On Monday, May 3, 2019, in the midst of the NBA finals, Kawhi Leonard of the Toronto Raptors filed a lawsuit against Nike, Inc. (Nike) in the US District Court Southern District of California. The complaint asks the Court for a declaration that Kawhi is the sole author of the “KL2” logo, that his use of that logo does not infringe the rights of Nike, and that Nike committed fraud in its copyright application. The “KL2” logo is sometimes referred to as the “Klaw” logo which is a nickname for Kawhi. Kawhi owns US trademark registration number 5608427 for the “KL2” logo for use with apparel. However, Nike owns US copyright registration number VA0002097900 for the “KL2” logo.

Kawhi KL2 logo

Trademark Reg. No. 5608427

Background

According to the complaint, Kawhi created the “KL2” logo in 2011 just after being drafted by the San Antonio Spurs of the NBA. He said that he “traced his notably large hand, and, inside the hand, drew stylized versions of his initials ‘KL’ and the number that he had worn for much of his career, ‘2’”. Kawhi said that the drawing “was an extension and continuation of drawings he had been creating since early in his college career.” According to Kawhi, he then continued to refine the “KL2” logo as he shared it with family and friends and sought the advice of a creative designer. In October of 2011, Kawhi signed an endorsement agreement with Nike.

At some point thereafter, Kawhi and Nike began discussions about creating a logo to affix to Nike merchandise sold under the endorsement agreement. Kawhi proposed using his “KL2” logo. According to the complaint, after modifications by Nike and several proposals, Kawhi accepted a June 2014 proposal and granted Nike permission to affix the modified “KL2” logo, based on Kawhi’s original “KL2” logo, on “Nike merchandise during the term of the Nike Agreement”. While there was an exchange of various e-mails and communications, it does not appear that there was a formal written agreement regarding the”KL2” logo. Nike proceeded to affix the “KL2” logo to Nike merchandise including several shoes under the Jordan Brand. Kawhi also proceeded to use the “KL2” logo on non-Nike merchandise including “apparel and merchandise used for basketball camps, appearance and charity events.”

All parties seemed happy until the endorsement agreement between Kawhi and Nike finally expired on Sept. 30, 2018. In November 2018, Kawhi signed a surprise deal with New Balance, Inc. effectively becoming the new face of the New Balance basketball division. Not surprisingly, the “KL2” logo became an item of contention rather quickly. In December 2018, Nike wrote to Kawhi that Nike owned the “KL2” logo pursuant to its US copyright registration and demanded that Kawhi cease use of the “KL2” logo on non-Nike merchandise.

Kawhi, who was previously unaware of the copyright registration, responded in January 2019 that he intended to continue using the ‘KL2” logo on non-Nike merchandise and “might affix the Leonard Logo and Leonard trademarks to the shoes he would be wearing as a player for the Raptors.” In March 2019, Nike responded that it owned all intellectual property in the “KL2” logo and demanded that Kawhi cease all unauthorized use.

Trademark rights

Trademark rights are established automatically by using the trademark in commerce in connection with the sale of goods or services. Formal registration with the US Patent and Trademark Office is not required to establish trademark rights. However, formal registration of trademarks does provide certain advantages. Kawhi obtained US trademark registration number 5608427 for the “KL2” logo for use in connection with various apparel claiming a first use of at least February 2016. These trademark rights enable Kawhi to prevent others from using the “KL2” logo or similar logos in connection with the sale of goods or services that are likely to cause confusion among consumers of the relevant goods or services.

Nike has not filed for registration of the “KL2” logo as a trademark even though Nike appears to have used the “KL2” logo in connection with the sale of shoes as early as 2014. This may be a result of Nike believing that the “KL2” logo was owned by Kawhi and licensed to Nike for use on Nike-merchandise. It is also may be the result of Nike deciding not to register this trademark, but that is unlikely. Because trademark rights are established by first use, If Nike believes that it has trademark rights to the “KL2” logo, it could still decide to file its own application for trademark registration and file to cancel Kawhi’s trademark registration.

There is no indication that Kawhi or Nike has raised the issue of trademark ownership or trademark infringement with the other party. The reason is because the trademark in this dispute is a logo and logos are two-dimensional works of fine, graphic or applied art subject to copyrights. Thus, even the owner of trademark rights cannot use their trademark if another party owns copyrights in visual art elements of the trademark because use of the trademark by the trademark owner would constitute copyright infringement. In other words, the copyrights trump the trademark rights in these circumstances.

Copyrights

Copyrights are automatic in that you establish copyrights for an original work of authorship the moment you put it into a tangible form. Formal registration of copyrights with the United States Copyright Office is not required to establish copyrights. However, formal registration does provide certain advantages. Thus, Kawhi obtained copyrights to the original “KL2” logo the moment he drew it onto paper even though he has not registered those copyrights.

Employees of Nike modified the original “KL2” logo to form the modified “KL2” logo at issue. The degree of those modifications determines what if any copyrights Nike owns for the modified “KL2” logo. There are three possible scenarios:

  1. The modifications to the original logo are so minor that the modified logo, as a whole, does not represent an original work of authorship
  2. The modifications to the original logo are significant enough that the modified logo, as a whole, does represent an original work of authorship as a derivative work
  3. The modifications are so transformative that the modified logo, as a whole, represents an entirely new original work of authorship.

In the first scenario, no copyrights would be established in the modified “KL2” logo so Nike would not have any copyrights to the original or modified “KL2” logo. In the second scenario, copyrights would be established in the modified “KL2” logo as a derivative work. However, the copyright owner of the pre-existing work has the exclusive right to prepare and authorize others to prepare derivative works based on the pre-existing work. See 17 U.S.C. §106(2). Where the copyright owner grants another party the right to prepare a derivative work, a new exclusive copyright in and to the derivative work comes into existence upon creation and fixation of the derivative work in tangible form. Therefore, if Kawhi granted Nike permission to create the modified “KL2” logo and the modified “KL2” logo is a derivative work, than Nike would own the copyrights to the modified “KL2” logo but not to the original “KL2” logo, unless there was an express contractual provision in writing that ownership of modified “KL2” logos would be transferred to Kawhi. In the third scenario, copyrights are established in the modified or new “KL2” logo and Nike would own the copyrights to the modified or new “KL2” logo, unless there was an express contractual provision in writing that ownership of modified or new “KL2” logos would be transferred to Kawhi.

Possible outcomes

Based on the complaint, Kawhi appears to be asserting that he owns the copyrights to both the original and modified “KL2” logos. This would be the first scenario discussed above where the modified “KL2” logo is essentially the same as the original ”KL2” logo and thus is not a derivative work or an entirely new original work of authorship. The complaint does not show the original “KL2” logo to currently allow a comparison between the original and modified “KL2” logos, but Kawhi will clearly be found to own the copyrights to both versions of the “KL2” logo if this argument is successful.

Based on Nike’s copyright registration, Nike is most likely is asserting that it owns the copyrights to the modified “KL2” logo as a new original work of authorship because Nike did not indicate in the copyright application that the work was a derivative work. This would be the third scenario discussed above where the modifications are so transformative that the modified “KL2” logo, as a whole, represents an entirely new original work of authorship. Again, the complaint does not show the original to currently allow a comparison between the original and modified “KL2” logos, but Nike will clearly be found to own the copyrights to the modified “KL2” logo if this argument is successful, unless it is also found that there was an express contractual provision in writing that ownership the modified or new “KL2” logos would be transferred to Kawhi.

Without the ability to currently compare the original and modified “KL2” logos, it seems safe to think that the modifications likely fall somewhere between the two above arguments and fit the second scenario discussed above where the modified “KL2” logo is determined to be a derivative work. The complaint seems to indicate that Nike was authorized to modify the original “KL2” logo. If so, Nike clearly owns the copyrights to the modified “KL2” logo so the only remaining question would be whether Nike can continue to use the modified “KL2” logo both under copyright and trademark law. It is important to note that a derivative work, prepared under a grant to prepare a derivative work before termination of the grant, may continue to be utilized under the terms of the grant after its termination. See 17 U.S.C. §203(b). In the absence of contract restrictions, the owner of the copyrights in the derivative work has the exclusive copyrights in the derivative work as a whole, including the right to make derivative works based on the derivative work as a whole — but not the right to create derivative works based on the original work after the original copyright owner’s termination of the right. See also 17 U.S.C. §304(c)(6)(A).

This is where the terms of the “logo agreement” and lack of a written agreement become important. Kawhi asserted that he permitted Nike to use the “KL2” logo “for the specific purpose of effectuating the Nike Agreement for the term of the contract”. Even if Kawhi can prove that there was agreement that Nike would stop using the modified “KL2” logo when the endorsement contract between Kawhi and Nike expired, Nike still owns the copyright in the modified “KL2” logo as a derivative work, unless there was an express contractual provision in writing that ownership of modified “KL2” logos would be transferred to Kawhi. However, Nike cannot use the modified “KL2” logo by contract and Kawhi cannot use the modified “KL2” logo because it would infringe Nike’s copyrights. If Kawhi cannot prove that there was an agreement in this regard, only Nike could continue to use the modified “KL2” logo. Of course, in either case Kawhi could use the original “KL2” logo or any other derivatives thereof.

Lessons learned

At this early stage and without the benefit of comparing the original and modified “KL2” logos, it appears that Kawhi will have difficulty in obtaining the results that he requested in his lawsuit. What could he have done differently? First and foremost, this dispute likely would have been avoided if a formal written contract was entered into at the time a “logo agreement” was reached about Nike using the “KL2” logo. This is always important regardless of the type of agreement. Second, Kawhi should have included clear terms in the written contract that he would be assigned ownership of any modified or new “KL2” logos authored by Nike, or at least that Nike could not use the original or any modified or new versions of the “KL2” logo authored by Nike after the endorsement contract expired. This is particularly important in instances like this where the other party may be a direct competitor in the future. Third, and maybe less obvious, the written contract should have expressly addressed all relevant intellectual property rights including both trademark rights and copyrights. This is particularly important when a trademark is a logo which includes a visual work of art.