[Guest post] Wear your trade mark on your sleeve: sponsorship agreements and termination clauses in the football industry

The IPKat has received and is pleased to host the following guest contribution by Katfriend Edoardo Cesarini (GR Legal) on a recent Italian first instance decision concerning sponsorship agreements. Here’s what Edoardo writes:

Wear your trade mark on your sleeve: sponsorship agreements and termination clauses in the football industry

by Edoardo Cesarini

The only IPKat-approved sleeve

In a recent decision, the Court of Milan ruled in a dispute concerning a three-year "sleeve sponsorship” agreement granting the sponsor the right to place its trade mark on the match jerseys of the sponsee. The parties were a Cyprus-based enterprise operating in the online trading sector and the company that manages the sponsorship agreements for the Italian football club Inter Milan.

Background

The dispute stemmed from a three-year sponsorship agreement finalized after complex negotiations conducted during the peak of the COVID-19 pandemic. Under the contract, the Cypriot company committed to pay a substantial fee in exchange for multiple sponsorship rights. These included the use of Inter Milan’s trade marks and editorial content for marketing and promotional activities, significant brand exposure via pitch-side LED screens and interview backdrop boards as well as the right to use the title “global online trading partner” of the renowned Italian club. Most notably, the agreement granted the sponsor the right to place its trade mark on the sleeve of Inter Milan’s official match jersey. The dispute arose when the club invoked an express termination clause (pursuant to art. 1456 of the Italian Civile Code) following the sponsor’s alleged failure to meet its payment obligations.

The Cypriot enterprise decided to take action against Inter Milan challenging the validity of the termination and seeking restitution of the fees paid for the period following the agreement’s dissolution. The club countered by defending the termination and also filing a counterclaim for damages related both to the actual loss (“danno emergente”) and the loss of profit (“lucro cessante”) suffered as a result of the sponsor’s breach of contract.

The Court’s decision

First and foremost, the Court defined the sponsorship agreement as a contract characterized by a significant fiduciary relationship, as the sponsee undertakes to grant the other party (i.e., the sponsor) the right to use its public image and its name for the promotion of a specific brand or product in exchange for the payment of a fee.

With respect to the express termination clause, the Court of Milan reaffirmed a strict approach to such clauses, explaining that, once a specific breach (e.g., non-payment) is identified by the parties in the agreement, the injured party holds the right to dissolve the contract. In this regard, unlike general termination claims, a court is not required to assess the "seriousness" of the breach, as the parties' prior agreement that such a breach justifies the termination of the agreement is sufficient and binding.

Furthermore, the decision addresses the sponsor’s attempt to delay payments and renegotiate key contractual terms shortly after the conclusion of the agreement. The Court ruled that these requests were unjustified, as there had been no significant change in circumstances since the execution of the agreement. Therefore, Inter Milan’s termination of the agreement was deemed valid and the sponsor's objections, according to the Court, were groundless.

However, the most significant aspect of the judgment concerns the financial settlement following termination. Since the contract was one of "duration", the termination does not have retroactive effects on the services already rendered. As such, the Court established a "set-off" mechanism by noting that, on the one hand, the sponsor was entitled to the return of the portion of the fee already paid for the period following the termination of the agreement and, on the other hand, that the Club was entitled to damages for loss of profit suffered during the first year of the agreement, which corresponded to the 2020/21 Serie A football season. This limitation was applied because Inter Milan had successfully concluded a new sleeve sponsorship agreement for the subsequent 2021/22 Serie A season.

Within such a context, the Court determined that the loss of profit suffered by the Club effectively offset the restitution due to the Cypriot company, resulting in a "zero-sum" outcome where neither party owed further payments to the other.

Comment

The decision confirms that the essence of a sponsorship agreement (especially in the football industry) lies in the licensing of trade marks, as its financial value largely depends on the reputation of the sponsee’s trade marks and on the exclusivity of the rights granted.

Moreover, the ruling serves as a reminder that an agreement cannot be easily renegotiated without a radical and unforeseen change in circumstances. Namely, once a sponsorship agreement is concluded, a party's simple desire to improve its commercial position does not justify a breach of payment nor undermine the validity of the other party's termination of the contract, provided that all the conditions for such termination are met.