Whether a furniture manufacturer’s marketing of a line of trademarked furniture for its licensor had been "commercially reasonable" was decided by the Business Court yesterday in favor of the manufacturer, in Lexington Furniture Industries, Inc. v. Bob Timberlake Collection, Inc., 2009 NCBC 22 (September 9, 2009).
The parties had entered into a License Agreement giving Lexington the right to sell furniture collections under the Bob Timberlake trademarks. Sales had apparently gone quite well; Timberlake’s COO testified that one of the collections was "the most successful furniture line in the history of the industry." Timberlake had made $25 million over the years in royalties from Lexington’s sales.
In 2007, three years before the License Agreement was to expire, Timberlake asked to restructure the Agreement. Lexington declined. Timberlake offered to buy out the License Agreement, and Lexington refused that as well. Timberlake then notified Lexington that it would terminate it as a result of Lexington’s alleged failure under the License Agreement "to use its commercially reasonable efforts in the manufacture, sale, promotion, advertisement, and marketing" of the Timberlake collections.
The Interpretation Of "Commercially Reasonable Efforts"
The case turned on the interpretation of the meaning of "its commercially reasonable efforts." Timberlake said that "the inclusion of the word ‘its’ prior to the term ‘commercially reasonable efforts’ makes the commercially reasonable standard personal to Lexington." Timberlake asserted that this subjective approach meant that Lexington had to market the furniture consistently with its past practice. As evidence of breach, Timberlake pointed to things that Lexington had done in the past to market the furniture lines that it was no longer doing.
Lexington said that "its" simply meant that Lexington was the party responsible for making the commercially reasonable marketing efforts. It presented the testimony of an industry expert detailing Lexington’s marketing activities, who concluded that Lexington’s efforts were "equal to that of the best companies in the furniture industry" and that they "exceeded industry practice."
Commercial Reasonableness Needed To Be Assessed Against An Industry Standard
Judge Tennille rejected the notion that past practice was the guide. He said that
[t]o require Lexington to market the Timberlake Collections in 2008 in the same manner as it did when the furniture line was first introduced in 1991 would be unreasonable. The types of promotion and advertising that work effectively for a particular product do not remain static. As new collections gain brand name recognition, marketing strategies change to keep in step. Moreover, marketing means change daily. The Internet has opened new avenues for advertising — avenues not readily available eighteen years ago. New furniture shows, such as Las Vegas, now exist that were unheard of in 1991. Would Timberlake be satisfied if Lexington restricted its market shows to those which existed in 1991 or if Lexington only used print media that existed when the parties originally executed the contract? If the parties wished to bind Lexington to past practice, then their License Agreement should have expressly stated so.
The test for "commercial reasonableness," according to the Court, did not require consideration of "whether any specific activity should or should not have been used." The inquiry was "the marketing effort as a whole which must be judged against some industry standard." The only evidence of industry standard before the Court had been presented by Lexington.
The Court, granting summary judgment in favor of Lexington, held that "[t]he mere fact that Timberlake disagrees with the marketing decisions Lexington made is not enough to raise an issue of fact as to whether such decisions were commercially reasonable."