Leofelis SA & Anor v Lonsdale Sports Ltd & Ors

A contractual right to terminate may be waived where the party entitled to terminate, with knowledge of the relevant breach, demands and accepts royalties. A reservation of rights does not ordinarily prevent that consequence.

In a trade mark licence, rights enabling a third party to obtain and resell branded goods may constitute a licence or rights granted in respect of the marks and must be disclosed. Trade mark exhaustion requires the proprietor to realise the economic value of the mark by putting the goods beyond its control through a sale to an objectively independent third party. Related companies under common control do not necessarily satisfy that requirement.

Leofelis held an exclusive licence from Lonsdale Sports Ltd and Trade Mark Licensing Company Ltd to exploit Lonsdale trade marks in the European territory excluding the United Kingdom and Ireland. It claimed damages for undisclosed third-party rights, infringement of its exclusive territory, costs incurred in protecting title to the marks, and related contractual breaches.

The defendants counterclaimed for termination and damages based on alleged breaches concerning change of control, promotion, samples, insurance, sub-licensing, and sales outside the territory. The central issues included waiver, disclosure of existing rights, trade mark exhaustion, and the construction and effect of the licence agreement.

1. Termination and waiver. The change of control provision was engaged when control of Leofelis passed to Mr Buscaini. However, TMLC knew of the relevant facts and subsequently demanded and accepted royalties. That conduct unequivocally affirmed the licence and waived the right to terminate for the change of control and earlier one-off breaches. A reservation of rights did not alter the effect of accepting royalties.
2. Counterclaim. The alleged oral footwear and Middle East licences were not established as concluded agreements. Sales made with the defendants’ knowledge and consent did not constitute breaches of the November 2002 Agreement. The promotion obligation was too uncertain to enforce. Rights to terminate for earlier failures to provide samples and unapproved sub-licences had been waived. The insurance obligation was breached, but the defendants did not seek current termination and proved no loss. The counterclaim failed.
3. Undisclosed rights. The Alavi licence was capable of continuing indefinitely and the rights under clause 5A1 of the Lord John SPA enabled Mr Alavi to obtain unlimited branded goods for resale. Those rights were within clause 2.2.1 and should have been disclosed. The defendants were liable for breach of contract and, alternatively, under section 2(1) of the Misrepresentation Act 1967.
4. Exhaustion and Belgian sales. The defendants failed to prove that the relevant goods had first been sold in the United Kingdom to an objectively independent purchaser. Even on their assumed facts, transfers between companies controlled by the same person did not exhaust the trade mark rights. The Belgian sales infringed Leofelis’s exclusive sub-licence. An injunction was granted and damages were directed to be assessed.
5. Other claims. Leeside was entitled to a declaration confirming its sub-licence throughout the relevant territory. Leofelis could recover costs incurred in defending challenges to TMLC’s title under clause 7.7 without prior consent. The Montse claim was dismissed because no additional contractual term could properly be implied.