GEORGETOWN, DEL. — A judge in the Delaware Chancery Court on June 26 ruled that Mrs. Fields Brands Inc. can force Interbake Foods L.L.C. to honor a license agreement to make Mrs. Fields-branded cookies for sale in certain retail store channels.
The two companies entered into a trademark license agreement in March 2012, with an initial term set to end on Dec. 31, 2017. But in April 2016, Interbake notified Mrs. Fields it was terminating the license early, which led to litigation.
|Delaware Chancery Court Judge Andre Bouchard
In the June 26 ruling, Delaware Chancery Court Judge Andre Bouchard concluded that Interbake wrongfully attempted to pull out of the agreement early and must continue to make products for Mrs. Fields until the end of this year.
“Famous Brands is pleased that the court found Interbake’s attempt to terminate the license agreement was improper, and that Interbake is required to pay Famous Brands the licensing fees for 2016 and 2017 that it attempted to avoid,” a spokesperson for Famous Brands said. “We look forward to pursing a renewed claim for damages arising from Interbake’s improper termination attempt once the agreement has expired, as allowed by the decision.”
Although Interbake must continue to make products for Mrs. Fields per the judge’s decision, the company will not have to pay as much as $28 million in damages after the judge determined that Mrs. Fields failed to prove a breach entitling it to damages.
“We’re pleased with the decision,” a spokesman for George Weston said.
Headquartered in Broomfield, Colo., Mrs. Fields operates multiple business lines, including franchising stores that serve fresh baked cookies; licensing the Mrs. Fields trademark and recipes to make and sell shelf-stable cookies for sale in retail stores; making on-line and catalogue-based gift sales directly to consumers; and producing confections and other products.
Richmond, Va.-based Interbake is part of Weston Foods US, Inc., a division of George Weston Ltd.
According to details provided in the court documents, the relationship between Mrs. Fields and Interbake soured early on, with Interbake taking steps to try and acquire Mrs. Fields’ branded retail business. On April 20, 2015, Interbake submitted a $50 million bid for both the branded retail business and Mrs. Fields’ e-commerce platform and gifting business. But on May 6, 2015, Mrs. Fields rejected Interbake’s offer, which, according to the court documents, “marked a turning point in the relationship between Mrs. Fields and Interbake.”
“After two years of sporadic discussions, Interbake was faced with the reality that it would not be able to acquire control of the Mrs. Fields brand and that its role would be limited to that of a licensee,” the court documents state. “This realization set in motion a desire on Interbake’s part to exit its relationship with Mrs. Fields. … the initial plan was to exit when the term of license agreement expired at the end of 2017, but the timetable was accelerated later in the hope of negotiating an exit in mid-2016.”
After Interbake generated only $16.6 million in net sales during 2015, the company tried to exit the deal under a section of the license agreement that provided for early termination should net sales fall below $20 million in any given contract year. But in his ruling, Judge Bouchard said only Mrs. Fields should have the right to terminate the deal.“It makes little commercial sense to think the parties would have intended that Interbake could terminate the license agreement early due to its own failure to achieve the $20 million minimum sales threshold and thereby relieve itself of its minimum annual royalty obligation,” he ruled.