In a dispute (Hudson Bay Apparel Brands LLC v Umbro International Ltd [2009] EWHC 2861 (Ch)) between Umbro International Ltd and Hudson Bay Apparel Brands LLC, one of Umbro's U.S. licensees, Mr Herbert QC, sitting as a deputy High Court judge, has ruled that Hudson Bay had operated outside the scope of its licence to supply off-field apparel by supplying on-field products, but that Umbro had breached its obligations by failing to respond to requests for product approvals. The deputy judge held that there was an implied duty of cooperation in the licence agreement, such that it was not able to refuse to consider requests for approval.

BACKGROUND

Umbro, the British sportswear manufacturer, granted two licences to manufacture and distribute clothing in the United States under its trade marks: one in respect of on-field wear to a company called Dick's Sporting Goods and the other in respect of off-field wear to Hudson Bay. In practice, the main visual difference between the ranges was the presence or absence of pockets. Umbro reserved to itself the market for "teamwear", the actual football kit supplied to competitive teams.

One of the distribution channels granted expressly to Hudson Bay was the "advertising specialities" market, the members of which produce replica sports strips for companies to present to staff. Hudson Bay's main customer in this category was a company called S&S.

PROPOSAL TO LIMIT HUDSON BAY'S LICENCE

On 19 February 2008, TLC, Umbro’s agent, wrote to Hudson Bay, complaining about the products in the S&S catalogue on the basis that they competed directly with Umbro's teamwear business. It attached a proposed amendment to the licence agreement, the main effects of which were to expand the description of on-field wear, require that Hudson Bay's products should have larger branding and visible pockets and require that advertising speciality products must be approved annually by Umbro. Hudson Bay objected to the proposed amendments to its licence.

Umbro also wrote to Hudson Bay, stating that it considered that the products supplied by Hudson Bay to S&S were on-field football kits. Umbro required the withdrawal of the S&S products and Hudson Bay's agreement to the new terms proposed by TLC before it would grant any approvals in respect of Hudson Bay's new products.

The relationship between the two businesses deteriorated, with Hudson Bay seeking direction and approvals regarding the design of new collections and Umbro being slow to respond and insisting upon changes to the advertising speciality clothing with the result that Hudson Bay could no longer sell to that market.

Hudson Bay issued proceedings, claiming first that Umbro had allowed Dick's to market off-field wear in breach of Hudson Bay's exclusive licence and second, that Umbro wrongly hindered Hudson Bay from exploiting its off-field licence. Umbro counterclaimed, complaining that the material marketed by Dick's was on-field wear and that Hudson Bay has acted in breach of its contract by marketing pocketless shirts and shorts that resembled teamwear.

DECISION

Mr Mark Herbert QC held that certain of the articles of clothing marketed by Dick's were off-field wear and as such were covered by Hudson Bay's exclusive licence. In permitting Dick's to market such items, Umbro was in breach of the Hudson Bay licence. Mr Herbert QC also accepted an alternative claim by Hudson Bay that, to the extent that the two exclusive licences granted by Umbro overlapped in their scope, Umbro had breached a warranty given to Hudson Bay that it was entitled to enter into the agreement with them.

The judge concluded that the removal (or non-addition) of pockets in the S&S products made a difference that was, in the end, decisive. The judge rejected Hudson Bay's defence that the S&S products had been approved. Since the products supplied to S&S were items of on-field wear, they did not fall within the scope of Hudson Bay's licence.

Turning to Hudson Bay's second claim, that Umbro had prevented it from exploiting its licence, Mr Herbert QC accepted Hudson Bay's submission that an implied duty of cooperation was necessary. Otherwise, Umbro could refuse to approve products whilst at the same time claiming entitlement to guaranteed royalties and a right to terminate the licence for failure to meet sales targets. Mr Herbert QC held that, whilst Umbro could refuse to grant approvals within the terms of the agreement, it could not refuse to consider requests for product approval.

COMMENT

Hudson Bay, at least, intends to continue its relationship with Umbro, as was apparent from its request for specific performance of the exclusive licence agreement. It is not clear how the relationship between the parties can be made to work following such a bitter dispute, but it is not unheard of for commercial differences to be solved by court intervention resulting in a new understanding between parties.