In 2023, we reported on a judgment finding that Alaska Airlines must continue to pay royalties to Virgin Group under a trade mark licence agreement, despite no longer using the Virgin brand. That decision has now been upheld by the Court of Appeal.
Interpreting the licence agreement
In his judgment, Lord Justice Phillips found that the first instance judge’s interpretation of the licence agreement between the parties was correct. He said:
“the language of the Licence, the factual matrix and commercial considerations all point firmly to Virgin being entitled to at least the Minimum Royalty in exchange for the rights Alaska holds for the remainder of the term of the Licence.”
He said all provisions of the licence should be read together “to understand the overall meaning and effect of the contract”. In this context, it was clear that the minimum royalty would continue to be paid even if usage of the Virgin brand dropped to a minimal level. The minimum royalty was not a sum calculated by reference to actual usage but a minimum payment for rights granted under the licence.
This reading was supported by the factual matrix: the inclusion of a minimum royalty “can only be read as providing protection for Virgin in circumstances where it was giving up its corporate control over Virgin America and in the context that it was therefore exposed to the risk of a complete de-brand”.
As for commercial considerations, Alaska’s position was that it should be entitled to hold (and, in the judge’s word, “sterilise”) valuable IP rights for up to 25 years and pay nothing. Phillips LJ said this interpretation:
“entails that there would be a huge and unjustifiable difference between the use of a single Name or Mark in any part of Alaska's operation (perhaps by mistake), which would trigger the Minimum Royalty payment of nearly US$8m, and a complete de-brand, where nothing would be payable. There is no commercial or rationale justification for such an arbitrary distinction with huge financial consequences, which cannot have been intended by the parties.”
The other two judges agreed with his judgment.
What does this mean?
This very clear ruling from the Court of Appeal confirms the importance of both parties understanding the meaning, context and commercial basis of agreements they sign. Indeed, Phillips LJ said this case was “a straightforward issue of contractual interpretation” that should not have taken five days in court to resolve.
Parties entering into licences therefore need to consider carefully what they are agreeing to. Professional legal advice is essential to ensure that nothing is overlooked. For more information on the key points to cover, please do speak to us.
To find out more about the issues raised in this blog contact Rosie Burbidge, Intellectual Property Partner at Gunnercooke LLP in London - rosie.burbidge@gunnercooke.com
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