In November of last year, the IPKat had another of his periodical blasts on the subject of IP licences and "how not to do it". The subject of this little rant was the dispute in Hudson Bay Apparel Brands LLC v Umbro International Ltd. Here the courts in England and Wales were struggling to ascertain the intended meaning of clauses of a licence intended to take effect in the United States, where the gap between a brand's profile-raising strategy for football (a.k.a. soccer) apparel and the manner of its execution could be measured in light years. You can read the sad story here.
Earlier this week the Court of Appeal, England and Wales (led by Lord Neuberger of Abbotsbury but with an assist from Lady Justice Arden and Mr Justice Tomlinson) dismissed the licensee's appeal in  EWCA Civ 949. So what was the story?
UK-based Umbro, wanting to increase its tiny share of the US soccer garb market, granted Hudson Bay a licence to sell its clothes in the US under its UMBRO and ‘double diamond’ trade marks. Under the terms of this licence Hudson Bay was exclusively allowed to sell off-field wear, this not being clothing “specifically intended for use on the field of play for soccer including, for the avoidance of doubt, performance shorts and soccer jerseys”. Umbro then licensed Dick’s Sporting Goods to sell on-field wear in the US.
Hudson Bay objected that Umbro let Dick’s sell off-field wear in breach of Hudson Bay’s exclusive licence and that Umbro hindered it in exploiting its licence, in breach of an implied duty of cooperation. Umbro maintained that the material marketed by Dick’s was on-field wear, and that it had acted within its contractual rights, counterclaiming that Hudson Bay had acted in breach of contract by marketing pocketless soccer basics, which Umbro said were on-field wear. Umbro sought delivery-up and an injunction.
The High Court upheld Hudson Bay’s claim in part, and upheld Umbro’s counterclaim in full.
In its view ‘field of play’ meant the actual field of play in a game of soccer, including informal and practice games and training. The word ‘specifically’ had a meaning approaching ‘exclusively’, although it was irrelevant that informal games could be played by young men wearing t-shirts. 'Specifically intended’ meant intended by a hypothetical supplier or buyer, to be determined by objective factors. The principal factors were the main physical characteristics of the garments: their fabric, design, fit, colours, artwork and finish, but the garments’ distribution channels (for example, through department stores or soccer speciality stores) was also relevant.
The Court then concluded that, In breach of Hudson Bay’s exclusive licence, Umbro had knowingly let various off-field shirts and t-shirts be marketed by Dick’s in 2008 and 2009. There was no breach of contract in relation to the marketing of t-shirts by Dick’s prior to 2008 as this was expressly permitted under Hudson Bay’s licence, and no breach in relation to tracksuits marketed by Dick’s as these were on-field wear. Umbro had also breached the contractual warranty that it had authority to grant the rights granted to Hudson Bay, having inadvertently granted exclusive licences to Hudson Bay and Dick’s covering the same items. However, a copy of the Dick’s licence was not in evidence and it would not in any event be appropriate to construe it, since Dick’s was not a party to these proceedings.
As to Hudson Bay’s second claim the Court said it was unnecessary to imply a term that Umbro would not unreasonably withhold its approval. Such a term would entirely change the thrust of the agreement, under which Umbro was free to give or withhold approval in accordance with its own commercial interests. This degree of control was justified in that it allowed Umbro to protect its brand and to control its exploitation under the licence. There was an implied term that Umbro could not refuse or totally fail to consider products or materials submitted for approval. Umbro breached that implied term by refusing, between 7 and 20 March 2008, to consider Hudson Bay’s submission of products for a fall 2008 collection. Umbro did not however breach the agreement in any other way: Umbro was entitled to decline to sell Umbro Culture and Diamond 5 products to Hudson Bay and to refuse to approve Hudson Bay’s marketing of pocketless soccer basics, which were on-field wear. It was also entitled to refuse approval for the spring 2009 collection, having responded to the submission of designs promptly. Finally, Umbro was not obliged to give guidance and direction for product development.
Regarding the counterclaim, the shorts marketed by Hudson Bay were on-field wear. They had the visual features of shorts worn on the field of play, and featured modest artwork and logos, polyester-like fabric and an absence of pockets. Although their performance qualities were not as high as kit used professionally, this was not a decisive criterion. Similarly the shirts marketed by Hudson Bay were on-field wear. The shirts had standard-sized logos, no pockets, and the colours were mostly primary colours making them closely similar to the teamwear of competitive teams. Further, the shirts and shorts were available in matching colours, much like official soccer strips. Their marketing was aimed more towards soccer players than soccer fans. However, ultimately the decisive factor was the absence of pockets. The tracksuits marketed by Hudson Bay were also on-field wear. They were marketed together with the on-field shirts and shorts. The tracksuits were of a sporty design with modest logos, and were capable of being used on the field of play during practice or training. The fact that they could be worn at home or on the street did not alter the conclusion that they were specifically intended for use on the field of play.
Hudson Bay’s defence that its sale of the pocketless soccer basics had been approved by Umbro failed. Marketing of on-field wear could not be approved without a modification of the licence agreement, which would have required the agreement in writing of both parties. Umbro had not waived strict compliance with the approvals procedure, nor had it modified the agreement to include the pocketless soccer basics line, or approved these on-field products. The relevant individuals, upon whose actions Hudson Bay relied, had neither actual nor ostensible authority to do so. Umbro could rely on the contractual approvals procedure in relation to events occurring prior to execution of the licence agreement. The agreement expressly provided that it was to have retrospective effect to 1 January 2007.
Hudson Bay appealed against this decision, submitting the pocketless soccer basics did not amount to on-field wear and that, in any event, a Miss Jackson who belonged to Umbro’s US subsidiary had approved the marketing of the range; Hudson Bay maintained additionally that Umbro had unreasonably cancelled orders placed by it for clothing from Umbro's most recent collection.
The Court of Appeal dismissed the appeal. In its view
* On the evidence provided by both Miss Jackson and Hudson Bay, products without pockets were on-field clothing -- but the addition of pockets converted on-field garments into off-field garments and vice versa. There was also evidence that Miss Jackson and Hudson Bay clearly expected that the pocketless garments would be sold for on-field use. Shirts and shorts used off-field would be expected to contain at least one pocket, while off-field garments did not need pockets and the wearing of clothes with pockets while playing soccer was forbidden by FIFA, the regulatory authority for the sport. In addition, the way in which the pocketless basics and matching tracksuits were marketed in speciality catalogues was consistent with the notion that those garments were for on-field wear.
* Miss Jackson's approval of the marketing of the pocketless basics was irrelevant since she had neither actual nor ostensible authority to bind Umbro, being neither an employee nor a director of the UK company. Nor was there any evidence to suggest that she had actual authority to bind Umbro in the making or modification of formal agreements.
* Even if a term could be implied into the agreement that Umbro could not reasonably refuse to accept Hudson Bay's orders, since Umbro and Hudson Bay were in dispute at the time the order was placed, it was not unreasonable for Umbro to refuse to process such orders.