Locations
As the party granting such rights, the position is clear, do not agree to a last matching right if at all possible because of the heavy commercial burden it places on future negotiations.
The importance of this advice could not be better exemplified than in the recent case of SDI Retail Services Ltd v Rangers Football Club Ltd [2018] EWHC 2772, where the High Court held that a licensing agreement ("Agreement") with Sports Direct prohibited Rangers Football Club from entering into agreements with third parties in respect of the rights granted to Sports Direct without first having given Sports Direct an opportunity to match any offer made by the third party, even if Sports Direct had previously matched an offer in respect of the same rights.
Background
The Agreement provided that if Rangers received an offer from a third party to enter into an agreement to provide any of the non-exclusive rights to manufacture, sell and distribute Rangers football kits and other merchandise ("Offered Rights"), Rangers had to notify Sports Direct of the terms, and any new or amended third party offer would be deemed a separate offer.
When Rangers informed Sports Direct that it had received an offer from a third party (later identified as the Elite Group ("Elite"), it offered Sports Direct the opportunity to match that offer. Sports Direct exercised its matching right, following which Rangers acknowledged that it was prohibited from entering into an agreement with Elite in respect of its offer, but then, without notifying Sports Direct, Rangers entered into a new agreement with Elite granting Elite a set of non-exclusive rights which mirrored the non-exclusive rights in Sports Direct's matched offer.
The issue
The issue before the court was whether Sports Direct had a recurring right to match any third party offer, even if it had previously matched an offer in respect of the same Offered Rights. Rangers argued that to allow Sports Direct to match an offer on a repeated basis would be nonsensical and uncommercial; such a right would give Sports Direct quasi exclusivity over a right to which it had not been granted exclusivity under the Agreement.
Sports Direct submitted that there was a sound commercial reason for having the ability to obtain non-exclusive rights on a repeated basis – it would enable it to benefit from the terms of a further offer if they were more advantageous, particularly where the subsequent offer came from the same party who had made the first offer and, by contrast, if it had only one matching right, its competitive position would be seriously undermined by Rangers' ability to grant further rights to a third party on more favorable terms than those granted to Sports Direct.
Judgment
If an offer was made with regard to any of the Offered Rights and Sports Direct matched that offer, then the prohibition came into effect and Rangers would be prohibited from approaching that or any other third party with regard to the Offered Right in respect of which the matching right was exercised. Furthermore, the court found nothing in the Agreement that excluded Rangers' duty to notify Sports Direct of a third party's offer where Sports Direct had matched an earlier offer by that same third party.
By matching a third party offer, Sports Direct was agreeing to trade on the same terms as a potential competitor. If that potential competitor then offered to trade on more favourable terms, it would not be uncommercial to allow Sports Direct to trade on those same terms. If that third party could change its mind as to the terms on which it offered to trade, it was not uncommercial to allow Sports Direct to match the changed bid – i.e. granting them multiple matching rights. Accordingly, the court found that by failing to offer Sports Direct an opportunity to match Elite's new offer Rangers was in breach of the Agreement and granted prohibitory injunctions.
Further Pain
The court also granted a mandatory "undoing" injunction which required Rangers to take positive steps in respect of its agreement with Elite: not to perform the agreement and to inform Elite that it would not perform the agreement. In granting this injunction, the Court noted that there was a risk that damages might not be an adequate remedy in light of the cap of damages and an exclusion of consequential losses under the Agreement but made it clear that the more significant factor was the fact that it could not be said that the grant would be out of all proportion to the requirements of the case or that the order would operate with extreme, or any, harshness on Rangers. It acknowledged that Rangers would be exposed to a claim by Elite but asserted that this was only because of action taken by Rangers with its eyes open to the risk. Rangers had entered into the agreement with Elite notwithstanding its acknowledgement that it was prohibited from doing so and with its eyes open to the risk that it might be challenged by Sports Direct (as the terms of the indemnity provisions in the agreement with Elite made clear).