In a recent decision concerning two related cases, the High Court has granted summary judgment against a licensee of certain trade marks following extensive litigation arising out of the same agreement licensing a series of trade marks.

Background

Although the applications before the High Court were separate actions, they were largely between the same parties. The three defendant companies to the first action, of which two are claimants in the second action, are companies within the Lonsdale group. Lonsdale Sports Limited is the proprietor of a series of trade marks registered in connection with clothing and leisure goods; the other Lonsdale companies are involved in licensing the Lonsdale trade marks or distribution of products bearing such trade marks. For the purposes of this update the Lonsdale companies shall be collectively referred to as “Lonsdale”. Leofelis SA (“Leofelis”) licences others to distribute and sell leisure clothing, sportswear and associated products.

Pursuant to an agreement dated 21 November 2002, Lonsdale granted Leofelis SA (“Leofelis”) a six year exclusive licence from 1 January 2003 (the “Agreement”) to use certain Lonsdale and other trade marks (the “Trade Marks”) within the EU (excluding the UK and Ireland) and in several other countries (the “Territory”). As licensee, Leofelis was to pay Lonsdale royalties in a fixed annual sum pursuant to the terms of the Agreement. Under clause 10.1 of the Agreement, Leofelis was entitled to grant sub-licences of the Trade Marks to third parties, subject to obtaining Lonsdale’s written consent. Leofelis granted a sub-license to Leeside SRL (“Leeside”), the second claimant in the first action, for use of the Trade Marks within Italy, to which Lonsdale consented (the “Leeside Sub-Licence”). In December 2002, Leofelis purported to extend the Leeside Sub-Licence to all countries within the Territory. On or around 17 June 2003, Leofelis granted a sub-licence to a German company, Punch Gmbh, in respect of Germany, the Benelux countries, Hungary and Poland.

Termination of the Agreement

Leofelis purported to terminate the Agreement by way of a letter dated 28 September 2007. It alleged that Lonsdale was in repudiatory breach of the Agreement by reason of an injunction which Lonsdale had obtained in the German courts to prevent sales in Germany by Leeside of goods bearing the Trade Marks. Lonsdale did not accept that the Agreement had been repudiated and so it did not consider the Agreement to have been terminated at that time. Accordingly, Lonsdale demanded payment of royalties due to it pursuant to the Agreement. When Leofelis failed to pay the royalties, Lonsdale provided 30 days’ notice in accordance with the Agreement. After no payment was received, Lonsdale terminated the Agreement with immediate effect on 2 November 2007.

The Decision of the High Court

The First Action

Leofelis brought a claim against Lonsdale for damages, claiming, inter alia, that branded goods made and sold in Belgium, with the knowledge or consent of Lonsdale, breached the exclusivity clause in the Agreement. Leofelis pleaded that it would have exercised its right to extend the Agreement for a further six years and that its loss would consequently run until 31 December 2014. On that basis, Leofelis claimed damages for loss of the net royalties it would have earned from sales by Leeside in the Italian market of around €28.3 million (before interest and discount). Leofelis further claimed damages for lost sales in other countries within the Territory.

Lonsdale submitted that Leofelis could not recover any damages by reason of the sales in Belgium for any period from 28 September 2007, on the basis that Leofelis treated the contract as repudiated as at that date. Lonsdale consequently applied for summary judgment.

In his judgment, Roth J stated that in a case of damages for breach of contract which continued, where those damages fell to be assessed on the basis of lost future benefits, the court would take account of an event occurring after the breach that caused the value of those benefits to decline. He went on to note that since the basis of damages for a breach of contract is to put the innocent party in the same position that it would have been in had the breach not occurred, the question to be asked in this action was how long Leofelis might have suffered a loss of royalties by reason of the sales of goods in Belgium?

As the Agreement was terminated in late 2007 for different reasons, Leofelis could not have earned any royalties after that date. Roth J therefore concluded that the claim for damages after late 2007 was bound to fail and therefore awarded summary judgment in favour of Lonsdale.

The Second Action

In this action, Lonsdale sought damages from Leofelis for repudiatory breach of the Agreement due to its failure to pay the royalties due to Lonsdale in October 2007. Leofelis subsequently brought a counter claim against Lonsdale for the royalties that it would have earned if the Agreement had continued until 2014 and had not ended as a result of Lonsdale’s repudiatory breach in relation to it granting a separate licence to Latvian company Sports and Clothing SIA to use some of the Trade Marks in Latvia, Lithuania, Estonia, Slovakia, Slovenia, Romania and Bulgaria.

Lonsdale suggested that, even if it had caused a repudiatory breach, Leofelis could not recover any lost sales by its licensees after 28 September 2007, when Leofelis sought to terminate the Agreement, since irrespective of any breaches caused by Lonsdale, Leofelis decided to bring the Agreement to an end and treated itself as no longer having a licence as from that date. Lonsdale therefore applied for summary judgment.

Giving judgment, Roth J held that as Leofelis did not know about Lonsdale’s breach, which would have allowed the Agreement to be repudiated, it could not have been the cause of the termination of the Agreement and therefore could not have caused the loss that flowed from its termination. Roth J therefore concluded that the counterclaim to damages after 28 September 2007 must fail and that summary judgment should also be granted in favour of Lonsdale.

Comment

Each of the actions will continue to trial for overall determination, however the applications referred to in this update illustrates just how effective summary judgment can be to narrow down the disputes between the parties before they are dealt with at trial. The intended effect being to allow more time to deal with the real issues during the trial which in turn may also help to reduce the costs associated with litigation.

The case also emphasises the importance of determining the exact date that an agreement was repudiated. Once a party has repudiated the contract, a loss can only be claimed which flows from the breach that a party has knowledge thus limiting the scope for claiming such things as loss of future earnings. Before pleadings are drafted, it is therefore important to ascertain the real loss caused from the breach and whether any future loss of earnings can actually be claimed. The case also serves as a reminder of the importance of ensuring that the provisions of an agreement are closely followed, particularly where one party requires the consent of the other before it performs any actions which are conditional on such consent being obtained or if a certain procedure should be followed prior to one party taking any action against the other.

For further information, please contact Nicholas Maher