(1) The Trademark Licensing Company Ltd (2) Lonsdale Sports Ltd v Leofelis S.A.
| Jurisdiction | England & Wales |
| Judge | THE HONOURABLE MR. JUSTICE KITCHIN |
| Judgment Date | 06 May 2010 |
| Neutral Citation | [2010] EWHC 969 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC09C00370 |
| Date | 06 May 2010 |
[2010] EWHC 969 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
INTELLECTUAL PROPERTY
Before: THE HONOURABLE MR. JUSTICE KITCHIN
Case No: HC09C00370
Mr. George Leggatt QC and Mr. Jasbir Dhillon (instructed by Messrs. Reynolds Porter Chamberlain LLP) for the Claimants
Ms. Amanda Michaels (instructed by Messrs. Lawrence Graham LLP) for the Defendant
Hearing dates: 20, 21 April 2010
Approved Judgment
Mr Justice Kitchin:
Introduction
This is an application for summary judgment in an action concerning a trade mark licence agreement dated 21 November 2002 (“the Licence Agreement”) whereby the claimants granted to the defendant an exclusive licence to use certain trade marks relating to the Lonsdale brand on clothing and other goods in the EU as it then was (excluding the UK and Ireland) and in Hungary, Poland, the Czech Republic and Switzerland (“the Leofelis Territories”) in consideration of the payment by the defendant of a fixed royalty payable in quarterly instalments each year and amounting in all to €16,150,000. The agreement was for a period of six years commencing on 1 January 2003.
In this action the claimants seek: (1) a declaration that the Licence Agreement was validly terminated by the claimants on 2 November 2007; (2) the sum of €1,675,000 in respect of royalties which had accrued under the Licence Agreement prior to its termination; and (3) damages of €3,500,000 in respect of royalties for the remaining term of the Licence Agreement.
The claimants contend that the defendant has no real prospect of defending the claim on the issue of liability and accordingly has no defence to the first two elements of the claim. As to the third element, the claimant accepts that the quantum of damages cannot be tried summarily and will need to be the subject of an assessment.
Background
The 2005 proceedings
This action follows proceedings brought by the defendant and Leeside Srl (“Leeside”) against the claimants and another Lonsdale group company (“the Lonsdale Companies”). Those proceedings (“the 2005 Proceedings”) began in October 2005 and are still ongoing (in relation to quantum). Leeside is an Italian company to which the defendant granted a sub-licence to use the Lonsdale trade marks.
The 2005 Proceedings came on for trial before Evans-Lombe J in late 2006. He gave judgment on 8 March 2007 and made various consequential orders dated 19 March and 8 May 2007, 18 July 2007 and 26 July 2007.
The 2005 Proceedings concerned four claims of relevance to the present application. The first was a claim that, in breach of the Licence Agreement, the Lonsdale Companies had sold Lonsdale branded products to a connected Belgian company called Sports World Belgium (“SWB”) in Belgium. The Lonsdale Companies contended that the relevant sales had taken place in the UK and that, under the doctrine of exhaustion of rights, the subsequent importation of the products into Belgium and the sale of the products in Belgium did not constitute an infringement of any trade mark rights and that there had therefore been no breach of the exclusivity provision of the Licence Agreement. In the course of his judgment, Evans-Lombe J related how the Lonsdale Companies' explanation as to how the sales of Lonsdale branded goods in Belgium had been brought about had changed on a number of occasions. In the end, and on the evidence before him, he concluded that the relevant sales had taken place in Belgium and that the doctrine of exhaustion of rights did not apply. He therefore found that the Belgian sales involved breaches of the Licence Agreement and that the defendant was entitled to recover damages in respect of them.
The second claim concerned what have been described as “Italian fees” incurred by the defendant in proceedings in Italy involving challenges to the validity of the Lonsdale trade marks. Evans-Lombe J found that the defendant was entitled to be reimbursed all such fees.
The third claim arose in relation to a sub-licence granted by the defendant to Leeside. The defendant first granted to Leeside a sub-licence which was limited to Italy. This sub-licence was approved by the claimant. Some 18 months later, the defendant purported to extend Leeside's sub-licence to cover all the Leofelis Territories. However, it never obtained the consent of the claimants to this extension. In the 2005 Proceedings, the defendant and Leeside sought a declaration that the defendant had validly appointed Leeside as its sub-licensee for the Leofelis Territories on the basis that the need for formal approval of the extension had been waived. At the trial, the defendant and Leeside were successful on this issue, and Evans-Lombe J granted the declaration which they sought. In the meantime, Leeside began to use the Lonsdale trade marks in Germany. This led the second claimant to apply for an interim injunction which was granted by the Berlin District Court on 25 July 2006. This injunction was subsequently confirmed by that court on 9 January 2007. Leeside filed an appeal against that decision, which was withdrawn in August 2008 following the judgment of the English Court of Appeal, as I shall explain later in this judgment.
The fourth claim concerned an allegation by the defendant that misrepresentations had been made to it by the second claimant concerning certain third party rights in the Lonsdale trade marks. Once again, Evans-Lombe J found in the defendant's favour in relation to this claim. The circumstances giving rise to the claim were resolved, at least in part, by the grant by the defendant to a German company called Punch GmbH (“Punch”), run by a Mr Geurt Schotsman, of a sub-licence to use the Lonsdale trade marks in Germany, Belgium and the Netherlands. This sub-licence continued until January 2006 by which time Punch had achieved a turnover under the Lonsdale trade marks of in excess of €13,000,000 in Germany alone.
By his order dated 19 March and 8 May 2007, Evans-Lombe J granted an injunction to restrain the Lonsdale Companies from making any further sales of the relevant Lonsdale branded products in the Leofelis Territories to SWB or any third party, save where the rights under the trade marks had been exhausted.
Evans-Lombe J also ordered the Lonsdale Companies to pay to the defendant damages to be assessed and a substantial sum by way of an interim payment, but he allowed the defendant to use part of the interim payment to make the second quarter royalty payment of €837,500 which fell due on 1 April 2007. The balance of the money was ordered to be paid on or before 10 April 2007 to the defendant's solicitors to be held by them in escrow pending an appeal by the Lonsdale Companies.
When the next royalty payment of €837,500 became due on 1 July 2007, the defendant made an application to the court for permission to make that payment too out of the money which Evans-Lombe J had ordered should be held in escrow. That application came before court on 18 July 2007 and, by order of that date, Evans-Lombe J allowed the defendant to make the payment out of the money held in escrow on the basis that its owner, Mr Massimo Buscaini, provided a personal guarantee of repayment, should the need arise.
The matter became yet further complicated because the Lonsdale Companies sought to appeal the order of 18 July 2007 which resulted in another order made by Evans-Lombe J on 26 July 2007 whereby he stayed his earlier order pending an application by the Lonsdale Companies to the Court of Appeal for permission to appeal. For their part, the Lonsdale Companies gave an undertaking that they would not rely upon the non-payment of royalties due on 1 July 2007 to seek to terminate the Licence Agreement. In the end, the Court of Appeal held that Evans-Lombe J was wrong to permit the money to be paid out of escrow, so the appeal succeeded. The upshot is that the royalty payment due on 1 July 2007 has never been paid.
Termination of the Licence Agreement
By letter dated 17 August 2007, the claimants' solicitors wrote to the defendant's solicitors stating that the claimants were exercising their right under the Licence Agreement to conduct an audit and inspection of the defendant's records.
No agreement had been reached by 6 September 2007 and accordingly, by letter of that date, the claimants' solicitors gave notice of breach under the Licence Agreement and provided the defendant an opportunity to remedy that breach within 30 days.
By letter dated 12 September 2007, the defendant's solicitors invited the claimants to conduct an audit and inspection on Friday 21 September 2007.
By a further letter dated 14 September 2007, the defendant's solicitors drew attention to the injunction in Germany which restrained Leeside from selling Lonsdale goods in that territory. They referred to the finding of Evans-Lombe J that Leeside was a valid sub-licensee of the defendant and asserted that the maintenance of the injunction therefore represented a continuing and ongoing breach of the defendant's rights under the Licence Agreement. The letter continued:
“We hereby give notice that our client reserves the right to terminate immediately and at any time while the injunction remains in place and to claim damages for breach.
We invite you to rectify your breach by taking steps to discharge the injunction.
Our client shall, of course, comply with its obligations under the November 2002 Licence Agreement pending any exercise by it of its right of...
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(1) The Trade Mark Licensing Company Ltd (Claimants and Part 20 Defendants Respondents) (2) Lonsdale Sports Ltd v Leofelis Sa (Defendant and Part 20 Claimant Appellant) (1) Punch GmbH and Others (Third Parties Respondents)
...same parties, in July 2008, [2008] EWCA Civ 640, not to mention other judgments at first instance including one of Mr Justice Kitchin [2010] EWHC 969 (Ch), I can take a good deal of the background and history as read, and can therefore be somewhat more brief than I otherwise would in settin......
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(1) The Trademark Licensing Company Ltd (Claimants and Part 20 Defendants Respondents) (2) Lonsdale Sports Ltd v Leofelis SA (Defendant and Part 20 Claimant Appellant) (1) Punch GmbH, and Others (Third Parties Respondents)
...before Kitchin J who refused the application, though requiring Leofelis to make a substantial payment into court as a condition: see [2010] EWHC 969 (Ch). 8 The sole ground on which Kitchin J allowed the 2009 proceedings to be defended arose from the grant of a licence by Lonsdale in Janua......