Recent case illustrates the pitfalls of exclusive licensing agreements

Umbro has breached an exclusive licensing agreement with a US based sportswear company for the sale of its soccer-based clothing in the US by allowing another company to market goods subject to the exclusive licence.

Umbro International, a UK-based sportswear manufacturer, granted two licences to manufacture and distribute clothing in the United States under its trade marks which featured the Umbro and double diamond logos:

• one in respect of “on-field” wear to a major retail company called Dick's Sporting Goods (Dicks); and
• the other in respect of “off-field” wear to Hudson Bay, a small US sportswear company (granted in 2007).

On-field wear consists of clothes used “on the field of play”, while off-field wear consists of clothes worn elsewhere, for example by fans at a game, at home or on the street. Umbro reserved the right to sell "teamwear", the actual football kit supplied to competitive teams, to itself.

Under Hudson Bay’s licence for “off-field” wear, Hudson Bay was required to follow a formal procedure to obtain approval for sample designs before they could be manufactured. However, in practice, US employees gave oral approval of designs which were not always approved in writing by Umbro UK.

From early 2008, the relationship between Hudson and Umbro deteriorated and Hudson brought a claim against Umbro in the UK that it had breached Hudson’s exclusive licence by allowing Dick’s to market off-field wear. Umbro counterclaimed, arguing that Hudson had acted in breach of its licence by marketing on-field wear clothing. The Court upheld both of these claims.

Hudson Bay also successfully claimed that Umbro had hindered it from exploiting its off-field licence as Umbro was impliedly obliged under the contract not to refuse or fail to consider products or materials submitted by Hudson Bay for approval.

The key factual issue in the case was the difference in practice between on-field and off-field wear and the definition of the phrase in the licence agreement “specifically intended for use on the field of play for soccer”. The Court found that the reasonable person interpreting what the parties intended under the licence would have interpreted the "field of play" as the actual field used in soccer games including informal training and practice games. The Court also looked at the visual characteristics of the clothing but also at how the clothing was marketed. The main visual difference between the ranges was the presence or absence of pockets.

Clothes intended for use on the field of play were excluded from the licence granted to Hudson Bay. Umbro’s counterclaim that Hudson Bay was in breach of the exclusive licence was successful, for the reason that Hudson had marketed “pocketless soccer basics” which included shirts and shorts made without pockets and resembling functional “on-field” teamwear.

The Court found that the demarcation between “on-field” and “off-field” garments had become blurred with the result that both parties were in breach of the licence: Umbro for granting rights to Dick’s for “off-field” garments and Hudson Bay for marketing pocketless and thus “on-field” wear.

This is a complex case which highlights the difficult intellectual property issues that can arise in relation to licence agreements, particularly where exclusive licences are granted for the sale of similar goods (in this case, on-field and off-field sports wear). As licensing disputes can have serious commercial consequences, it is important that the scope of a licence is clear to all the parties involved, and that the licence is carefully drafted to record its terms, in particular the definition of the IP being licensed. The licensor should properly supervise the working of the licence to ensure that the licensee does not operate outside its scope.

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