The English High Court recently refused a claim by Hudson Bay Apparel Brands LLC ("Hudson") that Umbro International Limited ("Umbro") had breached an implied term of a licence agreement by failing to do "all that is necessary" to enable Hudson to exploit the licence. It also found that Hudson had itself, separately, breached the terms of the agreement.

Umbro owns the UMBRO and double diamond brands (the Umbro logos). In 2006, Umbro granted a licence to Hudson to design, manufacture and sell Umbro branded soccer-based clothes in the US. Hudson’s license was confined to off-field wear, that is clothes worn at game, at home or on the street (as opposed to on the field of play).

Amongst other claims, Hudson claimed that Umbro had breached an implied term in the license to the effect that Umbro was required to do all that is necessary to enable Hudson to exploit its license.

This claim was made in relation to the fact that Hudson had to obtain Umbro’s approval for its designs. At first Hudson claimed that Umbro must do "all that is necessary" to exploit the license, including guidance as regards designs and an obligation not to withhold approval unreasonably. Herbert QC, sitting as a Deputy Judge, did not consider in any detail the law relating to implied terms generally. However, in relation to the implied term in question, he found that there was no need to include such a provision by necessary implication. Umbro is the intellectual property rights holder and is entitled to protect its interests – the approval process, including the apparent right to refuse approval for any reason, is part of this.

However, he felt that it was necessary to imply a "slimmed down" term that Umbro was not permitted to refuse or fail altogether to consider designs submitted for approval by Hudson. Without this term, Umbro could simply do nothing, which would be inconsistent with the thrust of the contract. Crucially, the license provided for minimum guaranteed royalties due to Umbro from Hudson. Without a slimmed down implied term, Umbro could refuse to consider any designs and Hudson would have no products to sell. At the same time Umbro would collect the minimum level of royalties. This appears to have influenced Herbert QC, who found that such a term should be included by necessary implication. Hudson claimed seven instances in which Umbro had breached this slimmed down implied term, and Herbert QC accepted that a breach had occurred on one of these occasions.

In a separate claim, brought by Umbro, Herbert QC found that Hudson had breached the terms of the licence by manufacturing clothes that were not off-field wear. Hudson claimed in its defence that Umbro had approved the design of those clothes as part of the abovementioned approval process. However, Herbert QC found two problems with that. First, the purported approval was oral, whereas the licence agreement expressly called for written approval. Secondly, and more fundamentally, the licence was limited to off-field wear. Accordingly, any approval for clothes that were not off-field wear must be capable of modifying the licence itself. The approval in question had been given by a director of Umbro’s US subsidiary, rather than the licensor (Umbro itself), who had no actual authority to alter the terms of the licence and bind Umbro in this manner. Furthermore, having considered the factual background and context, Herbert QC found that the director had no ostensible or apparent authority either. As such, Hudson could not rely on the "approval" as a defence to Umbro’s claim.

Herbert QC found in favour of Hudson in relation to a third claim, regarding the manufacture by a third party of clothes that fell properly within the scope of Hudson’s licence.

The case illustrates two key points. The courts are unlikely to imply terms into commercial agreements, unless the implication is strictly necessary. In the above case, Herbert QC accepted that the term Hudson sought to imply might make business sense, but that this was not enough. Secondly, where one party acts outside of the terms of a licence, it generally cannot rely on "approval" given by a company associated to the other party to the licence – only that other party can approve a modification to the licence; a third party, even a related one, cannot.

Case: Hudson Bay Apparel Brands LLC v Umbro International Ltd [2009] EWHC B28 (Ch)