COMMENTARY: MLB Properties vs. Upper Deck — Examining the Settlement

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With the MLB Properties case against Upper Deck settled on Wednesday more than a month before an expected court date, Beckett Media will continue to examine several aspects of the complicated and wide-scoped case through a series of commentary pieces. We’ve examined MLBP’s complaint, Upper Deck’s argument, try to address some key questions and more

By CHRIS OLDS | Beckett Baseball Editor | COMMENTARY

Part 5 … Examining the settlement

While Major League Baseball Properties‘ ownership of its trademarks, trade dress and other property rights are unquestioned, Upper Deck‘s defense that it had prepared for the April 19 trial did seem compelling — perhaps even winnable if there were enough time for the legal process to completely work itself out — especially with it being such a high-profile matter with plenty of potential impact on licensing in professional sports.

Instead, we got a settlement on Wednesday evening.

It was a surprise to me — a surprise to many — as I had expected an entrenched company to put up a formidable fight given its stance and the reported financial importance of baseball in its product lines. But MLB Properties ultimately got what it wanted. It got its money owed, it got damages for the misuse of its property, it got an assurance that Upper Deck would not be digitally removing logos from uniform photos in future products (effectively dictating UD’s next move) and it ultimately got approval over any future products with a possible baseball tie.

In short, Upper Deck gave up nearly everything that it held to be vital in its defense of its infringing products, according to its own statements in its court documents.

Upper Deck, in its preliminary statement: “This is not a garden variety trademark infringement dispute. This case requires a deliberate and careful assessment of the scope of MLBP’s trademark rights in a context where those rights come into direct conflict with principles of free speech and competition and the legal doctrines that aim to protect them.”

If that’s too wordy or too big for you with a First Amendment claim, try this card-specific statement from  Upper Deck in its court filings:

“It is beyond dispute that the essential feature of any collectible baseball trading card is a picture that accurately depicts the player as a player … and not in his street clothes or at home with his kids. … If Upper Deck’s baseball trading cards featured photographs of professional baseball players in their street clothes, they would cease to be baseball cards altogether. … Simply put, there is no alternative way to make a marketable baseball card without depicting the players in their team uniforms.”

It’s remarkable that Upper Deck’s next — if not last — option for making baseball cards of players (if its deal with the MLB Players Association remains in play) is now ultimately what it dismissed as inferior.

If Upper Deck’s baseball trading cards featured photographs of professional baseball players in their street clothes, they would cease to be baseball cards altogether.

That’s quite a concession, isn’t it? A baseball card company agrees to not make what it believes to be the only way to make marketable baseball cards?  Why?

In its comments regarding the settlement on Wednesday evening, Upper Deck CEO Richard McWilliam noted that it must play the card that it played back in 1989 — innovation.

Upper Deck promises to be “changing the direction” of its baseball products and is now “looking forward to creating fresh and innovative set content that will continue to get collectors excited.”

And Upper Deck reported that it was “pleased” with the settlement as well.

How can a company be pleased with a settlement that was so fundamental to its core — so critical to its ability to make what is still undoubtedly the core of what its business was founded upon? Baseball cards are where a good portion of its revenue for trading cards comes from.

Just how important are baseball cards to the company? After all, it also makes football and hockey cards — though most industry insiders believe that Upper Deck’s exclusive with the NHL will vanish next year. (An official announcement is forthcoming.)

Upper Deck, in its court documents fighting a temporary restraining order on the three infringing baseball products, claimed that a halting of those sets would “would be devastating to Upper Deck and its business partners; so much so that the company may never fully recover from such an order.”

Upper Deck, in its court documents, said it would have suffered “economic losses in the millions” if just those three products did not get distributed.

And the company’s Director of Sports Brands, Jason Masherah, stated in his court-filed declaration that Upper Deck’s Series 1 Baseball alone accounts for “about 10-20 percent of Upper Deck’s baseball trading card revenue in a given year” and said that the three products will generate revenue totaling $10 million.

Balance those numbers and consider that on top of the money paid out here — $2.4 million plus “substantial” damages — comes on the heels of its recent, presumably large, settlement with Konami for card counterfeiting. And it also comes after a $97 million debt with the IRS and the California tax board within the last year.

Granted, the damages paid to MLBP might not be as crippling considering that the products were released but all of those things add up to a not-so-pretty picture, don’t they?

When Upper Deck sought a bifurcated trial — one part for liability, one for damages — which was denied, MLBP argued that delaying the damages phase would increase “the likelihood that Upper Deck would seek bankruptcy protection or go out of business altogether during the interim period between trials.”

It takes an aggressive, borderline-renegade, business perspective to try and dominate and then ultimately transform an industry. And it’s no secret that, love ’em or hate ’em, McWilliam has been there, done that — pushing the envelope, challenging convention. But to see this case, with all that Upper Deck had argued, vanish?

Strikes me as odd.

I have no doubts that Upper Deck could attempt a future baseball product devoid of baseball uniforms and featuring baseball players away from the field — think Exquisite Collection meets 1991 Studio meets 1991 Pro Line — but there’s no doubt that the company can’t build a small stable of baseball products under that formula, much less try to equal the financial output that 15 baseball products had in 2009. (A year in which it ultimately ended up owing MLB Properties $2.4 million.)

One can bet that Upper Deck won’t be able to produce any product featuring nearly anything directly tied to baseball — as it “must receive approval from MLB for the use of baseball jerseys, pants, jackets, caps, helmets or catcher’s equipment in future products featuring players.”

Why? What incentive would MLB have to approve any of those cards at all? None — they’d cut into its exclusive agreement with Topps.

Again, if the financial infrastructure — and MLBPA contract status — is sound, I’m confident that Upper Deck will attempt a release the way that it should have in the first place once its license with MLB Properties expired. (Then again, one must ask … why didn’t it?)

Sure, it will be more costly to produce as those limitations will create barriers, challenges. And, sure, it may not be as well-received as the typical baseball card set. In fact, some might argue that they would cease to be baseball cards altogether.

But, you know what? Some of the most popular and innovative cards made in the last 20 years have redefined just what makes a baseball card — certified autographs, game-used memorabilia, oddball inclusions of subjects, and so on — and so now is Upper Deck’s chance to do once again what it started in 1989.

This is Upper Deck’s opportunity to put its money where its mouth is and redefine the industry once again —  do something that, unlike the points apparently eschewed in its case here, it should hold dear.

Innovate.

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9 comments

  1. John Bateman 4 March, 2010 at 14:10

    Maybe if Upper Deck made one baseball set a year. A set with just about every player in the league in it. Gives the cards some sort of front design and put a decent write up on the back of the card and make the cards affordable then maybe they could create something distinct and innovative. I would think collectors would buy into it

    However, if they want to make 10-15 different sets a year with all kind of bizarre names and all the “hits” and many many inserts then forget it.

    Collectors were driven out of the hobby in the late 1980s and 1990s because of mass production and new, varied and different pricing levels on different types of cards.

  2. Jeff N. 5 March, 2010 at 09:39

    I disagree with your assumption that UD had a strong chance of winning this case. I completely disagree on the fair use and trade dress arguments, and I believe the law is on MLBP’s side. Further, if UD thought that they had even the slightest chance of winning this lawsuit, why enter into this settlement other than to avoid treble damages or attorney’s fees? This is a situation essentially worse than what MLBP requested in their complaint; I don’t believe that there was any bar from airbrushing logos in the complaint, or selling equipment…however, now UD has barred themselves from doing so. Clearly, that’s not an action of a company that had a strong defense.

    Clear and simple, they foolishly tried to push MLBP — why, I’m not quite sure, as it was clear from the Donruss suit that MLBP would sue — and they lost. Perhaps they thought that they could offer funds with their renewed attempt to obtain a license — i.e. “See what beautiful cards we made? Here’s your cut of the profit…just let us have a license now!”; I don’t know. But I can tell you this — if this is the thinking of the brains of UD, I’m VERY glad I’m not a stockholder.

  3. chrisolds 5 March, 2010 at 10:03

    Funny how “perhaps even winnable if there were enough time for the legal process to completely work itself out” means a “strong chance” to you.

    In the first sentence, I state that MLBP’s ownership of its marks is unquestioned. UD’s argument for nominative fair use in a visual sense vs. a text situation is an interesting one, though.

  4. Jeff N. 5 March, 2010 at 10:18

    “the defense . . . did seem compelling — perhaps even winnable” certainly doesn’t paint it as a weak chance.

    UD had NO chance. If they did, you wouldn’t see the settlement to this degree. It would have been more worthwhile to roll the dice and see what happened.

  5. J. Ellroy 8 March, 2010 at 23:55

    UD probably would have won like Pacific won earlier, and other firms have won nearly identical cases such as the Tiger Woods case.

    However, the cost may have been to prohibitive and the possible damages too risky in the minority event of a loss. As noted with the Konami, IRS and back revenues owed MLB by CO.

    Firms settle *ALL THE TIME* cases that they are likely to win purely for economic reasons. Sometimes, it just takes too much $ and time and effort for an uncertain outcome.

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