The Court of Appeal has given its ruling in the Hudson Bay Apparel Brands LLC v Umbro (International) Ltd case. The case concerned an exclusive licence to use the Umbro brand on certain sports clothing. It is of wider interest outside the facts of the case itself because it serves as a reminder to licensees and licensors to draft licences clearly so that there is no ambiguity over their scope.
WHAT HAPPENED IN THIS CASE?
In 2007, Umbro UK entered into two separate exclusive licences to sell soccer-based clothes in the USA. One licence was with Dick’s Sporting Goods (“Dick’s”), a large retailer, to sell Umbro branded “on-field wear” (i.e. replica clothes worn on the field of play during a football match). The other licence was with Hudson Bay. This licence granted Hudson Bay the right to sell Umbro branded “off-field wear”. This was defined in the licence as being clothing “not specifically intended to be used on the field of play” and limited to a number of specified types of branded clothing. The precise distinction between the “off-field” and “on-field” wear was central to the case. A key differentiator between on-field and off-field wear was the presence or absence of pockets: on-field wear does not usually have pockets.
Hudson Bay was required by its licence to obtain Umbro UK’s prior approval to its clothing designs before selling them. In fact, the licence provided for a complicated approval process to be followed by Hudson Bay which required a representative of Umbro UK to give written approval at several different stages in the manufacturing process. However, in practice, Hudson Bay had largely worked with Umbro UK’s subsidiary, Umbro US, and this later created some confusion who over could and could not approve the designs.
Hudson Bay wished to launch an Umbro branded range of “soccer basics” clothing, namely shorts and t-shirts (the “Soccer Basics”). Crucially, these would be pocketless. The President of Umbro US orally approved these products for sale. The formal approval process was not followed. Dick’s subsequently objected to the sale of the Soccer Basics on the basis that they were on-field wear which it was exclusively licensed to sell.
At around the same time, Umbro UK also approved a number of designs proposed by Dick’s for items such as tank-tops and t-shirts (the “Dick’s Clothing”), despite the possibility that these may be off-field wear which Hudson Bay was exclusively licensed to sell.
Subsequently, Umbro UK wrote to Hudson Bay stating that the range of Soccer Basics was outside the scope of Hudson Bay’s licence, being on-field wear. It argued that it had never pre-approved the sale of the clothing and insisted that Hudson Bay remove the Soccer Basics from sale. Pending the outcome of the dispute, Umbro also refused to supply clothing to Hudson Bay and to approve Hudson Bay’s new ranges of clothing.
Hudson Bay sued Umbro UK for breach of contract, alleging:
- by allowing Dick’s to market the Dick’s Clothing, Umbro UK had breached Hudson Bay’s exclusive licence for off-field wear; and
- by refusing to supply clothing to Hudson Bay or approve its current range of clothing, Umbro UK was hindering Hudson Bay from exploiting its licence in breach of an implied duty of co-operation owed to Hudson Bay.
Umbro UK denied both of these claims. It also counter-claimed that Hudson Bay was in breach of its exclusive licence by marketing the Soccer Basics range. Umbro UK argued that the Soccer Basics range was clearly on-field clothing which fell outside the scope of Hudson Bay’s licence. Umbro UK also maintained that it had never preapproved the Soccer Basics range. It claimed that the President of Umbro US had no authority to give the approval to the Soccer Basics she had purported to give and that, accordingly, Umbro UK was not bound by her ‘approval’.
What did the court decide?
The case was initially heard in the High Court. Since there was no industry standard usage of the phrases “on-field” and “off-field”, the court was forced to consider the minutiae of what features might make a garment on-field or off-field wear. This required the court to examine, amongst other things, the fabric used for the clothing, the size of the logos used on them, how the clothing was marketed and, crucially, whether pockets were included.
On the first question of whether the Dick’s Clothing amounted to off-field wear, the court held that the clothing was indeed off-field wear. This fell outside the scope of Dick’s licence and amounted to a breach of Hudson Bay’s licence by Umbro UK. In relation to the second claim that Umbro UK had improperly prevented Hudson Bay from exploiting its licence, the court would not imply a clause into the contract requiring Umbro not to unreasonably withhold its approval of products (since this could have been included expressly), but that a term should be implied to the effect that Umbro was “not permitted to refuse or fail altogether to consider products or materials submitted for approval”. Umbro UK was in breach of this term by failing to consider the latest designs submitted by Hudson Bay. However, Umbro UK was entitled to refuse to supply clothing to Hudson Bay pending the outcome of the dispute as this decision was based on entirely reasonable commercial considerations.
Finally, the court also upheld Umbro UK’s counterclaim in relation to the Soccer Basics clothing. The clothing was clearly on-field wear. The primary reason why the court came to this conclusion was because the shorts and t-shirts were pocketless and this fact was decisive on this question. The court also held that the President of Umbro US had no actual or ostensible authority to bind Umbro UK in pre-approving the Soccer Basics as she was not an employee or director of Umbro UK. Accordingly, the Soccer Basics had never been approved by Umbro UK and, as such, had been marketed by Hudson Bay in breach of its licence. Hudson Bay appealed to the Court of A
ppeal which, within the last couple of weeks, has upheld the High Court’s decision and its reasoning.
Lessons to be learned
Although the outcome in this case is fact specific, it has wider interest beyond its facts in relation to the drafting of licences. The crux of this case was the drafting of the exclusivity and scope of the licence. There was ambiguity over what amounted to onfield and off-field wear which caused two licensees to step outside the scope of their own licence and into the realms of another’s licence. If several licensees are to be granted exclusive rights, especially if they are competitors of one another, the licensor should make the extent of each licence extremely clear through unambiguously defining the scope of the licence and the licensed products covered by it. In addition, approvals clauses should be carefully drafted to ensure that ever
yone knows what approvals need to be obtained, from whom and how. These clauses should specifically provide for a process for approvals (preferably written) that is workable in practice, the extent of the licensor’s discretion to approve or reject products (to undermine arguments that approval has been unreasonably withheld) and the timescale for the licensor’s decision (and if there is a deemed rejection if no response is received within a particular timescale). Mostly importantly, the clause should specify who within the licensor’s organisation has the authority to give approvals to ensure that it is crystal clear whether a valid approval has been given or not.