Sports Direct has failed in its bid to compel Newcastle United to supply its next season’s replica football kits, by way of mandatory injunction. 

Background

Proceedings were issued in March, with Sports Direct claiming that Newcastle United (i) abused their dominant position by failing to supply Sports Direct with their replica kit for the 2024/25 football season, contrary to the Chapter II prohibition of the Competition Act 1998; and (ii) infringed the Chapter I prohibition by entering into exclusive arrangements with another sports retailer which have the effect of excluding Sports Direct from the market for the kit.

Newcastle United owns the intellectual property and branding rights to its kit, which is currently manufactured by a company trading as Castore. That arrangement will shortly terminate. Thereafter, sportswear manufacturer and retailer, Adidas, will become the exclusive manufacturer of the kit. It was established during the course of the proceedings that rights to sell the kit will be held by Newcastle United, Adidas and JD Sports.

Sports Direct sought an expedited trial of its claims, together with interim relief in the form of a mandatory injunction, seeking to compel supply by Newcastle United in the meantime. This interim application was recently heard in the Competition Appeal Tribunal (“CAT”).

The CAT noted that, in fact, the injunction sought by Sports Direct extended beyond the replica kit to “any form of sports clothing or kit to which a football club’s trademark is applied”.

Mandatory injunction

A mandatory injunction is an order which compels a party to take a specific action - for example, deliver up property wrongly retained or to knock down an unlawfully built house. Conversely a prohibitory injunction requires a party to refrain from doing a specific act.

There has been some legal discussion as to whether there is a higher burden required in order to obtain a mandatory injunction. The courts are generally more reluctant to order a mandatory injunction, given that a party is likely to suffer a greater risk of injustice if they are made to have taken a positive step and the order turns out to have been wrongly made. 

In considering whether to grant the injunction, the CAT applied the test established in American Cyanamid Co. v Ethicon Ltd [1975] 1 AC 396. The CAT summarised the conditions for consideration:

1. There is a serious issue to be tried;
2. Damages would not be an adequate remedy for the applicant;
3. Is there an undertaking in damages from the applicant which will adequately protect the respondent if it turns out that the interim injunction is wrongly granted; 
4. Where does the balance of convenience lie? This is an exercise of weighing up the factors for and against granting the injunction on the facts of the case.

Decision

The CAT unanimously refused the injunction sought by Sports Direct.

Sport's Direct's application failed on the first limb of the American Cyanamid test - the CAT concluded that no arguable case of market abuse was established by Sports Direct. 

For the purpose of considering the injunction application, the CAT assumed that Newcastle United is dominant in the market for its replica kit, in that there are no feasible substitutes for the kit. This was a point, the CAT acknowledged, to be determined at trial and constituted a serious issue to be tried, together with the wide definition of ‘replica kit’ which the CAT adopted.

However, despite any such dominance the CAT did not consider that an arguable case for abuse had been made out in the circumstances. The key points from this decision are as follows:

• With a change in ownership of Newcastle United (the club was previously ultimately owned by the ultimate majority owner of Sports Direct), there was a reconsideration of the manner in which the replica kit was to be manufactured and sold, as the new owners were entitled to do.
• It is no infringement of competition law to be a dominant undertaking.
• Even a dominant undertaking is entitled to structure its business as it wishes, to maximise profits or further other interests, without it constituting abuse of that position. 
• Sport Direct's expectation of continued supply to it were central to its claims, but it was not able to be specific as to the terms of the supply of the kit to it by Castore in order to substantiate the nature of the arrangements in place. Any fragility in Sports Direct's supply chain has nothing to do with Newcastle United.
• If an established market structure is changed unilaterally by a dominant undertaking, that warrants consideration, but whether or not it is abusive will depend on the facts. 
• A refusal by a dominant undertaking to supply another undertaking does not give rise to an arguable case of abuse without some further allegation or averment. The burden of making such averment lies on Sports Direct. 
• If Newcastle United was entitled to substitute Adidas into the supply chain in place of Castore, then it is very difficult to see how the consequences of that substitution can amount to an infringement of the Chapter II prohibition. 
• Any suggested obligation on Newcastle United and Adidas to ensure that supply to Sports Direct be maintained over time represents “a significant fetter on competition, not an enhancement of it”. The likelihood of Sports Direct undercutting prices that might be charged by other retailers was considered immaterial.
• Absent any abuse, no argument for Chapter I infringement was made out.

Despite this finding, the CAT went on to consider the other conditions relevant to whether or not the injunction should be granted. It concluded that damages would not be an adequate remedy for Sports Direct were the action to proceed to trial and Sports Direct to succeed, due to the nature of the losses pleaded by Sports Direct. Conversely, it was concluded that an undertaking in damages would not adequately protect Newcastle United if an injunction had been granted and it was subsequently found at trial that it should not have been. 

Going on to consider the balance of convenience, the CAT considered that the balance would be in favour of not granting the injunction in any event. One of the factors which informed this conclusion was that the injunction would likely require considerable court policing, in circumstances where “neither party would be approaching matters in a spirit of commercial give and take”. 

In light of its decision to refuse the injunction, the CAT emphasised the need to proceed to a speedy trial to be urgent and invited proposals from the parties. Given that Sports Direct was refused permission to appeal the CAT's decision, subject to any settlement or discontinuance of the claim, the issues raised will now fall to be determined at trial.

Comment

This decision supports the commercial autonomy of parties, even dominant ones, to make strategic decisions for the benefit of their business. In the opinion of the CAT, Sports Direct did not do enough to show that the actions of Newcastle United which it complained of amounted to abuse of any dominant position alleged. With the Adidas Newcastle 24/25 home kit due to be launched at the beginning of June, the final decision in this case will be expected sooner rather than later following a speedy trial. 

This reflects the relatively long ‘buy in’ lead times for replica kit such that there is a need for legal certainty as soon as possible as to whether Newcastle is obliged to sell to Sports Direct.  This mirrors the position in other cases concerning replica kit, such as New Balance v Liverpool Club which was pursued as an expedited trial in the Commercial Court in 2019. Judgment was handed down in that case just over approximately two months after the initial pre-action correspondence in the matter was sent (and in which Duran Ross, Partner in our Dispute Resolution team, acted for New Balance).

For any queries relating to the issues raised in this article, contact Duran Ross.