Hudson Bay Apparel Brands LLC v Umbro International Ltd [2009] EWHC 2861 (Ch), Mark Herbert QC, sitting as deputy judge of the Chancery Division (England and Wales), November 2009
Citation: Journal of Intellectual Property Law & Practice, doi:10.1093/jiplp/jpq031
A seemingly commercially attractive trade mark licensing agreement leads to litigation on account of the manner in which its obligations were expressed in the agreement and construed by its parties.
Legal context and facts
Hudson was a small US company specializing in manufacturing branded clothing. Umbro was a large English company which licensed for manufacture sports clothing bearing its trade marks, principally football-related clothing. A third company, Umbro US, was involved in the events giving rise to the dispute.
In 2006 and 2007, Umbro granted two exclusive licences for football-related clothing to be sold in the USA, one to a third party called Dick's Sporting Goods for on-field wear and the other to Hudson for off-field wear. The dispute in these proceedings revolved around the dividing line between those two licences. Hudson claimed Umbro had allowed Dick's to market off-field wear, breaching Hudson's exclusive licence to the same, and had hindered Hudson from exploiting their licence, contrary to an implied duty of co-operation. Umbro countered that the clothing marketed by Dick's was actually on-field wear and counterclaimed that Hudson were in fact in breach of their licence for marketing on-field wear. This rather surprising dispute arose from a range of garments known as ‘pocketless soccer basics’ which resemble in some respects the type of shirts and shorts worn by football players on the pitch.Hudson and Umbro worked together during 2007 to produce a new range of off-field wear. At this stage, the licence agreement had not in fact been signed, though it had been drafted and circulated and purported to have effect from 1 January 2007. The intention was that this new range of clothing should broadly resemble Umbro's on-field wear for three particular reasons:
- it enabled the range to be put into production earlier since it could be modelled on the on-field wear;
- the target market was expected to favour leisurewear that resembled on-field teamwear; and
- it was thought that the success of the on-field wear would encourage success with the off-field wear and visa versa.
Although this strategy made commercial sense, it gave rise to the problem at the heart of the eventual dispute: if the off-field wear produced by Hudson were to resemble the on-field wear produced by Dick's, how was one to be distinguished from the other?
The distinguishing feature most commonly employed in the range was the presence or absence of pockets: FIFA rules prevent on-field shirts and shorts from including pockets for safety reasons. However, in practice, it was difficult to incorporate pockets into the shirts and this distinction could not be used for track-suits since they usually have pockets in teamwear ranges. To complicate matters, a member of the Umbro US management, Miss Jackson, who liaised with Hudson in relation to this licence agreement, did not adhere to the formalities of the licence agreement requiring written approval for products produced under the agreement but rather approved most products only orally or by way of unsigned written confirmations.
During the design process, Hudson was bought out by a third party leading to a slight change in strategy. In particular, Hudson then sought to produce products of essentially the same design as those previously put forward, but this time without pockets. Although these were supposed to be marketed as off-field clothing, it was quite possible that they might end up being sold to football teams and used as team kit, thus potentially infringing Dick's exclusive licence for on-field wear. However, Hudson took the commercial view that its business and Dick's business were sufficiently different that Dick's would not be harmed by such a move. This was authorized orally by Miss Jackson, but, as before, no formal written approval was given. Shortly after this event, the licence agreement between Umbro and Hudson was signed.
Meanwhile, some of the range including pockets went on sale in the USA. Dick's complained that the range was off-field wear and Miss Jackson recognized that the pockets involved (eg an iPod pocket on the sleeve) were not sufficiently prominent and might go unnoticed. As the pocketless shirts were also now going on sale, Miss Jackson purported to sign a variation of the Hudson licence which would enable them to sell specific types of shorts and shirts without pockets that might otherwise, at least arguably, be considered on-field wear. Not long afterwards, Miss Jackson was dismissed from Umbro US for unrelated reasons.
The new Umbro US manager taking over Miss Jackson's role was surprised by some of the products that had been approved for sale by Hudson, being of the opinion that they clashed with the exclusive rights of Dick's, the more important client. Umbro then began to investigate which products have received formal written approval within the terms of the licence agreement. The situation deteriorated and by February 2008, Umbro formally complained to Hudson that it was supplying on-field kit in breach of the licence agreement. Hudson's view was that Miss Jackson has approved the strategy which they took and it was a by-product of that initial strategy which caused many of the products to resemble on-field wear. Following meetings between the two, Hudson's then-current designs were approved. However, further problems with approving designs occurred and Hudson suffered commercially with some retailers cancelling their orders. Proceedings followed as described above with Hudson complaining about some items sold by Dick's.
Off-field/on-field
The licence agreement defined this distinction by specifying that an article ‘specifically intended for use on the field of play’ was on-field wear. The judge construed this phrase so as to attribute to ‘specifically’ a meaning approaching ‘exclusively’ and ‘field of play’ as meaning the actual field of play including those used for practice games. The ‘intention’ was not that of the ultimate buyer but that of the hypothetical supplier or buyer. From this construction, it was possible to decide for each particular design of clothing whether it was on- of off-field wear.
Analysis
As a result of this construction, the judge held that Umbro had knowingly permitted Dick's to market certain goods falling within Hudson's exclusive licence for off-field wear, those goods containing features which marked them as not being specifically intended for use on the field of play; they were really fashion items and hence off-field wear.
In addition, the judge held that Umbro succeeded on its counterclaim that much of the clothing marketed by Hudson was in fact on-field wear and thus not within the terms of Hudson's licence. The performance characteristics of these goods were not as high as might be expected for on-field wear, but the visual features of their design meant that they could not be properly distinguished from on-field wear. In addition, they were marketed in a manner that would appeal to players rather than merely to fans.
Hudson's defence to the counterclaim arose primarily from Miss Jackson's approval of the designs. This defence was problematic due to the lack of formal written approvals as required by the licence, but the judge also looked further at the issue of whether Miss Jackson had the authority to modify the licence so as to allow Hudson to market on-field wear. Examining her authority, the judge took into account that she was not a director or even an employee of Umbro UK but rather of Umbro US. While she had been delegated the authority to approve designs as part of the day to day management of the agreement, she did not have the authority to change the terms of that agreement. Thus the purported variation to the licence agreement was of no effect.
Hudson obtained a declaration that Umbro had knowingly permitted Dick's to market off-field wear and for damages to be assessed flowing from that. Umbro obtained delivery up of the offending on-field wear from Hudson and damages.
Practical Significance
This case highlights the difficulties that may be encountered in adopting a commercial strategy that is inconsistent with the licensing regime. By choosing to produce clothing that resembled on-field wear, Hudson were always at risk of their clothing being perceived as on-field wear and thus as falling outside the terms of their licence. Unfortunately for Hudson, they were unable to rely on the apparent assurances of Miss Jackson as she was not in a position to remove the restrictions of the licence agreement.
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