General Nutrition Investment Company v Holland And Barrett International Ltd & Anor (Rev 1)

An equitable assignee of contractual rights cannot exercise a contractual power which changes the counterparty’s legal position until the counterparty has notice of the assignment. A termination notice must also identify the person entitled to terminate with sufficient clarity and certainty. A change in the commercial emphasis of a licensed trade mark business is not, without more, a breach of a restriction against derogatory use or material dilution. An additional expression may form part of the mark, but materiality depends on the context and consequences of its use. Material breach for an immediate termination clause requires a high threshold where lesser breaches are separately remediable.

The claimant claimed to have succeeded to the rights of the original licensor under a 2003 trade mark licence agreement permitting the defendants to use GNC marks in the United Kingdom. It served five notices purporting to terminate the agreement for alleged breaches, including unauthorised sub-licensing, overseas promotional spill-over and use of the words SPORTS NUTRITION with the GNC mark.

The defendants disputed the claimant’s entitlement to serve the notices because no notice of assignment had been given. They also challenged the notices’ clarity and denied any material breach. The court considered those issues, the construction of the licence, the effect of non-use of certain marks, and an alleged implied duty of good faith.

1. Notices by an equitable assignee. The claimant held an equitable assignment of the original licensor’s rights. Section 136 of the Law of Property Act 1925 had not been satisfied, because no written notice of assignment had been given to the defendants. The procedural rules concerning an equitable assignee’s ability to sue did not determine whether it could exercise a contractual termination power. Following Warner Bros Records Inc v Rollgreen Ltd, an equitable assignee could not exercise such a power against the contractual counterparty without notice. Termination changed the parties’ substantive contractual relationship, so notice was required.
2. Certainty. Applying Mannai Investment v Eagle Star Life Assurance Co Ltd, a notice had to communicate both the decision to terminate and the identity of the person entitled to make it. An objective recipient would have understood the notices as coming from the original, dissolved licensor, not from the claimant as assignee. They were therefore invalid on this additional ground.
3. Construction and materiality. The words referring to material loss in clause 5.2(a) qualified infringement of trade mark rights, not every contractual breach. The licence did not require use across the whole range of registered goods. Focusing the United Kingdom business on sports nutrition was not itself derogatory use or material dilution. Immediate termination for material breach required a high threshold, having regard to the separate regime for remediable non-material breaches.
4. Alpha additions and sub-licensing. SPORTS NUTRITION, when used with GNC on carrier bags, stadium signage, replica kit and T-shirts, was an incorporated alpha addition rather than merely a strapline. That breach was not material in the circumstances. The sponsorship agreement nevertheless granted an unauthorised sub-licence, contrary to clauses 2.2 and 3.1(e), but the resulting use and sale of replica merchandise did not amount to a material breach. The claimant had not shown material damage.
5. Other issues. Use of GNC alone did not constitute use of the unused composite marks. If a licence of an unused mark was terminated under clause 5.6, the licensor could use that mark; no implied non-derogation term could contradict that construction. No general duty of good faith was implied into the licence, and any such duty had not been breached. The claim failed, subject to declarations and consequential orders to be formulated consistently with the judgment.