Welcome to Sports Shorts, Field Fisher Waterhouse's round-up of recent legal issues from the world of sport.
Following a summer dominated by the Carlos Tevez saga, FIFA has just announced new rules aimed at preventing third parties from influencing football club's transfers. We look at the new rules and re-examine what caused all the fuss.
Whilst many of us enjoy the convenience and excitement of buying from eBay, it also provides counterfeiters with an opportunity to sell their products. Whilst eBay provides a mechanism for rights owners to take down infringing auctions, it puts the onus on the rights owners to police eBay. Some rights owners have had enough and we examine the steps they are taking.
There has been a couple of high profile court skirmishes over some classic football brands - World Cup Willie and the former Brazilian team badge. Inside, we examine the lessons learnt from these decisions.
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In this Issue
The Tevez aftermath: FIFA changes its rules to stop third party influences on transfers
On 29 October 2007, FIFA announced a new rule prohibiting clubs from entering into any contract "which enables any other party to that contract, or any third party to acquire the ability to influence in employment and transfer related matters its independence, its policies or the performance of its teams." The FIFA Disciplinary Committee can impose measures such as demotion, points deductions and annulment of particular match results for any breach of its rules.
This new rule, which is similar to a new FA Premier League (PL) rule, emerged as a result of this year's Carlos Tevez blockbuster story. The story kicked off when it emerged that the contract which saw West Ham United (WHU) sign Tevez allowed the companies that owned Tevez's economic rights to force WHU to 'sell' Tevez in any transfer window.
In this article, we review the Tevez saga and the new FIFA and PL rules.
Episode 1 - Premier League Wars
Soon after taking over WHU, the new owners disclosed to the PL information about WHU's signing of Carlos Tevez and Javier Mascherano which had been withheld by the previous regime.
WHU were subsequently charged by the PL for breaching rules U.18 and B.13 when they signed Carlos Tevez and Javier Mascherano. PL Rule U.18 forbade any club from entering into a contract which enabled any other party to that contract to acquire the ability to materially influence its policies or the performance of its team and Rule B.13 provided that all clubs have to act "in utmost good faith" towards other clubs and the PL.
WHU were fined £5.5m by the PL Disciplinary Commission ( the "Commission") after pleading guilty to breaching rule:
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U18 by failing to disclose the third party agreement (TPA) that it had entered into with MSI Group Ltd (MSI) and Just Sports Inc (JSI) which allowed MSI and JSI to terminate Tevez or Mascherano's contract in any transfer window
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B.13 by failing to disclose the TPA at the time of the transfers
WHU were also warned that Tevez could not play on whilst the TPA was in existence.
Episode 2 - The Clubs Strike Back
Clubs including Charlton, Fulham, Sheffield United (SU) and Wigan were reportedly incensed by the Commission's decision not to deduct points from WHU.
This culminated in the PL agreeing to Sheffield United's call for an arbitration tribunal (the "Tribunal") to review the decision to fine WHU and to investigate Tevez's ability to continue playing in WHU matches.
The Fine
On 3 July, the Tribunal upheld the PL Disciplinary Commission's decision to fine WHU and to not deduct any points. The Tribunal decided that the decision to fine WHU was not irrational or perverse but "fell within the parameters of the options open to the Commission."
The Tribunal had a narrow remit. Whilst it could have ordered that a new Disciplinary Commission be convened, it could not review the substantive issues or the severity of the punishment. No doubt to the dismay of SU, the Tribunal emphasised that "in all probability... [we would have] deducted points from WHU."
Tevez plays on
WHU had reassured the PL twice, on 27 April and again on 4 May, that the TPA relating to Tevez had been terminated and therefore there was no question mark over Tevez's eligibility to play.
However, evidence at the Tribunal indicated that Teacher Stern Selby, solicitors acting for MSI and JSI, had responded to WHU's purported termination of the Tevez TPA by stating that their "clients rights remain fully expressed and reserved".
The Tribunal was satisfied that WHU's unilateral termination of Tevez's TPA brought WHU in line with PL rules B13 and/or U18. The Tribunal concluded that although the arrangement "may not have been legally watertight... it was a practical and workable solution to a difficult situation."
The Tribunal rejected SU's plea for a new Disciplinary Commission hearing into WHU's purported termination of the Tevez TPA.
Episode 3 - Return of the Third Parties
News reporters, commentators and fans alike clambered for more and were not disappointed. MU were keen to sign Tevez and the "practical and workable solution" looked like it might quickly unravel.
The MU deal had to be consistent with Tevez being contracted to WHU and in control of his registration. This was perceived to be the stumbling block. MSI and JSI issued High Court proceedings in relation to the TPA which WHU had unilaterally terminated in order to ensure that they received satisfactory remuneration from any transfer.
It may never be revealed what further explosive evidence may have been publicised at the planned 22 August Court hearing as the parties reached a settlement which provided for WHU to be paid £2m for releasing Tevez from his contract and registration.
The PL approved the deal as it appeared to be consistent with the assurances given by WHU.
Whilst much was made of the necessity for WHU to receive compensation for releasing Tevez from his contract, there are surely other transfers in which the transfer fee has ended up somewhere other than in the coffers of the selling club, for example, when a bank or other lender financed the initial transfer fee which bought the player to the selling club.
Episode 4 - The Unknown
On 16 August, SU issued proceedings against WHU to recover compensation for SU's relegation to the Championship. We understand that SU claimed that WHU gained an unfair advantage through breaking the PL rules when they signed Tevez. It was also reported that SU alleged that WHU had failed to disclose a critically important additional third party agreement. WHU promised to vigorously defend SU's claim. Little more at present is known about this action.
On 25 October SU revealed in its Preliminary Results announcement to the Stock Exchange that it is now headed towards an FA lead Arbitration in its compensation claim against WHU. It looks, for now, that the litigation is on hold and we await further news about this latest development.
Final Thoughts
The fact that WHU's new owners disclosed the TPA soon after it was discovered perhaps puts paid to the notion that a PL club could in the future also benefit by delaying notification until late in the season when any points deduction may be unjust for the club and its fans.
Additionally, the PL and now FIFA have modified their rules. Rule L4 of the new PL Rules make it clear that clubs must submit for approval by the board of directors of the PL:
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any contract it proposes to enter into which gives the club or any other party any rights relating to the transfer of the registration of a player in the future or in relation to a player's employment by the club
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any contract it proposes to enter which gives any other party the right to receive payments in respect of a player.
In this context, the PL board will also consider the rules preventing any person having direct or indirect influence or involvement in the management or administration of more than one club (Rule V8) and the familiar rule preventing clubs from entering a contract which allows a third party "materially to influence its policies or the performance of its teams" (Rule V20).
There can be advantages to allowing third party player ownership or part ownership, such as:
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funding or reducing a club's transfer payments
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allowing a club to speculate on a departing player becoming more valuable in the future by retaining a residual ownership
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financing a club's ability to nurture and develop talent, as is common in South America.
However equally, such investments cannot go unchecked. The new PL and FIFA rules recognise the implicit risk of a third party influencing or forcing a player's sale. A third party investor will surely always be concerned to ensure that their investment is not allowed to waste away in reserves.
The new rules do not ban third party ownership of players. They deal with the issue that arose out of the Tevez TPA, namely the ability for a third party investor to force the club to 'sell' a player.
Given the proliferation of players that may be subject to some kind of TPA, it will be interesting to see how these new rules play out and are developed in the coming years.
Use your trade mark properly or lose it! Another reminder of the importance of careful brand use and protection for sports clubs and bodies
The recent High Court case of Score Draw Ltd v Alan James Patrick Finch, reminds sport clubs and bodies of the importance of ensuring that their current and classic brands and badges are registered as trade marks, used correctly as a trade mark, for example with swing tickets and labelling, and that infringers are stopped.
In this case, Score Draw appealed against a trade mark Hearing Officer's decision not to declare the trade mark registration by Alan James Patrick Finch invalid.
The trade mark at the centre of this dispute was the badge of the CBD, formerly the governing body of Brazilian sport. The CBD badge was used on the Brazilian football team's kit between 1914 and 1971 and was worn by legends such as Pele and Garrincha.
Finch, the registered proprietor of the CBD mark, had licensed TOFFS Ltd to use it on replica football clothing. However, Score Draw had also used the CBD mark on replica football clothing without any interference from Finch. Score Draw applied to invalidate Finch's mark on a number of grounds, including that the mark lacked distinctiveness.
Similar arguments failed when aired in the Arsenal FC v Reed case and in Tottenham Hotspur plc v O'Connell which both confirmed that football (and other sports) badges can function both as badges of origin in a trade mark sense and as signs of fan allegiance.
However, in this case the evidence demonstrated that the CBD badge use had actually led to the CBD badge being associated with the Brazilian football teams but it never became a badge of origin. The evidence reinforced that the badge was used on the replica shirts produced by TOFFS and Score Draw to lend a sense of authenticity to the shirts so that the public would associate the shirt with the Brazilian team. However, unlike in the Arsenal and Tottenham cases, the use here prevented the CBD Badge from denoting trade origin.
Arsenal and Tottenham ensure that their marks indicate trade origin through careful use of swing tags, labelling, careful licensing and stopping infringers. However, the CBD Badge was never used or looked after in the same way as the Arsenal and Tottenham marks which was exacerbated by the fact that both TOFFS and Score Draw used the CBD Mark on their replica shirts to denote an association with the Brazilian team. Accordingly, the Court held that the use of the CBD Badge was incapable of denoting trade origin for Finch and was therefore invalid.
This case reiterates the importance of reviewing regularly what intellectual property rights you own and whether they are being adequately protected and used. It reinforces the need for sports clubs and brands to make sure that their brands indicate trade origin, be it through careful packaging and labelling and control of licensees and infringers.
The case also serves as a welcome reminder, especially given the World Cup Willie case discussed in our next article, that heritage or classic badges which may not be in use, can still have a latent value and should not be ignored. Don't forget that failure to use any registered trade mark for five years can leave the mark vulnerable to cancellation for non-use!
World Cup Willie Tamed
The High Court has recently ruled in another dispute involving a famous football logo.
On 18 October, the High Court dealt with a preliminary issue in Jules Rimet Cup Ltd v Football Association Ltd [2007] EWHC 2376 (Ch) concerning who owns the rights in the trade mark "WORLD CUP WILLIE" and the cartoon type lion dressed in the England football strip. World Cup Willie was the mascot for the 1966 World Cup hosted in England:
In this case Jules Rimet Cup Limited ("Jules Rimet") applied to register the words WORLD CUP WILLIE and a lion logo with the words WORLD CUP WILLIE:
The Court felt that Jules Rimet's lion was copied from the original World Cup Willie but because it did not reproduce a substantial part of the original drawing it did not infringe the FA's copyright.
However, the Court ruled that the FA could block Jules Rimet's trade mark applications, because when Jules Rimet filed their applications in 2005, the FA could have prevented Jules Rimet from using World Cup Willie under the law of passing off (Section 5(4)(a)) and because the applications were made in bad faith (section 3(6)).
The decision turned on the fact that the Court found that there was residual goodwill owned by the FA in the original 1966 FA WORLD CUP WILLIE lion logo. This was despite the fact that the FA had abandoned its trade mark registration for WILLIE in 1986.
The FA claimed that WILLIE had not been abandoned but rather put on the shelf for use in a future world cup hosted in England. The Court felt there was some force in this argument because the World Cup only takes place every four years and the choice of host rotates.
The Court recognised that 40 years was a long time for goodwill to survive. However, pointing to Jules Rimet's marketing materials which included phrases such as "everyone remembers World Cup Willie and he is closely linked to the 1966 success" and "some of the most valuable sports rights in the UK" and Jules Rimet's entry for World Cup Willie in the Brand and Sports Licensing Source Book 2005 which stated that "he is already known and loved by older generations", the Court ruled that the goodwill had survived.
The Court ruled that the FA's goodwill is in licensing goods connected with the England team and a football competition. Fair use of the mark by Jules Rimet would also cover a merchandising campaign connected with a major football event such as the World Cup. Therefore, the Court was satisfied that there was a clear likelihood of confusion - people would associate any of Jules Rimet's merchandise with the FA.
The Court ruled that Jules Rimet's application to register the WORLD CUP WILLIE marks was made in bad faith because Jules Rimet knew that there was valuable residual goodwill in "WORLD CUP WILLIE" in the United Kingdom when they made the trade mark applications.
eBay under-fire
Sports clubs may be pleased to read that eBay is being sued by L'Oreal in the English High Court as well as in France, Spain, Germany and Belgium, for failing to do enough to block sales of counterfeit products.
Luxury goods group Louis Vuitton Moet Hennessy is currently suing eBay in France and Tiffany & Co has taken action in the US.
These actions have arisen because rights owners are fed up investing ever increasing sums and time into monitoring the millions of items for sale on eBay and want eBay to do more.
L'Oreal's action follows hot on the heels of Germany's highest court ruling that the German eBay site must try to prevent attempts to sell fake Rolex watches on its website.
The German court found that eBay was obliged to withdraw purported offers of Rolex watches immediately if there was reason to suspect that they were counterfeit, or if it was alerted to the fact by Rolex.
In the UK, there has been a question mark over whether eBay could rely on the defences in the Electronic Commerce (EC Directive) Regulations 2002. ISPs have defences against monetary remedies and criminal sanctions, in respect of the transmission or storage of information under the regulations. The defences cover being a "Mere Conduit", Caching and Hosting.
Some feel that eBay's activities go beyond the defences in the regulations. Whilst eBay does not tamper with auctions, every auction is submitted to eBay and eBay charges for putting each auction on its site and then takes a cut of the winning bid. This could well extend eBay's role beyond that of a passive conduit or a host.
The English courts have previously refused to find liable those that facilitate innocently the commission of IP infringement. This stretches back to the famous case involving Amstrad's twin deck tape recording machines which were used widely for making copies of original recordings (CBS Songs Ltd v Amstrad [1988]).
eBay operates a VeRO programme which allows rights owners to report IP infringements to eBay. eBay then removes the auction and, if a repeat offender, bans the seller.
VeRo could allow eBay to utilise the defence in the Regulations which is conditional on the auction site not having actual knowledge of the unlawful activity or on obtaining such knowledge acting expeditiously to remove the infringing item.
In the German Rolex v eBay case, the Supreme Court held that eBay's duty went further. Once eBay is notified of an infringement, eBay is obliged to monitor postings to ensure that the problem was not repeated.
Whether the English court will follow the German example remains to be seen. The Courts held in Bunt v Tilley that an ISP does not have to monitor the information passing through its conduit and "should not become liable...simply because it has been previously told of wholly unrelated [instances of infringement], not necessarily even by the same author."
Burnt v Tilley suggests that the High Court will probably view the Regulations as favouring eBay and will leave rights owners' to go after the sellers of infringing products. Having used eBay to take down over 2,000 auctions of infringing items in the past year, the writer will be keeping a close eye out for developments in this case.
Upwardly Mobile
Juniper Research recently estimated that the global market for mobile sports content and services will grow from around $1bn in 2006 to $3.8bn in 2011.
Sports content works on a mobile phone. SMS updates are already popular with absent fans and clips, games, wallpapers, votes, interviews and audio alerts are a natural progression. Mobile content enhances relationships with fans through treats like last minute tickets and discounts.
The fact that users expect to pay for mobile content sets it apart from Internet content. Careful planning is required to determine how best to exploit the opportunity; poor content or high prices could alienate fans who may not return later. Options include subscriptions, pay per download, sponsorship or ad-funded. The early Internet experience suggested that too much advertising can damage the user experience, however, ad-funded content seems to be the preferred online model (with the benefit of clip-specific ad deals).
In the current climate, canny rights owners may be able to provide offerings without undertaking significant expenditure or exposure, for example, through revenue-sharing.
It is easy to get carried away by the hype but there are obstacles. These range from technology uptake and the lack of standardisation - there are over 25 Mobile Video and Image formats - to subtle issues like ease of use, pricing and quality. Mobile users want timely content so there is a balancing act to keep traditional and new media distributors on-side. Where music is included in content, the absence of an accepted model and rate card for rights clearance will be an impediment.
Of particular note is the need for precise demarcation of media and sponsorship rights. Last year's sale of Bundesliga football rights serves as a timely warning. Arena paid around €220m for satellite and terrestrial broadcasting rights whereas Deutsche Telekom paid about €45m for online broadcasting rights. Apparently, the Deutsche Telekom deal included Internet Protocol TV (IPTV) so Deutsche Telekom could have broadcast Bundesliga games to its broadband customers through an IPTV set top box. It is reported that Deutsche Telekom secured valuable concessions by agreeing not to broadcast the games on IPTV.
This article was first published in Sport Business July 2007.