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Wednesday, 2 July 2008

Boxing clever: Lonsdale in split decision

Cases involving the interpretation and enforcement of trade mark licences are none too common, which is why it's worth having a look at Leofelis SA and Leeside srl v Lonsdale Sports Ltd, Trade Mark Licensing Co Ltd and Sports World International Ltd [2008] EWCA Civ 640, a ruling of the Court of Appeal for England and Wales (Lords Justices Waller LJ (V-P), Keene and Lloyd). This licence involved the Lonsdale brand, once synonymous with the sport of boxing but now a clothing fashion name.

Right: brilliant boxing-cat imagery from the Virginia Association of USA Boxing (VAUSA)

The facts are a little complex, reflecting the ramifications of international brand development today. Leofelis, a Swiss company, licensed the distribution and sale of casual clothing, sports gear and other products that carried the Lonsdale trade mark. Its subsidiary Leeside, an Italian company, distributed and sold those products. Lonsdale Sports (the first defendant) was the worldwide proprietor of the Lonsdale trade marks, TLC (the second defendant) being its worldwide licensee and also a sub-licensor to third parties; Sports World (the third defendant) was also a licensee of Lonsdale-branded products.

In February 2001 a contract was entered into by the defendants with Alavi, trading as Merc. This contract was described as a non-exclusive royalty free licence to use the trade marks. In November 2002 Lonsdale Sports and TLC granted Leofelis an exclusive licence to use the Lonsdale marks throughout the European Economic Area as well as in Switzerland, excluding the UK and Ireland. This licence was to run for six years from 1 January 2002 at a fixed annual royalty, aggregating over the whole of the six year period to EUR 16m. Under Clause 2.1 of that agreement Lonsdale Sports and TLC granted Leofelis

"the exclusive licence in the territory to use the trade marks in relation to the goods [the products] subject to the provisions of certain "... distribution agreements" set out in part 5 of the first schedule".
Clause 2.2.1 provided:


"The licence granted pursuant to this agreement is subject to any existing licences or rights, whether written or not, which may have been granted in respect of the trade marks. The proprietor [the first defendant] and the licensor [the second defendant] are not aware of any other licences or rights having been granted in respect of any of the trade marks".
Leofelis and Leeside sued Lonsdale Sports and TLC for damages for misrepresentation and breach of clause 2.2 of the November 2002 licence, citing an alleged failure to disclose Alavi's prior and continuing rights in the Lonsdale marks. Lonsdale Sports and TLC counterclaimed for termination of the November 2002 agreement (and by implication Leofelis's sub-licence under it), alleging various breaches. The termination argument was based on letter sent to Leofelis, in respect of an earlier request for information, which stated:

"We hereby exercise our right to terminate the Agreement for material breach ...with immediate effect.

However, we confirm that we will continue to allow you to operate the Agreement and fulfil our obligations under the Agreement pending the Court determining at the trial of this matter whether the termination was valid. The ongoing adherence to the terms of the Agreement is made without prejudice to the existence of our right of termination and our assertion that the Agreement is validly terminated by this written notice".
At trial, Evans-Lombe J allowed Leofelis' claim and dismissed the counterclaim (see IPKat note here). He held that


* On a true construction of the agreements the failure of Lonsdale Sports and TLC to disclose the rights conferred upon Alavi constituted a breach of Clause 2.2.1 of the November 2002 agreement.

* neither Lonsdale Sports and TLC had ever made any effort to show that they genuinely believed in the truth of the representations they made that the licence to Alavi could be terminated.

* Leofelis had established entitlement to receive damages for misrepresentation or damages for breach of contract.

* Lonsdale Sports and TLC had waived any right to termination of their licence to Leofelis.
The Court of Appeal yesterday dismissed the defendants' appeal on the waiver issue since they had fluffed their attempt to terminate by aiming at a logical impossibility: the termination of the licence and its simultaneous preservation without prejudice to the termination, in the absence of the agreement of Leofelis. If this notice of termination been clear and unequivocal, the position would have crystallised at that moment and could not have been subsequently altered by reason of inconsistent conduct. This is because, once a clear notice is served, the parties can act on it and should not be exposed to uncertainty or to having the basis of their actions subverted by matters arising later which cast doubt on the status of the notice.

However, the Court considered that the trial judge was wrong with regard to misrepresentations concerning the defendants' contract with Alavi. Their statement that that licence was capable of termination was a statement of their belief, which was not false. Nor did the contract with Alavi create or constitute a licence or right in respect of the trade marks, since it was actually a contract in relation to goods which bore the trade marks. Clause 2.2.1 had not therefore been breached by reason of the existence of Alavi's rights.

The IPKat says, this is only a short note, prepared at speed, on a very long and complex appeal that touches in a number of procedural issues too, including the amendment of grounds of appeal and the preparation of bundles. He got himself tied up in bundles too, since so many of the parties, and the relevant trade marks, began with the letter "L". If he has got anything fundamentally wrong here, please let him know. Merpel says, if people only knew they'd end up in court, their business arrangements would be so much better ordered ...

The Lonsdale brand and political symbolism here and here

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