avoid Litigation

Steve Smith Adam Brezine

Holme Roberts & Owen LLP

Introduction !  Probably due to the economy, over the last several years we have seen an increase in disputes and litigation over sponsorships and licensing agreements.

!  Many disputes arise because the contractual terms are not clear, or the parties failed to document all of the terms of their business deal.

!  We have developed a presentation on the Top 10 Issues in Sponsorships and Licensing Agreements. Because of our limited time today, we will focus on 4 issues.

!  Adam Brezine ‒ litigator; will provide perspective of a litigator.

!  Steve Smith ‒ contract negotiator and drafter; will provide perspective of a transactional attorney.

Definition of Products and ServicesDefinition of Licensed Goods and Services

!  In a sponsorship agreement, the parties must define the scope of goods and services of the sponsor that are covered by the agreement. This definition impacts many parts of the contract, including the exclusivity provision, the types of advertisements and signage that can be provided, and the ability to enter into agreements with other sponsors and licensees, to name just a few.

!  Likewise, in a license agreement, the definition of licensed goods and services becomes a key point for the scope of exclusivity and the ability of the property to enter into agreements with other licensees.

!  There is almost always a tension between the sponsor/licensee, who wants to define this broadly, and the sports property/licensor, who wants to define this narrowly.

!  This became an important issue in the recent dispute between the U.S. Tennis Association and Olympus, which we will discuss in more detail later.

Definition of Products and ServicesDefinition of Licensed Goods and Services

!  Practice tip: Pay very close attention to the definition of goods and services and understand all elements that are included and not included. !  Sponsors/licensees - understand what you need to encompass to fully protect your domain, and keep in mind that this needs to cover anticipated areas of expansion during the term of the agreement.

!  Sports properties/licensors - be very careful to understand the scope of this definition. Sometimes, areas that the sponsor insists be included could prevent you from being able to enter into an agreement with another sponsor.

Definition of a Competitor !  Often in sponsorship agreements, in order to help define more clearly what is and is not ambush marketing, the parties will try to define who are the "competitors" of the sponsor.

!  This impacts the definition of goods and services, as well as the scope of exclusivity.

!  This is becoming important, and in the future will become even more important, due to the increasing number of mergers and acquisitions and the need for businesses to diversify.

!  The problem usually arises when a sponsor tries to protect areas of its business that are not necessarily included in the sponsorship rights and benefits.

Definition of a Competitor !  US Tennis Association dispute with Olympus.

!  Olympus is a sponsor of the U.S. Open and is the title sponsor of the U.S. Open Series (both USTA properties). It is a camera manufacturer and distributor.

!  Panasonic wanted to sponsor the USTA in connection with televisions.

!  The problem: Panasonic also manufactures and distributes cameras, and Olympus considers Panasonic to be a competitor.

!  Eventually, the parties settled, but not before commencing litigation.

!  Practice tip: Sports properties ‒ become very familiar with your sponsor’s business and understand how it might impact future sponsorship sales. Sponsors ‒ you will need to anticipate whom your competitors might be, not just in the present, but for the term of the agreement (which may include renewals).

Renewal RightsRight of First NegotiationRight of First Refusal

!  Most sponsorship agreements include some sort of ability for the contract to be extended. The most common are renewals, rights of first negotiation, and rights of first refusal.

!  Renewals ‒ renewal provisions can vary widely, but they usually include the ability of one or both of the parties to renew the agreement for a period of time with relatively few items to be renegotiated.

!  Rights of First Negotiation ‒ this typically involves a requirement that the sports property negotiate in good faith with the sponsor about a renewal or extension before offering the sponsorship to the open market. !  This is usually considered less restrictive to the sports property.

Renewal RightsRight of First NegotiationRight of First Refusal

!  Right of First Refusal ‒ This usually gives the sponsor the ability to match the terms of any deal that the sports property is able to negotiate with a competitor of the sponsor. !  This is usually considered more restrictive to the sports property, as a ROFR often will chill the marketplace for other sponsors.

!  Anheuser-Busch dispute with MLB. !  Visa and MasterCard dispute over sponsorship of FIFA World Cup.

!  Practice tip: Be specific on the details of how the renewal/ROFN/ROFR works. We often see disputes arise because the parties don’t define, for example, what has to occur to satisfy a ROFN or what has to be offered as part of a ROFR.

Assignments

!  Assignment provisions are almost always viewed as “just legal boilerplate.” However, assignment provisions can often lead to significant and bitter disputes.

!  Sponsors often want broad assignment rights without having to obtain the approval of the sports property, while sports properties want those assignment rights without approval to be very narrow or non-existent.

Assignments !  Often, the sports property will agree to allow the sponsor to assign the agreement without approval in case of a merger, acquisition, sale, etc. This is very important to sponsors, as they do not want a large merger or acquisition to be held up over approval of assignment in a relatively small sponsorship deal.

!  However, this can come back to haunt the sports property, as mergers and acquisition can make for strange or uncomfortable partners.

!  NASCAR ‒ AT&T !  Practice tip: Sports property ‒ while you are likely to have to allow assignment without approval for certain events like mergers and acquisitions, you may want to provide some exceptions to ensure that you do not have to accept a business arrangement with a party that you do not like or which could conflict with an existing sponsor.

Adam Brezine, Esq.

!  Representation of Specialized Bicycle Components in connection with numerous contract negotiations and disputes, including negotiations with UCI (cycling’s international governing body) regarding application of equipment regulations to time trial bikes, provision of advice in connection with team and rider sponsorship agreements and anti-doping clauses, and prosecution of claims protecting intellectual property rights such as trademark counterfeiting, right of publicity, and breach of employment agreement claims.

!  Gained summary judgment for USA Swimming and national team head coach in antitrust and trade libel action arising out of statements made regarding new Speedo LZR swimsuit preceding Olympic trials and Beijing Games.

!  Representation of Twentieth Century Fox Film Corp. in commercial disputes regarding outdoor advertising space, product licensing issues, and in MPAA film title arbitration proceedings.

!  Representation of Olympic athlete in dispute with principal equipment sponsor in advance of Vancouver Games.

!  Prosecution of trade secret claims on behalf of large television studio and production company in connection with leaks of information regarding reality TV show.

!  Obtained summary judgment for large Southern California hospital on claims brought by disgruntled physician and limited partner in affiliated medical office building.

!  Representation of publisher of Blue & Gold Illustrated (focused on Notre Dame athletics) in defense of fraud and breach of contract action arising out purchase of online sports news entity.

!  Defense of Oracle Corporation in disputes over software licensing and implementation, including obtaining complete defense verdict as second chair in 12 week jury trial; claims included fraud and breach of warranty in connection with license and implementation of e-commerce software.

!  Representation of Visa Inc. in patent infringement, antitrust and general commercial disputes. !  Assisted with prosecution of doping charges in United States Anti-Doping Agency v. Floyd Landis. !  Drafted and negotiated content acquisition, licensing and distribution agreements

Practice Experience Adam Brezine is a partner in HRO’s San Francisco office and is co-chair the Sports & Entertainment Group. Mr. Brezine has been with HRO since 2005 and works in both the San Francisco and Los Angeles’ offices. He has a broad practice covering sports, media, intellectual property, antitrust, real estate and employment litigation, including providing business advice to clients in anticipation of disputes and drafting agreements related to sponsorship, naming rights, content acquisition, distribution and licensing. Recent experience includes:

Steven B. Smith, Esq.

!  Sponsorship and Licensing Agreements. Mr. Smith has represented both sports properties and sponsors in sponsorship and licensing agreements valued in excess of $1.6B. He has worked with VISA, USA on general sponsorship matters. He represented Ameriquest in its sponsorship of the Super Bowl Halftime Show, several major league baseball teams and the California Speedway. He has also advised on and negotiated a number of naming rights agreements with a total value in excess of $1B, including Progressive Field (Cleveland, OH), Oracle Arena (Oakland, CA), Ameriquest Field (Arlington, TX), Qwest Field (Seattle), the O2 (London), Honda Center (Anaheim) and Bank of America Stadium (Carolina).

!  Television and Media Contracts. Mr. Smith has represented a number of sports properties in all aspects of television and media agreements. He has completed deals with most major sports networks, including ABC, NBC, CBS, Fox Sports, ESPN, ESPN2, and versus, both domestically and internationally. Recently, he completed negotiations on the LPGA-TOA television revenue sharing agreements. He has also advised clients on a number of agreements involving transmission of events over the Internet and other digital media.

!  National Governing Bodies. Mr. Smith currently represents a number of International Federations and National Governing Bodies in the Olympic movement. He regularly advises clients on athlete eligibility matters, agreements for use of athlete images, team selection, sponsorships and licensing agreements, event agreements, television and other media deals, protection of intellectual property, and general issues of corporate law.

Practice Experience Steven B. Smith, a partner in the Colorado Springs office and the co-chair of the Sports and Entertainment group, has practiced with the firm since 1991. He focuses on sports law, including naming rights, sponsorships, licensing agreements and television and media contracts, as well as intellectual property (trademark and copyright) law and corporate law.