In this case, the New South Wales Supreme Court considered, on the interpretation of a licence agreement, whether a plaintiff is obliged to pay royalties in respect of a number of disputed categories of income and whether the defendant complied with its obligations under the contract.
The decision is a useful illustration of the importance, when drafting and negotiating contracts, to carefully consider the fee/royalty base in addition to the fee/royalty percentage. It demonstrates that the parties must contemplate both the current and future sources of revenue and ensure that they are in scope under the contract, as the courts will look to the actual terms of the contract, not what was contemplated by the parties. In this case, if the licence agreement had been negotiated with slightly broader terms, then the plaintiff might have been entitled to materially higher royalties.
Timevale was the proprietor of a tourist facility known as “Aussie World” on the Queensland Sunshine Coast (“the Facility”) and in 1993 was granted a 25 year license to use in any facility developed and managed by Timevale, the business name “Ettamogah Pub”, registered trademarks and any copyright and design rights in respect of cartoon depictions of the Ettamogah Pub, including those depicted in The Australasian Post magazine and other publications. The following year, the plaintiff was assigned all of the intellectual property in the cartoons and characters depicted in “The Ettamogah Pub Mob” cartoon series and the benefit of the rights under the agreement with Timevale. Under the licence agreement, Timevale was obliged to pay royalties on moneys received by it from certain income producing activities at the Facility. The plaintiff claimed, in substance, that Timevale had underpaid royalties payable under the agreement, and that there was a debt due to the plaintiff.
The basis of the dispute was the substantial renovations undertaken by Timevale which attached an “Entertainment and Food Barn” at the back of the premises to the Pub by an adjoining roof. The plaintiff contended that the renovations had the effect of making the Pub and Barn a single hotel premises. Under the license agreement, Southern was entitled to be paid royalties at a higher rate for items sold in a retail outlet at the Pub. The court held that the renovations did not constitute an extension of the hotel premises therefore the sales and other income generating activity in the barn was not subject to the higher rate of royalty under the licence agreement.
The court did however find Timevale in breach of a number of clauses under the agreement resulting in unpaid royalties, including failing to pay royalties in respect of moneys received from sales from outlets other than the Barn in connection with “functions”. The court interpreted the term “function” liberally such that it is not limited to group bookings payable on a wholesale basis. The plaintiff has not waived any right to claim and receive underpaid royalties and the court ordered that an account be taken of various royalties payable under the agreement.
To see the full judgment in this case, please click here.