Unintended Consequences Part 2: What the Phillie Phanatic Litigation Teaches About Copyright and Trademark Rights in Mascots

“Unintended Consequences of Copyright and Trademark Protection in Design” published in the INTA Bulletin in December 2020, outlined the potential under U.S. copyright and trademark law for bifurcated ownership of certain visual designs that might result following an author’s exercise of the termination right provided for in the Copyright Act.

This scenario seems far-fetched, but it was the subject of a Southern District of New York district court case between the Philadelphia Phillies baseball team (TPLP) and the creative design firm Harrison/Erickson, Inc. (H/E), involving TPLP’s beloved mascot, the Phillie Phanatic (the Phanatic).

“Born” in 1978, the Phanatic is a furry, six-foot six-inch tall, green flightless bird with an extra-long, curled-up tongue that cheers on the Phillies team and mocks their opponents. The Phanatic, widely associated with the Phillies, is one of the most recognizable mascots in all of North American sports. However, in June 2018, H/E sent TPLP a notice of termination (the Notice) concerning the Phanatic costume copyright, prompting TPLP to file a declaratory judgment action in federal court in August 2019. Although dismissed in December 2021 following a confidential settlement, the filings illuminate the real-world issues faced by trademark owners due to these unintended consequences of copyright law.

Recap of the Case so Far

The Parties’ History

In 1978, TPLP decided to develop a new mascot and entered into an agreement with H/E to design and construct the new mascot’s costume in close cooperation with TPLP, which provided H/E with instructions and input on concepts and initial designs. Having previously used “phanatics” to promote the team, TPLP decided the mascot’s name would be “the Phillie Phanatic.”

The Phanatic’s popularity quickly grew, and TPLP developed Phanatic-themed merchandise, including toys, apparel, posters, and trading cards. In 2011, TPLP filed and obtained federal trademark registrations (now incontestable) for various PHILLIE PHANATIC word and design trademarks. For the design marks, the mark was described “as a two-dimensional depiction of a three-dimensional costumed character wearing a baseball uniform depicting the word ‘PHILLIES.’”

The original contract stated that H/E retained copyright ownership and granted TPLP the right to use the costume for TV, commercials, and personal appearances to promote the Phillies. In 1978, the parties entered into a second licensing agreement to permit reproduction of the costume on souvenir items.

However, in 1979, H/E sued TPLP over the extent to which H/E’s approval was needed on promotional and merchandising items, asserting infringement of its copyright in the costume. H/E’s copyright filing indicated that the work was an “artistic sculpture,” despite all contracts, licenses, and previous legal claims identifying the work as a “costume,” and provided a photo with a person inside the costume and not the pieces by themselves.

The parties settled this litigation by renegotiating their agreement, granting TPLP the exclusive rights to exploit the Phanatic in exchange for an annual license fee plus a lump-sum payment of US $115,000. The new agreement acknowledged that H/E owned the copyright in the “artistic sculpture presently identified as the ‘PHILLIE PHANATIC,’” while H/E acknowledged that TPLP had “valuable trademark, service mark and other property rights in and to the uniform design and insignia which are included in the costume … and to the phrase ‘PHILLIE PHANATIC.’”

The parties negotiated a final agreement in 1984, including a formal transfer and assignment of copyright, whereby H/E sold whatever rights it had in the “artistic sculpture known as the ‘Phillie Phanatic’” to TPLP for US $215,000, including “all reproductions and portrayals … in any medium whatsoever, everywhere and forever.” Subsequently, TPLP continued to hire H/E to create new Phanatic artwork.

In 2018, H/E sent the Notice to TPLP seeking to terminate the 1984 agreement. Following receipt of the Notice, TPLP hired a different designer to make alterations to the Phanatic in order to circumvent H/E’s termination by creating a new derivative work before the termination took effect in 2020 (the Termination Date).

The Phillies’ Declaratory Judgment Complaint

In August 2019, TPLP filed a declaratory judgment in the Southern District of New York seeking judgment that, among other things, the new Phanatic design (dubbed “P2”) did not infringe H/E’s copyright. TPLP made other arguments, including that:

1. Identifying the work in the copyright filing as an “artistic sculpture,” instead of a “costume,” was a misrepresentation sufficient to invalidate the registration;
2. The Phanatic design was a work of joint authorship in which TPLP contributed both ideas and copyrightable content intended to be integrated with H/E’s contributions, and so H/E could neither terminate TPLP’s copyright interests in the Phanatic pursuant to Section 203, nor sue TPLP for copyright infringement;
3. TPLP developed the character of the Phanatic (as opposed to the costume) both through developing a backstory, personality traits, and other distinctive features, and through its employees’ public activities in costume, thereby creating a copyright in the character itself, separate from the costume’s copyright, and thus H/E cannot terminate TPLP’s rights in the Phanatic character;
4. TPLP created numerous Phanatic derivative works, including costumes, designs, artwork, logos, and promotional and retail products, and the derivative works exception in Title 17 of U.S. Code Section 203(b)(1) (the DW Exception) permits continued use of derivative work developed prior to the Termination Date; and
5. H/E could not legally assign the rights of the Phanatic to another sports team as it would dilute the distinctiveness of TPLP’s famous Phanatic marks, violating the Lanham Act and TPLP’s incontestable trademark rights.

H/E’s Response and Counterclaims

H/E subsequently filed a copyright infringement claim against TPLP, alleging that:

• H/E was the sole author of the Phanatic;
• H/E’s copyright registration in the Phanatic design was validly secured;
• H/E did not commit fraud on the Copyright Office in securing the same;
• Any fraud claim would be barred as a result of the conduct of TPLP concerning that registration since 1979; and
• P2 was not a copyrightable derivative work, as it lacked sufficient originality to constitute a new, separate work of authorship, and thus new works featuring P2 created after the Termination Date (including new merchandise) were and are infringing.

Magistrate Judge’s Report and Recommendations

On August 10, 2021, Magistrate Judge Netburn issued a Report and Recommendation (the Report) for the parties’ cross motions for summary judgment. The Report recommended:

1. Dismissing TPLP’s challenges to the validity of H/E’s copyright and authorship claims, either on the merits of H/E’s claims or, alternatively, because TPLP was barred by res judicata or by the statute of limitations;
2. Granting summary judgment to TPLP on whether P2 and P2-related artwork are derivative works falling within the DW Exception;
3. Granting summary judgment to H/E on TPLP’s request for declaratory judgment that “use of the Phanatic by another sports team or commercial entity for any similar goods or services” to those covered by TPLP’s registered trademarks violates TPLP’s trademark rights, finding TPLP failed to demonstrate the required “substantial controversy … of sufficient immediacy and reality”;
4. Denying H/E’s summary judgment motion on TPLP’s state law unjust enrichment and breach of the covenant of good faith and fair dealing claims;
5. Entry of partial summary judgment that the Notice was valid; and
6. Finding that the Notice validly terminated TPLP’s rights to use all works created after 1984 but didn’t cover pre-1984 works that were subject to an implied use license and didn’t extend to any valid derivative works falling within the DW Exception, including P2.

The court also addressed another important issue—whether the changes made to the Phanatic’s appearance were substantial enough to qualify as a separate work under copyright law. On this, the Report also recommended:

1. Granting TPLP’s motion to dismiss H/E’s copyright infringement counterclaim concerning uses by TPLP of the Phanatic copyright after the Termination Date as it relates to “merchandise” depicting the original Phanatic design that was created between the Termination Date and the filing of the Amended Answer and Counterclaim because H/E failed to state with specificity what merchandise is infringing;
2. Granting TPLP’s motion to dismiss related to P2 and P2-related artwork falling within the DW Exception; and
3. Denying TPLP’s motion as to depictions of P2 created after the Termination Date.

Settlement and Dismissal

After Magistrate Judge Netburn issued the Report, the parties reached a settlement. Later, on December 10, 2021, Judge Marrero accepted the parties’ stipulated consent judgment and dismissed the case with prejudice, noting they entered into a confidential settlement agreement. Although no terms were publicly revealed, H/E confirmed the settlement agreement would “ensure the return of the original Phillie Phanatic.”

Costume Vs. Character

Both the Phillies and the magistrate judge identified two distinct copyright rights in the Phanatic: the rights in the costume and in the character.

For the costume, Section 102 of the Copyright Act establishes: “(a) Copyright protection subsists … in original works of authorship fixed in any tangible medium of expression … from which they can be perceived, reproduced, or otherwise communicated…. Works of authorship include: … (5) pictorial, graphic, and sculptural works. …”

Copyright protection typically is not available for useful articles like clothing; however, for articles incorporating pictorial, graphic, or sculptural features that are separate from, and can exist independently of the item of clothing, then the pictorial, graphic, or sculptural features will be protected by copyright. In Star Athletica, LLC v. Varsity Brands, Inc., 137 S. Ct. 1002 (2017), the U.S. Supreme Court held that a feature within the design of a useful article (cheerleading uniform) is eligible for copyright protection if it is “perceived as a two- or three-dimensional work of art separate from the useful article, and if it would qualify as a protectable pictorial, graphic or sculptural work … if it were imagined separately from the useful article into which it is incorporated.”

Although mascot costumes could be considered useful articles akin to clothing, the fact that they incorporate pictorial, graphic, or sculptural work appears to make mascot costumes eligible for some degree of copyright protection.

A mascot’s character would be entitled to copyright protection when it is (a) included in original works of authorship that are themselves protected by the law of copyright; and (b) sufficiently delineated to be original. “A character’s conceptual qualities include his age, name, ‘speech, movement, demeanor, and other personality traits,’” while “physical qualities include any of his visual characteristics, such as his clothing and facial features.” Conan Props. Int’l LLC v. Sanchez, 2018 U.S. Dist. LEXIS 98631 at *27– 28 (E.D.N.Y., June 8, 2018).

TPLP detailed the Phanatic’s personality attributes, including:

• “A passionate Philadelphia sports fan, and in particular a fan of the Phillies”;
• “A frenetic and hyper demeanor, zigging and zagging about the stadium”;
• “Child-like enthusiasm with a short attention span”;
• “Mute”;
• “Loves to dance”; and
• “Has a surprising athleticism in contrast to a round, fat body shape.”

However, the Report pointed out that the challenge is that the Phanatic is a mascot, not a comic book or film character, and concluded that these personality traits, taken together with the Phanatic’s name, actions, and conduct, did not delineate a character of sufficient unique expression to warrant copyright protectability.

Practical Advice for Brand Owners

What practical lessons can brand owners learn from the Phillies’ experience?

First, when creating a new mascot, brand owners should ensure any costume is designed as a work for hire under the Copyright Act. They can achieve this by having one or more employees—either an employee of the brand owner itself or an employee of the outside design firm hired to create the mascot’s costume design—create the costume, working within the scope of their employment. In this way, whatever assignment or license agreement is entered into between the brand owner and the design firm is not eligible for termination under Section 203 of the Copyright Act. If an outside design firm is hired, the brand owner will want to have all rights assigned by the design firm to the brand owner or, at the very least, a perpetual and irrevocable license to use all assets created relating to the brand owner and the mascot.

Additionally, if the brand owner contributes significantly to the mascot’s creative development, then it should assert joint authorship of the copyright and be identified as an author in any application for copyright registration. The roles played by the different actors in the development of the mascot design should be memorialized in writing at the outset of the design process. A timely copyright registration for the designs also helps further document the relationship between the parties involved.

Second, brand owners should consider a trademark filing program; for example, registering the mascot name and also images of the mascot in one or more poses. In addition to Class 41 (entertainment services), brand owners should consider applying in those classes covering the company’s products/services in which the mascot is used. For example, a sports team might consider Classes 16, 25, and 28, and a restaurant, Classes 25, 28–33, and 43. Filings should be made early on in the use of the mascot (i.e., long before the termination window approaches).

Third, prior to receiving a termination notice, brand owners can proactively reach out to the mascot designer to initiate a renegotiation of the original terms pertaining to the mascot’s creation. By preemptively taking this step, brand owners may obtain additional leverage in the negotiation since the mascot designer will not be able to wield an imminent threat of termination.

Fourth, brand owners can update mascot designs prior to termination, thereby creating a derivative work usable even after termination is exercised. However, remember that, without a new license, derivative works cannot be further changed once termination takes effect. Brand owners should avoid making only trivial changes to the costume design to prevent arguments that the “new” design is not a derivative work.

Although every effort has been made to verify the accuracy of this article, readers are urged to check independently on matters of specific concern or interest. 

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