Business and Technology Law

In AT&T Mobility, LLC v. National Ass’n for Stock Car Auto Racing, Inc., 2007 WL 2297832 (11th Cir. 2007), decided on August 13, the Eleventh Circuit rebuffed a claim filed by AT&T seeking an injunction compelling NASCAR to permit it to display its logo on a race car originally sponsored by Cingular. The decision cleared the way for NASCAR to prevent AT&T from substituting the AT&T logo for the current Cingular logo on Jeff Burton’s racing car. The court’s resolution of the ongoing dispute highlights the importance of careful drafting in sponsorship agreements as well as the need to consider the legal ramifications of any potential rebranding of a business.

AT&T bought Cingular and has since been in the process of rebranding the wireless provider under the AT&T name. Naturally, AT&T wanted to place the AT&T logo on Jeff Burton’s No. 31 Richard Childress Racing Chevrolet. After all, NASCAR races are broadcast in over 150 countries to approximately 75 million viewers. But NASCAR was not so sure this was a good idea.

NASCAR declined to permit AT&T to display its logo on Jeff Burton’s race car because NASCAR asserted that this action would violate its contract with Sprint Nextel. In June of 2003, Sprint Nextel Corp. reportedly paid $700 million for its exclusive sponsorship rights for the NASCAR Cup Series races over a 10 year period. The Nextel Sponsorship Agreement contained language defining competitors and specifically naming AT&T and several other telecommunications companies. Competitors of Sprint Nextel are prohibited from advertising and sponsorships in connection with NASCAR Nextel Cup Series Events. However, at the time this agreement was executed, Nextel became aware that the #31 car owned by RCR and driven by Jeff Burton, had been sponsored by Cingular Wireless since 2001. According to the court’s opinion, the Nextel Sponsorship Agreement carved out narrow exceptions to Sprint Nextel’s exclusivity as an accommodation to those pre-existing telecommunications sponsors. The agreement permitted RCR’s #31 car to continue under their pre-existing sponsorship agreement with Cingular, under certain terms and conditions. NASCAR also agreed to take all legally permissible steps to protect Sprint Nextel’s exclusivity.

In 2007, NASCAR, RCR, and Jeff Burton were parties to a 2007 Driver and Car Owner Agreement. The court noted that an addendum to the RCR Agreement, designed to effectuate the narrow exceptions for Nextel’s exclusivity, contained a grandfather clause permitting RCR to “renew it’s non complying sponsorship so long as the sponsor’s brand position is not increased on the #31 car.” This clause also provides that “in the event the sponsorship relationship with Sprint Nextel Competitor is not renewed, RCR will not be permitted to enter into a subsequent sponsorship agreement with a different Sprint Nextel Competitor.” On January 4, 2007, RCR submitted approval for a paint scheme of car #31 that maintained the Cingular logo on the hood of the car, but also introduced the AT&T logon on the rear panel. The court stated that NASCAR rejected this paint scheme as it violated the Sprint Nextel Sponsorship Agreement, prohibiting the display of the AT&T logo. On March 26, 2007, AT&T Mobility filed an amended complaint against NASCAR asserting claims for breach of the RCR Agreement, breach of implied covenant of good faith and fair dealing, and seeking a declaratory judgment from the district court that AT&T could place the name, brand, logos, and marks of its choosing on car #31, driver uniforms, helmets, and in all merchandising and licensing rights, including a change of its name, brand, logos and marks to AT&T. AT&T also requested a preliminary injunction preventing NASCAR from interfering with its right to place its name, logo, and marks on car #31. The district court found that AT&T had standing as a third party beneficiary of the RCR and NASCAR agreement, and granted AT&T’s requested injunction. The appellate court decided otherwise.

The Eleventh Circuit found that AT&T did not have standing to challenge NASCAR’s decision under the RCR Agreement to prohibit the display of AT&T Logo on the #31 car. Georgia law permits a “beneficiary of a contract made between other parties for his benefit [to] maintain an action against the promisor on the contract.” Ga. Code Ann § 9-2-20(b). Further applying Georgia law, the court stated that in order for a third party to have standing to enforce a contract, it must clearly appear from the contract that it was intended for his benefit. The court said that this simply wasn’t the case in the RCR-NASCAR agreement. The court reasoned that any benefit to Cingular was merely incidental to NASCAR’S intended purpose of preserving RCR’s choice of sponsorship, and that the fact that Cingular (now AT&T) would benefit was not enough. The court was also unable to conclude that NASCAR promised to render any performance to Cingular under the RCR Agreement, stating that “RCR was the intended beneficiary of that promise, not Cingular.” RCR retained the rights to either continue or discontinue their sponsorship with Cingular, and so the court believed that NASCAR assumed no duty to preserve or protect Cingular or its successors rights. This injunction was vacated and remanded for dismissal. The remainder of the case, including a countersuit by NASCAR has yet to be resolved.

Full Opinion Text: http://www.ca11.uscourts.gov/opinions/ops/200712299.pdf