Basically buy at retail a hat by a sport team(authentic of course through companies like reebok,nike,new era,adidas etc ) , we take the bill/brim of the hat and add exotic leather instead of the original cotton. Is this illegal?
There is a doctrine called the "first sale doctrine" which appears to limit trademark and copyright protection to the sale by the manufacturer or creator - the first sale, allowing for resales of used goods. This doctrine does not apply in trademark when there is a "liklihood of confusion" among consumers as to the source of the goods and consequently the quality, warranties, etc related to those goods. Since professoinal sports teams are very aggressive about protecting their rights, an dmanufacturers like Nike, Addidas are equally protective about protecting their licenses for which they spend a fortune, you are going to face litigation, probably unsuccessfully.
If you insist, you really need a lawyer before you start. In addition to a trademark lawyer, you should speak to a business lawyer. I suspect this may be your first business and you need to understand finance, distribution, and a number of other components.
The above is general legal and business analysis. It is not "legal advise" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here.
This plan will get you sued. As noted by my colleague, sports teams' products are licensed by the trademark rightsholders as they are, and are vigorously protected. These licenses for trademarked goods are drafted to allow the TM rightsholder inspection and approval of all of the qualities of the product so they can control how their brand is used in the market. Even if you add what you think is an improvement, that's not up to you, it's up to the TM rightsholder.
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Chapter 7 Bankruptcy Attorney
Counsel's Donald & Koslyn offer sound opinions on this matter.
Perhaps you could negotiate with the TM holder for the right to implement your plan. You should contact a good business attorney to help you out.
Intellectual Property Law Attorney
There is an illegal way to do this and there is a legal way to do this. The illegal way is what you describe, namely buying licensed merchandise and modifying it and then reselling it as licensed merchandise. The problem is that you are usurping the quality control from the sports team and licensee and they both closely guard their right to control quality. The legal way to do this is to NOT sell the product but rather a limited service of embellishment and repeat - only sell the service, not the merchandise. This must be done very carefully under the guidance of an attorney skilled in trademarks and licensing or you will end up, as Attorney Koslyn predicts, getting sued. As with most of these sports licensing issues, there are stop signs, caution signs and detour signs and you need a very skilled attorney to negotiate through the minefield you face. Rest assured the business of selling sports and celebrity merchandise is like a minefield is fraught with peril and is closely guarded by aggressive lawyers due to the high prices commanded by this type of merchandise. You need a lawyer as good as the ones on the other side or you need to steer clear of the "minefield" by getting a license that serves as both a pathway and a ticket through the minefield. So 3 options: get a license (normally the best pathway), get a skilled lawyer to guide you through the minefield (normally quite expensive), and third option, don't do it at all. Which option you choose depends on a number of economic factors that your attorney and business advisor can review. A good licensing attorney can probably fill both of those roles.
So far, this is free to you. Until you pay a fee, I am not your lawyer and you are not my client, so you take any free advice at your sole risk.