Can English passing off override a US contract?
Mr Justice Miles’s judgment in Lyle & Scott Limited v American Eagle Outfitters, Inc is an important decision for international fashion brands. The two companies use very similar eagle logos (pictured) for clothing that is sold through similar marketplaces in the UK and internationally.
Lyle & Scott (L&S) is a long-standing British high-end fashion brand. It historically made golf clothes but by 2019 around half of its sales were polo shirts and T-shirts which are sold through third party retailers such as John Lewis and online via ecommerce platforms like ASOS and Zalando.
L&S' eagle device (above right) is UK registered trade mark and is well known in the UK where it has substantial goodwill in relation to clothing and fashion accessories.
American Eagle (AE) first started selling eagle branded clothing in 2005. A dispute ensued and a memorandum was agreed which recorded that AE was to pay US$1 million to L&S and there were a series of bullet points including (i) requirements to use the terms American Eagle or similar with the AE eagle, (ii) where goods could be sold, and (iii) consent to each others eagle trade mark filings, particularly L&S' eagle in the US.
The parties could not reach agreement on the long form agreement so in May 2006 AE commenced proceedings in Pennsylvania seeking a declaration that the memorandum was binding. The Pennsylvania court found (in a summary judgment) that the memorandum was a valid and binding agreement and that its terms were unambiguous.
The decision was appealed and the court concluded the relevant clauses had worldwide scope. However, no decision was given regarding the meaning of "AE to sell products in AE stores, stores within stores or AE website" (importantly - it did not answer the question of whether an AE section on a third party website (e.g. ASOS) fell within the ambit of this clause.
It was agreed that the memorandum was subject to Pennsylvania law. However, on discovering in August 2020 that AE was selling its clothing on the UK websites of ASOS and Zalando, L&S sued for breach of contract and passing off in the English courts. In order to serve AE, L&S had to apply to the English court to serve the claim form out of jurisdiction in Pennsylvania. This application was granted but AE disputed the jurisdiction of the English court.
The judge said that L&S needed to satisfy the requirements of CPR 6.37 and specifically that (i) there is a serious issue to be tried on the merits; (ii) there is a good arguable case that the claim falls with one of the jurisdictional gateways; and (iii) England and Wales is clearly or distinctly the appropriate forum.
On the facts before him, the judge decided that the passing off claim (an English tort) raises a serious issue to be tried and that the features of the case favouring England & Wales (i,e. the claim for a tort committed within the jurisdiction, and evidence within the jurisdiction) outweighed those favouring Pennsylvania (i.e. the governing law of the contract dispute). He therefore dismissed AE’s application to set aside the order to serve the claim out of jurisdiction.
This case is a helpful reminder of the importance of getting long form agreements signed and the ambiguity of relying on a high level heads of terms (even if they are endorsed as binding by a court). It also shows the English court's unwillingness to have matters regarding English consumers and English rights considered out of the jurisdiction.
Finally, it is a reminder that contracts are living and breathing things. There is always a temptation to throw them in a drawer and forget about everything apart from the key terms. However, with technical and business changes, new ambiguities can creep into old language and what seemed to be a fair deal can appear less acceptable as economic circumstances and global trading patterns change with time.
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