Boxing clever: Lonsdale in split decision

United Kingdom
In Leofelis SA v Lonsdale Sports Ltd ([2008] EWCA Civ 640, July 1 2008), a case involving the interpretation and enforcement of a trademark licence, the Court of Appeal for England and Wales has partly allowed the defendants’ appeal of the trial judge’s decision.

The facts are complex, reflecting the ramifications of international brand development. The Lonsdale brand was once synonymous with the sport of boxing, but is now a clothing fashion name. Two versions of the LONSDALE mark were created and have been in different ownership over the years. One such mark came into the possession of a company called Lord John - a business owned by an individual named Javed Alavi. In February 2001 Lord John licensed the use of the LONSDALE mark to Alavi, under his Merc trade name. This contract was described as a non-exclusive royalty-free licence to use the trademark.
In 2002 the two versions of the LONSDALE mark came into the sole possession of Lonsdale Sports Ltd (the first defendant). The agreement bringing the ownership of the marks together conferred additional rights on Alavi in relation to goods bearing either form of the mark.
The second defendant, the Trade Mark Licensing Co Ltd (TLC), was Lonsdale Sports’ worldwide licensee and a sub-licensor to third parties. Sports World International Ltd (the third defendant) was also a licensee of LONSDALE-branded products.

In November 2002 Lonsdale and TLC granted Leofelis SA, a Swiss company, an exclusive licence to use the LONSDALE marks throughout the European Economic Area, as well as in Switzerland, excluding the United Kingdom and Ireland. Leofelis used the marks in connection with the distribution and sale of casual clothing, sports gear and other products bearing the LONSDALE marks. Its subsidiary Leeside Slr, an Italian company, distributed and sold those products.
The licence was to run for six years from January 1 2002 at a fixed annual royalty, aggregating over the whole of the six-year period to €16 million. Under Clause 2(1) of the agreement, Lonsdale and TLC granted Leofelis:
"the exclusive licence in the territory to use the trademarks in relation to the goods, subject to the provisions of certain [...] distribution agreements set out in Part 5 of the First Schedule."
Clause 2(2)(1) provided as follows:
"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 trademarks. The proprietor and the licensor are not aware of any other licences or rights having been granted in respect of any of the trademarks."
Leofelis and Leeside sued Lonsdale 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 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 a letter sent to Leofelis in respect of an earlier request for information, which stated as follows:
"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, Mr Justice Evans-Lombe allowed Leofelis’s claim and dismissed the counterclaim, holding as follows:
  • On a true construction of the agreements, the failure of Lonsdale and TLC to disclose the rights conferred on Alavi constituted a breach of Clause 2(2)(1) of the November 2002 agreement;
  • Lonsdale and TLC made no effort to show that they genuinely believed in the truth of their representations that the licence to Alavi could be terminated;
  • Leofelis established entitlement to receive damages for misrepresentation or damages for breach of contract; and
  • Lonsdale and TLC waived any right to termination of their licence to Leofelis. 
The Court of Appeal dismissed the defendants' appeal on the waiver issue, since they had spoilt 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. Had the notice of termination been clear and unequivocal, the position would have crystallized and could not have been subsequently altered by reason of inconsistent conduct. 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 subsequently which cast doubt over the status of the notice.

However, the court considered that the trial judge was wrong with regard to the misrepresentations concerning the defendants' agreement with Alavi. Their statement that the licence was capable of termination was a statement of their belief, which was not false. Nor did their agreement with Alavi create or constitute a licence or right in respect of the trademarks, since it was a contract in relation to goods which bore the trademarks. Thus, Clause 2(2)(1) had not been breached by reason of the existence of Alavi's rights.

Jeremy Phillips, IP consultant to Olswang, London

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