Authentic Apparel Group, LLC v. United States, 989 F.3d 1008

Background

In 2010 the U.S. Army granted Authentic Apparel Group a nonexclusive license to use Army trademarks; the license required the Army’s advance written approval of all products and marketing and contained express exculpatory clauses disclaiming liability for denials of approval.
Beanstalk managed approvals; Authentic submitted ~500 requests (2011–2014), the Army disapproved 41 and approved the vast majority; Beanstalk issued notices for late/missed royalty payments.
Authentic paid royalties through 2013, refused to pay 2014 royalties, and sued the United States in the Court of Federal Claims alleging breach of contract and bad-faith withholding of approvals; Ron Reuben was a co‑plaintiff.
The Claims Court dismissed Reuben for lack of standing (not in privity or an intended third‑party beneficiary) and granted summary judgment for the government, holding the exculpatory clauses barred Authentic’s claims and that there was no evidence of arbitrary or bad‑faith conduct.
Authentic appealed the dismissal and the summary judgment; the Federal Circuit affirmed both rulings.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Standing of Reuben to sue	Reuben asserted he was an intended third‑party beneficiary based on business ties to prior licensees and alleged Army conduct benefitted him	Army/US: Reuben lacked privity and no contract term clearly intended to benefit him directly	Reuben lacked third‑party beneficiary status; dismissal for lack of standing affirmed
Enforceability of exculpatory clauses	Authentic argued exculpatory clauses cannot bar relief where Army’s approval scope unlawfully gutted trademark value	Army/US: Parties agreed to broad "sole and absolute discretion" and express no‑remedy clauses; such covenants are enforceable	Exculpatory clauses enforceable; Authentic cannot recover for denials covered by those clauses
Trademark‑law limitation on approval discretion ("for trademark purposes")	Authentic: Army cannot restrict use beyond legitimate trademark licensing (cannot license in gross or strip goodwill); approval discretion limited when it prevents trademark exploitation	Army/US: License terms and quality‑control approval process are valid; licensor may set terms and prevent misuse or consumer confusion	Court rejected plaintiff’s narrow view; approval discretion consistent with trademark law and quality control; no basis to ignore exculpatory clauses
Bad faith/arbitrary‑conduct exception to exculpatory clauses	Authentic claimed implied duty of good faith and that extreme or arbitrary denials could avoid exculpatory protection	Army/US: No evidence of arbitrary or bad‑faith denials; approval scheme and results show legitimate control	No genuine dispute of material fact that Army acted arbitrarily or in bad faith; exception not triggered; summary judgment for government affirmed

Key Cases Cited

Wells Bros. Co. v. United States, 254 U.S. 83 (upholding enforceability of broad exculpatory covenant)
Wood v. United States, 258 U.S. 120 (enforcing no‑claim covenants against delay‑damage claims)
P. Gas & Electric Co. v. United States, 838 F.3d 1341 (Fed. Cir.) (requirements for standing/privity in government contract suits)
Flexfab, L.L.C. v. United States, 424 F.3d 1254 (Fed. Cir.) (third‑party beneficiary standing is an exception and narrowly construed)
Glass v. United States, 258 F.3d 1349 (Fed. Cir.) (contract must show intent to benefit third party directly)
Castle v. United States, 301 F.3d 1328 (Fed. Cir.) (shareholder indirect benefit insufficient for third‑party beneficiary status)
Dawn Donut Co. v. Hart’s Food Stores, Inc., 267 F.2d 358 (2d Cir.) (explaining "naked licensing" and need for licensor quality control)
Visa, U.S.A., Inc. v. Birmingham Trust Nat’l Bank, 696 F.2d 1371 (Fed. Cir.) (trademark law protects consumers from source confusion)
Dobyns v. United States, 915 F.3d 733 (Fed. Cir.) (implied duty of good faith and fair dealing in government contracts)