Licensing Partners International (Canada), Corp. v. Canadian Football LeagueProperties Limited, 2014 ONSC 1227

The Plaintiff, Licensing Partners International (Canada), Corp. (“LPI”), and the Defendant, the Canadian Football League (“CFL”), entered into a licensing agreement (the “Agreement”) which provided that LPI would act as the CFL’s exclusive agent to appoint licensees to use CFL trade-marks and designs, and it would also conduct promotional activities. Licensing royalties were to be split 662⁄3 percent to the CFL and 33 1⁄3 percent to LPI until royalties reached $1 million. After $1 million, the CFL would continue to receive its 66 2⁄3 percent, LPI would retain 25 percent, and 8 1⁄3 percent would be used as a Co-Marketing Fund (the “Fund”). The Agreement was renewed once, and expired on December 31, 2011. A second renewal could not be negotiated. Immediately prior to the expiration of the Agreement,  the CFL had its own discussions with licensees, but no new license agreements were entered into by the CFL until after the expiry of the Agreement. Three disputes related  to the Agreement were considered by the Court: (1) whether LPI was entitled to receive compensation on all license agreements signed or renewed by LPI (after the expiration of the Agreement); (2) who was entitled to unused monies accumulated in the Fund; and (3) whether LPI, pursuant to an agreement with Reebok, was required to pay into a similar co-marketing fund with Reebok (the “Reebok Fund”), following the expiry of the Agreement. Despite viva voce evidence, the Court considered the determination of these issues to be mainly an exercise of contract interpretation.

With respect to the first issue, the Court noted that LPI’s entitlement to the “tail fees” was not in dispute. The dispute concerned (i) fees for agreements with terms commencing after the expiration of the Agreement, and (ii) fees for agreements between the CFL and licensees for 2012 and 2013. LPI argued that because it had signed agreements with certain licensees, it was entitled to tail fees arising from subsequent agreements the licensees signed with the CFL, even if they were between the CFL and the licensees directly, and after the expiration of the Agreement. The Court disagreed, however, and held that the plain language of the Agreement (paragraph 14(c)) only entitled LPI to tail fees  for license agreements that it entered into with licensees that did not expire as of December 31, 2011. For license agreements entered into by the CFL for 2012 and 2013, the Court held that LPI was similarly not entitled to tail fees for these agreements. Overall, the Court held that there was no ambiguity in the wording of the Agreement in this regard, and that if there was, the Court’s view provided the most sensible commercial result: LPI would only receive tail fees beyond December 31, 2011 (for up to two years, pursuant to the Agreement) for agreements that were signed or renewed by LPI, so long as those agreements had dates beyond December 31, 2011.

With respect to the Fund, the issue centered on the provision in the Agreement that stated that once the annual revenue reached $1 million, the revenue split would change as between the CFL and LPI. The Court needed to determine, once the revenue for a given year reached $1 million, was 81⁄3 percent of all annual revenue to be paid into the Fund, or was only 81⁄3 percent of revenues over $1 million to be paid into the Fund? Also, the Court had to determine what was to be done with the unspent balance of the Fund following the expiry  of the Agreement. With respect to the 81⁄3 percent payment, the Court accepted the CFL’s position, which provided that the Agreement was clear (paragraph 5(a)): LPI had to pay 81⁄3 percent of all annual revenue into the Fund once the revenue reached $1 million. LPI argued that adopting the CFL’s position would essentially result in its overall percentage of the revenue decreasing if the annual revenue went over $999,999. The Court held that  it was not its role to intercede and rewrite the bargain, or to “level-out an agreement so that both parties obtain equal benefit”. With respect to the unspent portion of the Fund, while the issue was not addressed by the Agreement, both parties submitted that they were entitled to the full amount. The Court held that neither party had an absolute right to it, and that had the money been spent on marketing, one could have expected that annual revenues would have continued to increase as a result, and both parties would have benefited. Therefore, the Court divided the money in a way that mirrored the proportion that the parties would have received of any increase in annual revenues resulting from the marketing had the Fund been extended. The Court felt that this was consistent with the parties’ intentions, was fair and equitable, and gave business efficacy to the contract.

The final issue concerned the Reebok Fund, which was part of an agreement between the CFL, LPI, Reebok, and other affiliated companies. This agreement carried on after the expiration of the Agreement, and the CFL and LPI had an oral agreement under which they contributed to the Reebok Fund (a percentage of net sales) on a 662⁄3 percent (CFL) and 331⁄3 percent (LPI) basis. They made payments under this formula until the Agreement expired. The CFL claimed that LPI was liable to pay its 331⁄3 percent share for the 2012 and 2013 years of the Reebok agreement. There was no agreement as to what would happen to  the Reebok Fund if the Agreement terminated on December 31, 2011. However, the Court accepted the CFL’s position, and noted that to give effect to LPI’s position would in essence require a rewriting of the Reebok agreement to allow LPI to withdraw from its obligation to contribute to the Reebok Fund while still receiving the benefit of the Reebok agreement for 2012 and 2013 (since it received Reebok royalties as tail fees). The Court considered the answers of LPI’s witness on discovery and found that his understanding that LPI would continue to contribute to the Reebok Fund (despite having his answers corrected very shortly before trial) was significant. Therefore, the Court found it fair and equitable that LPI contribute to the Reebok Fund for 2012 and 2013 at a rate of 331⁄3 percent.

The Court offered assistance to the parties in determining the exact amount of damages and costs, if they could not resolve these amounts on their own.