Virgin Aviation TM Limited & Anor v Alaska Airlines Inc

A contractual minimum royalty may be payable for the continuing grant of valuable brand rights, even when the licensee ceases to use the brand. The question depends on the contract construed as a whole, including its language, commercial purpose and objectively known background. A clause permitting unbranded activities without royalties may exclude unbranded revenues from percentage-based calculations without displacing a separately expressed annual minimum fee. Where some use occurs during a financial year, an annual minimum royalty remains payable unless the contract clearly provides for apportionment. A contractual obligation to use the brand may also coexist with permission to conduct unbranded activities.

Virgin granted Virgin America rights to use the Virgin brand under a 2014 trademark licence agreement. Alaska later acquired Virgin America, merged it into its group and ceased using the Virgin names and marks. It also stopped paying royalties.

Virgin sought declarations concerning the proper construction of the Current TMLA. The issues were whether Alaska remained liable for the annual Minimum Royalty after ceasing brand use, whether that royalty was apportioned when use ceased during a financial year, and whether cessation of use breached the contractual obligation to use the names and marks.

1. Minimum Royalty. The claim succeeded on the principal issue. Clause 8, read with the definition of Minimum Royalty, required payment of a fixed annual minimum sum throughout the contractual term. The obligation did not depend on the amount of royalties actually earned or on continued use of the Virgin brand. The Minimum Royalty was a flat fee payable for the right to use the brand, whether or not that right was exercised.
2. Clause 3.7 permitted unbranded activities without royalties and excluded revenues from those activities from percentage-based royalty calculations. It did not remove the separately expressed Minimum Royalty obligation. The 2007 agreement and the DOT regulatory history formed part of the factual background but had little weight because the Current TMLA contained materially different provisions and had to be construed as a whole.
3. The construction exercise applied the principles in Arnold v Britton and Wood v Capita. The language of the Current TMLA was clear. Commercial common sense could not be used retrospectively to relieve Alaska from an unattractive bargain. The parties’ commercial circumstances supported the conclusion that Virgin required protection against the increased risk of de-branding following the IPO.
4. Part-year use. Alternatively, if the Minimum Royalty were not payable after complete cessation of use, it would remain payable in full for a financial year in which some use of the names or marks occurred. The contractual reference to a pro rata amount concerned partial years of the contractual term, not partial years of use. The Apportionment Act 1870 did not alter that conclusion.
5. Breach. In any event, Clause 3.6 required Virgin America, and consequently Alaska, to use the names and marks at least to some extent. Cessation of use was therefore a breach. The recoverable loss would be measured by the Minimum Royalty, payable as damages rather than as a debt.