Arsenal See Red Over Unofficial Merchandise

01 June 2001

Patrick Kelleher

A recent decision of the English High Court has given serious food for thought for sports teams and organisations who generate income through sale of official merchandising bearing the team's trade marks. The decision also has implications for brand owners outside this field.

The case involved Arsenal FC, the English Premier League football team and Matthew Reed, a street trader who was in the business of selling unauthorised merchandise, including Arsenal shirts, scarves, caps etc. Mr Reed sold both unofficial and official Arsenal memorabilia from a number of stalls which he placed near Arsenal's football ground. In a decision which will be surprising to many in the industry, Mr Justice Laddie found in favour of Mr Reed on one of the claims and referred the other to the European Court of Justice.

Arsenal had begun expanding its merchandising operation in the early 1990s and had developed several retail outlets both inside and outside the football ground, aimed at its supporters. The club also had a significant mail-order and internet shopping business trading in souvenirs and memorabilia. The club's total income from merchandising was stated to be in the region of £5 million per annum. The club sued Mr Reed for trade mark infringement and passing off based on the Arsenal registered trade marks including ARSENAL, GUNNERS ( the team's nickname), a crest device which appears on the team's football shirts and a device of a cannon (part of the club crest).

The Judge found that although Mr Reed had been trading in Arsenal goods for over 30 years, the club did not present any evidence that any members of the public had been confused as to the trade origin of the unofficial merchandising appearing on Mr Reed's stalls. The Judge agreed with Mr Reed's point that Arsenal supporters who cared about the trade origin of goods would know that Mr Reeds goods were not associated with the club and that the money they handed over would not be benefiting the club. Furthermore, the Judge also agreed with Mr Reed that most of his customers would have no interest whatsoever in the origin of the goods but merely wanted goods bearing the Arsenal signs which would demonstrate their support for the club. According to the Judge, garments bearing the Arsenal signs were showing badges of allegiance and nothing more.

The Judge noted that Arsenal had gone to great lengths to educate its supporters that official and unofficial merchandise existed and how they could ensure that they were purchasing goods which emanated from the club. Mr Reed however, also took pains to educate the supporters that the logos on his goods were simply to adorn the products and did not imply any affiliation with the club. He also made it clear which of the goods on his stalls were official and which were not. The Judge therefore found that there was no passing off; the only loss suffered by Arsenal was attributable to the fact that Mr Reed was in competition with them.

As to the claim of trade mark infringement, the Judge found that as the signs on Mr Reed's goods were solely badges of allegiance, they were not used as trade marks. He was unable to decide whether such non-trade mark use could be sufficient to infringe the Arsenal registered trade marks and indicated that he would be referring the question to the European Court of Justice.

Importantly, the Judge noted that use of a sign on an item of clothing did not mean that the sign was used as a trade mark. He cited the example of the official Arsenal shirts which bore the name of SEGA, the team's official sponsors. The Judge stated that this would not constitute trade mark use by the Sega organisation in respect of shirts. It was merely a form of advertising. In the same manner, the Arsenal marks on the front of the same shirts did not constitute trade mark use as they did not indicate the origin of the goods.

Arsenal had, however, used their marks in another fashion. Swing tags, neck labels and packaging for official merchandise all bore the Arsenal trade marks. The Judge found that this did constitute use of the signs as trade marks and customers would recognise that this did mean that the goods were originating from the club.

One point which was notable by its absence in the Arsenal case was the question of copyright infringement. For reasons not given, Arsenal dropped its copyright claim against Mr Reed before trial. One can guess the possible reason for this - Arsenal's difficulty in establishing a chain of copyright ownership from the original artist to the club. Other sports clubs would do well to start investigations into the status of the copyright in their emblems and logos sooner rather than later.

Brand owners especially sports teams will recognise the problems for their anti-counterfeiting activities raised by this decision. Counterfeiters will attempt to rely on aspects of the decision; that adequately disclaiming any connection with the "official" goods will be sufficient to deflect a claim for passing off. Also, clubs will need to identify whether their trade marks have actually been used as trade marks rather than merely as "badges of allegiance". It is worth remembering that 5 years non-use of a trade mark is grounds for revocation of the mark.

For other clubs such as Manchester United, the wealthiest football club in the world, which generates a high percentage of its income from merchandising, Mr Justice Laddie's ruling is likely to cause significant headaches. Any appeal will be undoubtedly be watched with great interest.

First published in Brand Strategy in June 2001.