License Agreement
Drafting & Termination
Assignment of Rights
Specific Performance
Proof of Future Profits
Utah Law
Distribution Agreement
Trademark
Contract Drafting
Appeal from
the United States District Court for the District of Utah
(D.C. No. 2:15-CV-00094-JNP-DBP)
The License Agreement and its relevant terms
Fields Franchising owns the rights to the “Mrs. Fields” trademark and licenses those rights to allow other entities to manufacture, sell, and distribute products using the “Mrs. Fields” trademark.
On April 30, 2003, MFOC entered into a Trademark License Agreement (License Agreement) with LHF, Inc. (LHF), an affiliate of MFGPC. Aplt. App., Vol. 1 at 25, 45 (copy of actual agreement). On June 30, 2003, LHF assigned all rights under the License Agreement to MFGPC, and MFGPC agreed to be bound by and perform in accordance with the License Agreement. Id. at 25, 69 (copy of assignment). The License Agreement granted MFGPC a license to develop, manufacture, package, distribute and sell prepackaged popcorn products bearing the “Mrs. Fields” trademark through all areas of general retail distribution. Id. at 46. The License Agreement prohibited MFOC from competing with MFGPC by making Mrs. Fields branded popcorn or licensing the right to use the Mrs. Fields trademark for use on popcorn. Id., Vol. 5 at 866.
Section 5 of the License Agreement, entitled “LICENSE FEE AND ROYALTIES,” required MFGPC to pay MFOC an “initial license fee” comprised of two payments: (1) $50,000 on or before June 1, 2003; and (2) an additional $50,000 on the “first anniversary of the Agreement.” Id., Vol. 1 at 50. Section 5 also required MFGPC to pay MFOC “Guaranteed Licensing Fees and Running Royalties”:
Throughout the term (including Option Periods) of this Agreement the Running Royalty shall be 5% of Net Sales of Royalty Bearing Products. [MFGPC] shall remit such Running Royalties to [MFOC] on the last day of the month following the end of each calendar quarter covered by the Agreement. All Guaranteed Amounts and Running Royalties shall be non-refundable for any reason whatsoever.
Section 6 of the License Agreement, entitled “GUARANTEED ROYALTY,” required MFGPC to pay MFOC a “Guaranteed Royalty . . . per year on the Net Sales of Royalty Bearing Products during the initial term as set forth on the following schedule:
INITIAL TERM
Year 1 Year 2 Year 3 Year 4 Year 5
$ 0.00 $ 50,000 $ 100,000 $ 100,000 $ 100,000
Id. at 50. “Royalty Bearing Products” were defined in the License Agreement as “the food products described on Exhibit B hereto that are sold as prepackaged popcorn products using the Licensed Names and Marks.” Id. at 48. Exhibit B to the License Agreement stated that “Royalty Bearing Products” were “high quality, pre-packaged, popcorn products.” Id. at 67.
The License Agreement required MFGPC to “deliver to” MFOC quarterly and annual reports detailing “the amount of Royalty Bearing Products sold, including sufficient information and detail to confirm the royalties calculations.” Id. at 51. It also required MFGPC to “provide [MFOC] a monthly summary of all written consumer complaints received regarding the quality of the Royalty Bearing Products.” Id. at 52.
The “initial term” of the License Agreement began “upon the execution” of the License Agreement and “continued for a period of sixty (60) months (‘Initial Term’).” Id. at 57. The License Agreement stated that, “so long as [MFGPC] was not in material default and . . . had met and/or paid Running Royalties based on its Guaranteed Royalty,” the License Agreement “would then automatically renew for successive five year terms (‘Option Periods’) until such time as either party terminated the Agreement upon no more than twenty (20) days prior written notice to the other party.” Id.
The License Agreement stated, in pertinent part, that it could be terminated in the following manner:
(i) If [MFGPC] defaults in the payment of any Running Royalties then this Agreement and the license granted hereunder may be terminated upon notice by [MFOC] effective thirty (30) days after receipt of such notice, without prejudice to any and all other rights and remedies [MFOC] may have hereunder or by law provided, and all rights of [MFGPC] hereunder shall cease.
(ii) If [MFGPC] fails to pay its Guaranteed Royalty . . . , then, this Agreement and the license granted hereunder may be terminated upon receipt of such notice by [MFGPC], without prejudice to any and all other rights and remedies [MFOC] may have hereunder or by law provided, and all rights of [MFGPC] hereunder shall cease.
(iii) If [MFGPC] fails to perform in accordance with any material term or condition of this Agreement . . . and such default continues unremedied for thirty (30) days after the date on which [MFGPC] receives written notice of default, unless such remedy cannot be accomplished in such time period and [MFGPC] has commenced diligent efforts within such time period and continues such effort until the remedy is complete, then this Agreement may be terminated upon notice by [MFOC], effective upon receipt of such notice, without prejudice to any and all other rights and remedies [MFOC] may have hereunder or by law provided.
(v) If [MFOC] . . . files a petition in bankruptcy or for reorganization . . . , then this Agreement and the License granted hereunder may be terminated upon notice by [MFGPC], effective upon receipt of such notice, without prejudice to any and all other rights and remedies [MFGPC] may have hereunder or by law provided . . . .
(vi) If [MFOC] fails to perform in accordance with any material term or condition of this Agreement and such default continues unremedied for thirty (30) days after the date on which [MFOC] receives written notice of default, then this Agreement may be terminated upon notice by [MFGPC], effective upon receipt of such notice, without prejudice to any and all other rights and remedies [MFGPC] may have hereunder or by law provided.
MFOC’s assignment of its rights under the License Agreement
After entering into the License Agreement, MFOC assigned its rights and obligations under the License Agreement to Fields Franchising.
The renewal of the License Agreement
Fields Franchising and MFGPC continued to operate under the License Agreement through the end of 2014, a period of more than eleven years.
Fields Franchising’s notice of termination and MFGPC’s response
On December 22, 2014, Fields Franchising’s counsel sent a letter to MFGPC notifying MFGPC that Fields Franchising considered the License Agreement to not have automatically renewed in 2013 due to MFGPC’s failure to pay royalties.
(…) as Fields Franchising asserts in its opening brief, reading Section 16 as a whole “means that the License Agreement could be terminated without cause prior to each five-year renewal and mid-term, and with cause only upon specified circumstances and procedures.” Aplt. Br. at 31.
Thus, contrary to the district court’s finding, nothing in Section 16 afforded MFGPC a “perpetual license.”
Likelihood of success - specific performance
The district court concluded that MFGPC “met its burden of showing a likelihood that the court would order Fields Franchising to reinstate the License Agreement with MFGPC.” Aplt. App., Vol. V at 875. In support of this conclusion, the district court noted that, “under Utah law, a party seeking specific performance must prove 1) that a contract exists; 2) that the essential terms of the contract are clear and definite; and 3) that there is no adequate remedy at law.” Id. (citing Tooele Assocs. Ltd. v. Tooele City, 251 P.3d 835, 835 (Utah 2011) and South Shores Concession v. State, 600 P.2d 550, 552 (Utah 1979)). Focusing on the last prong of this test, the district court concluded that calculating “damages due to” Fields Franchising’s breach of the License Agreement would be “very difficult, if not impossible.” Id. at 876. More specifically, the district court concluded it was “highly unlikely” that “MFGPC could be made whole through an award of money damages because . . . it would be difficult if not impossible to accurately calculate the damages to MFGPC of being permanently deprived of the right to use the Mrs. Fields Trademark for popcorn . . . .” Id. at 876–77 (emphasis added). The district court also concluded that “no license for a comparable brand on such favorable terms could be obtained.” Id. at 877.
Fields Franchising argues on appeal, and we agree, that the district court’s likelihood of success analysis was flawed because it rested, in significant part, on the erroneous finding that the License Agreement afforded MFGPC a perpetual license. (…) Although we have no doubt that it would be difficult to calculate damages for a permanent deprivation of a license, that is simply not the case here. Rather, as this court previously noted, it appears that MFGPC’s damages will be limited to a period of approximately two-and-a-half years (i.e., the remainder of the third five-year term of the License Agreement). And, as we shall discuss below, we are not persuaded that calculating such damages will be impossible. Consequently, we conclude the district court erred in determining that MFGPC established a strong likelihood that it will prevail on its claim for specific performance.
(…) Generally speaking, “evidence of past profits in an established business” is the best “proof of future profits.” Palmer v. Conn. Ry. & Lighting Co., 311 U.S. 544, 559 (1941).
(U.S. Court of Appeals for the Tenth Circuit, Nov 7, 2019, Mrs. Fields Franchising, LLC v. MFGPC, Nos. 19-4046 & 19-4063, Publish)
