Virgin Group has just won a major lawsuit against Alaska Airlines, though we can expect an appeal.
In this post:
The basics of the Virgin & Alaska Airlines lawsuit
In 2018, Alaska Airlines and Virgin America merged in a $2.6 billion deal. This was part of Alaska’s effort to grow significantly on the West Coast (including in San Francisco), while also preventing JetBlue from gaining market share in the region (since the airline was also interested in acquiring Virgin America).
Even though Richard Branson’s Virgin brand has great name recognition, Alaska Airlines chose to maintain its own identity, and stopped using the Virgin America brand. That’s where this lawsuit comes into play.
Back in 2014, Virgin Group and Virgin America entered into a licensing agreement, whereby the airline would have to pay a minimum of $8 million in annual royalties to Virgin Group every year through 2039, for using the Virgin brand.
When Alaska Airlines stopped using the Virgin brand, the company believed it no longer had to pay those royalties, arguing it was “commercially nonsensical.” Not only was the name not being used, but Virgin America didn’t exist anymore as a company. As you’d expect, Richard Branson and Virgin Group had a different take, and believed that the royalties still had to be paid even if the name wasn’t being used.
This has been the topic of a lawsuit that has been in court for quite some time now, though a judge has finally ruled.
Why a judge ruled in favor of Virgin Group
On Thursday, Judge Christopher Hancock in London ruled in favor of Virgin Group, awarding the company a $160 million settlement (20 years worth of royalties of a minimum of $8 million annually).
As he wrote in his decision, the minimum royalty was “a flat fee payable for the right to use the Virgin brand, whether or not that right is taken up.” The judge also added that the agreement “must be approached from the perspective of Virgin and Virgin America and not from the perspective of Alaska.”
A spokesperson for Virgin Group has said that Alaska’s takeover of Virgin America included “a branding agreement lasting until 2039 with clear obligations,” and the company is “pleased the court agreed with our arguments.” Meanwhile a spokesperson for Alaska Airlines has said that the case is “without merit and we intend to appeal the decision.”
This is obviously beyond my area of expertise. I guess what I’m surprised by is that the conditions associated with these royalties weren’t made crystal clear at the time the agreement was signed. I can appreciate how Virgin Group thinks it’s owed these regardless of whether or not the name is used, since the airline was acquired. But was Alaska Airlines just practicing wishful thinking, or why didn’t the airline think it would be on the hook for these fees?
Bottom line
A judge has ruled that Alaska Airlines owes Virgin Group $160 million as part of a trademark dispute. Virgin Group argued that it was owed a minimum of $8 million in annual royalties from the Virgin America brand.
When Alaska bought Virgin America and stopped using Virgin branding, the company believed it no longer had to pay those royalties. However, Virgin Group has argued (successfully) that it was owed that minimum royalty regardless of whether the name was used.
What do you make of this lawsuit between Virgin Group and Alaska Airlines?
Let's see....Alaska purchased the Virgin America entity, assuming its liabilities and obligations...mistake number one. Nonetheless if the suit is between Virgin and Virgin America, which was purchased by Alaska, the judgement is therefore against Virgin America. Couldn't Alaska just tank (chapter 11) the Virgin America entity, which likely has no assets left anyway, and not pay? The jets are all gone, leases were run out and Alaska no longer has the Airbus jets in its...
Let's see....Alaska purchased the Virgin America entity, assuming its liabilities and obligations...mistake number one. Nonetheless if the suit is between Virgin and Virgin America, which was purchased by Alaska, the judgement is therefore against Virgin America. Couldn't Alaska just tank (chapter 11) the Virgin America entity, which likely has no assets left anyway, and not pay? The jets are all gone, leases were run out and Alaska no longer has the Airbus jets in its fleet, so what's actually left of Virgin America anyway? Provided there is no corporate parent guarantee from Alaska to Virgin America they would be in the clear, no?
I’m not following; does this news mean Virgin Group will be able to launch a new iteration of Virgin America in the US or not? Similar to how there was a second iteration of AirAsia Japan?
Something to consider here is that it looks like Alaska screwed up in several ways: They tried to chuck the agreement unilaterally, and it doesn't look like they even tried to negotiate with the Virgin Group on sorting this out (i.e. negotiating a smaller up-front payment). Whether SRB would have taken, say, $80m up front instead of $160m over 20 years is an open question (as is whether that would have been a good deal...
Something to consider here is that it looks like Alaska screwed up in several ways: They tried to chuck the agreement unilaterally, and it doesn't look like they even tried to negotiate with the Virgin Group on sorting this out (i.e. negotiating a smaller up-front payment). Whether SRB would have taken, say, $80m up front instead of $160m over 20 years is an open question (as is whether that would have been a good deal or not), though if I had to guess I suspect he was not well-disposed towards compromising. It sounds like bad lawyering on Alaska's side.
Also worth noting - they might have wriggled out if this had been a bankruptcy-related merger, but since it was an otherwise standard takeover they didn't have that to work with.
Alaska Airlines is a west Seattle focused Boeing controlled regional airline with 737s. They keep thier investors happy. They didnt buy Virgin to improve thier product, but to block othet carriers growing on the west coast. Which was folly as JB, Spirit and Frontier continue to expand in the west.
However, the math on pilots dictates that they must acquire or merge to grow. As in real growth, not just adding seats. With the Beast...
Alaska Airlines is a west Seattle focused Boeing controlled regional airline with 737s. They keep thier investors happy. They didnt buy Virgin to improve thier product, but to block othet carriers growing on the west coast. Which was folly as JB, Spirit and Frontier continue to expand in the west.
However, the math on pilots dictates that they must acquire or merge to grow. As in real growth, not just adding seats. With the Beast of Delta growing in Seattle, Alaska will have to do something.
Companies that buy a business typically own the name also. Virgin is uk based, judge is uk based, budging brand continues in uk, outside this deal.
Alaska May have planned on using Virgin brand name temp while they merge business, it is the acquiring company, no reason to continue using Virgin. Genuine intent.
Why would Alaska loose their brand if they are acquiring? .it makes no sense.
Also, Typically with branding advertisement companies...
Companies that buy a business typically own the name also. Virgin is uk based, judge is uk based, budging brand continues in uk, outside this deal.
Alaska May have planned on using Virgin brand name temp while they merge business, it is the acquiring company, no reason to continue using Virgin. Genuine intent.
Why would Alaska loose their brand if they are acquiring? .it makes no sense.
Also, Typically with branding advertisement companies pay per use- like bill board or products. Like if I have Disney brand use agreement say for shoes- I only pay per x amount of shoes, not all other shoes I sell without Disney logo. So Alaska in similar way should have choice to pay per use, during the period. No use, no benefit, No pay.
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Tim Dunn Diamond
February 18, 2023, 8:31 am
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OCTinPHL Diamond
February 18, 2023, 10:13 am
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Tim Dunn Diamond
February 18, 2023, 12:14 pm
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OCTinPHL Diamond
February 18, 2023, 1:28 pm
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GLCTraveler Gold
February 20, 2023, 12:24 pm
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4 more repliesAlaska believed its own brand had more equity nationwide. Whether going with the Alaska brand over Virgin America had an impact on AS' inability to penetrate the transcon markets is not entirely clear but they clearly had a product disadvantage which they could not overcome.
Virgin group did not want to regain use of the Virgin brand for a US based airline. They wanted Alaska to pay for what Alaska committed to paying for...
Alaska believed its own brand had more equity nationwide. Whether going with the Alaska brand over Virgin America had an impact on AS' inability to penetrate the transcon markets is not entirely clear but they clearly had a product disadvantage which they could not overcome.
Virgin group did not want to regain use of the Virgin brand for a US based airline. They wanted Alaska to pay for what Alaska committed to paying for - whether AS used the Virgin brand or not.
The case is closed. the costs of the Alaska acquisition of Virgin America continue to grow while the benefits from it shrink.
This is not “branding advertisement.” This was a trademark license. A contract. You have no idea what you are talking about.
I'm not arguing in a court room but on social media.
Alaska does not want to use the brand and has to keep its obligation. Virgin Group does not want the name back for US use. It wants the money that Alaska is supposed to pay.
I understand completely what is at stake.
@Tim Dunn - who are you responding to? I was not responding to you. My “branding advertisement” should have clued in you that I was responding to the OP.
Precisely...... @ Timm Dunn know not what he speaks, typically!
Readers continue to comment that this was a blunder on Alaska's part. It is possible that Alaska's management knew all along that the royalty payments were non-contingent and decided to play the lottery. If you win, you've saved $160M. If you lose, in the absence of punitive damages, you're only paying what you already owed (plus legal fees). Call it what you will but that sort of gambit plays out all of the time.
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Eskimo Guest
February 18, 2023, 7:11 am
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Nevsky Gold
February 18, 2023, 5:31 pm
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1 more replyYou give airlines too much credit.
If the management thinking is that sophisticated they wouldn't run into bankruptcies, bailout money, or government loan.
Wait or was that the plan all along, and tax payers are just the victim of airlines running a gambit.
Agree completely. Good analysis.
It is hard to believe Alaska was so stupid that they didn't know that this would be the result. I mean, this is first year law school stuff. So either they have been bluffing this whole time just trying to postpone for some reason, or they have the worst legal team in the world. But considering the penalties that come with the court process, having to pay Virgin's legal fees, etc. it is just hard to imagine this being a very financially sound path.
Time to sublicense the "Virgin America" mark to a regional waste management company out of spite.
Wow, a valid contract is legally enforceable. What is the world coming to?
One question. Does this 'victory' for Virgin now mean that they are restricted until 2039 of starting a new Virgin America brand? That was rumored that they'd start up another version of it after the Alaska sale closed
I disagree that this was a legal mistake. It was a mistake on branding and service levels. Alaska continues to sink to be a common denominator airline. Not gross yet but with warts. Alaska management has hypothermia in their marketing and product strategy. I do not own the stock.
A judge in London has jurisdiction over the merger of two US-based businesses? OK, I guess...
I still don't understand Branson's strange obsession with virginity.
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OCTinPHL Diamond
February 17, 2023, 4:26 pm
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Kelley P Diamond
February 17, 2023, 5:16 pm
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Joe Guest
February 18, 2023, 2:03 am
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Grey Diamond
February 18, 2023, 2:43 am
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3 more repliesNo, Virgin Atlantic (a UK company) sued Alaska for breach of contract in the UK. The trademark license at issue was between Virgin Atlantic and Virgin America. The trademark license almost certainly specified UK law and jurisdiction.
I also wondered about the jurisdiction issue.
Since Virgin Group is based in the UK, I’d assume that somewhere in the agreement it states that they agreesnto be bound by English laws and hence all disputes will be tried in English courts
First off, it is not jurisdiction over the merger.
Secondly, it is not about an agreement between two US-based businesses. It is about an agreement between Virgin America (now Alaska) and Virgin Group.
Thirdly, most contracts will determine jurisdiction, and they can generally choose any jurisdiction they like. England and Wales is a very popular jurisdiction for contracts that have nothing to do with any British company.
This is clearly a blunder on Alaska's end. The agreement doesn't say "unless the name is not used" it states pay for the brand, minimum of $8 million a year until 2039. This language is clear. This amount should have been factored in as a debt/liability when the purchase was drafted.
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Matt Guest
February 17, 2023, 6:00 pm
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GLCTraveler Gold
February 20, 2023, 12:42 pm
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1 more replyI agree, you'd have thought that Alaska would have, during the M&A period, negotiated with Virgin to buy out of the agreement rather than assuming it would just go away. Some lawyer totally missed this part of the deal... If Alaska has to pay until 2039 then it seems like Alaska should get creative now and paint the word Virgin on some of their worst planes in the fleet, find some way to use the Virgin name now that they're buying it
Yep..... E&O Claim against Alaska's M&A lawyer!!
Ben, everywhere you wrote "believed" you should have written "says it believed". One plausible view is that Alaska knew one thing and said another, hoping the point would be moot, or they could settle cheaply, or someother strategy. Saying what they "believed" seems a stretch
In a conventional merger, the surviving entity assumes the assets and liabilities of the non-surviving entity. So, the question becomes whether the liability (royalty payment) was conditional or non-conditional on the non-surviving entity's use of the trademark. That is, what would have happened if Virgin American did not merge, remained an independent company, and discontinued use of the trademark . . . used a different name?
In assessing the intent of the parties with respect...
In a conventional merger, the surviving entity assumes the assets and liabilities of the non-surviving entity. So, the question becomes whether the liability (royalty payment) was conditional or non-conditional on the non-surviving entity's use of the trademark. That is, what would have happened if Virgin American did not merge, remained an independent company, and discontinued use of the trademark . . . used a different name?
In assessing the intent of the parties with respect to the conditional or non-conditional nature of the royalty payments, the court would look to Virgin Group and Virgin America - not Alaska.
Separately, the court would have likely found that Alaska was represented by competent legal counsel and had a fair and reasonable opportunity to discover the conditional or non-conditional nature of the royalty payments during due diligence.
While we don't know, IF Alaska's legal counsel failed to investigate the issue, there's an E&O claim. IF Alaska's legal counsel did investigate the issue and informed Alaska, then tough (poop) for Alaska - it was playing the lottery.
(OCTinPHL, ignore the troll. He's not here for sincere discussion.)
I really wish that Virgin America had either never sold or that they’d sold to JetBlue instead. As an SFO based traveler, it really feels like Alaska Airlines squandered an opportunity. Their premium product is non-competitive. It also feels like their flights offerings have shrunk instead of continuing to grow.
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Never In Doubt Guest
February 17, 2023, 12:41 pm
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MuscleDaddyRWC Guest
February 17, 2023, 2:02 pm
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SeattleR Guest
February 17, 2023, 10:14 pm
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2 more repliesDefinitely shrunk to IAD/DCA.
I was able to completely avoid United with Virgin America, but Alaska now offers fewer flights from SFO into the DC market than VA did.
100% agree. My travel on VA to Boston and Miami had shifted to American because Alaska just doesn't take care of the markets and longer.
Alaska is a stuffy old product. They should have adopted the in-seat f&b ordering, the cool lighting, etc that Virgin used to upgrade flying.
VX lost money the 9 of 10 years it existed. Why would any competent buyer keep that going?
Alaska Air is always my last choice when I on occasion fly. Not surprised by this outcome.
Your travel preferences are related to the outcome of the lawsuit?
Do you have any other magical properties?
Add to that is that Alaska made a massive mistake in not retaining and using the Virgin America brand. Been saying this for years that Alaska has, regardless of its west coast fans, a huge issue in the rest of the country with those less familiar with airlines and brands. Alaska is not very recognized with casual travelers in places like Oklahoma and Iowa and these people just wonder why they would fly an airline...
Add to that is that Alaska made a massive mistake in not retaining and using the Virgin America brand. Been saying this for years that Alaska has, regardless of its west coast fans, a huge issue in the rest of the country with those less familiar with airlines and brands. Alaska is not very recognized with casual travelers in places like Oklahoma and Iowa and these people just wonder why they would fly an airline from Alaska.
Of course, the best thing would have been that we finally would have seen the removal of Bob Marley from the tail.
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YinDaoYan Diamond
February 17, 2023, 10:18 am
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Ben Holz Guest
February 17, 2023, 11:09 am
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Darren Guest
February 17, 2023, 2:52 pm
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Stuart Guest
February 17, 2023, 3:51 pm
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Evan F. Guest
February 19, 2023, 1:26 pm
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4 more repliesCasual travelers in Oklahoma and Iowa are uneducated nutcases who don’t even have money to afford travel.
YinDaoYan = Credit 2.0
Ahem . That “Bob Marley” is special to Alaskans. https://www.seattlepi.com/business/article/Alaska-Airlines-inuit-logo-plane-who-13161883.php
Do us a favor - Educate yourself Before you speak .
It was a joke. And one that everyone in Seattle tells that I know there. Grow up and stop assuming the worst in people.
Try again .
@Ben - I am an IP attorney, and this is a huge blunder by Alaska's M&A counsel. Who knows if its counsel reviewed this agreement (it should have). And shrewd drafting by Virgin's UK counsel when drafting the TM license. Virgin America presumably had its own counsel look at the agreement before agreeing to it. Perhaps Virgin America did not care or did not realize what the terms meant; or knew, but did nothing because...
@Ben - I am an IP attorney, and this is a huge blunder by Alaska's M&A counsel. Who knows if its counsel reviewed this agreement (it should have). And shrewd drafting by Virgin's UK counsel when drafting the TM license. Virgin America presumably had its own counsel look at the agreement before agreeing to it. Perhaps Virgin America did not care or did not realize what the terms meant; or knew, but did nothing because it was pressured by Branson? (Perhaps Alaska argued that at trial, I don't know.)
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Scudder Diamond
February 17, 2023, 11:00 am
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OCTinPHL Diamond
February 17, 2023, 11:20 am
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Super Diamond
February 17, 2023, 11:57 am
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Matt Guest
February 17, 2023, 6:07 pm
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3 more repliesOCTinPHL - Shouldn't the buyer, Alaska, not only have freed themselves of this obligation in the agreement but also included a restriction on the use of the name in the US for a certain time period (even thy they stopped using it)?
@Scudder - if its counsel did its job, yes. Perhaps it asked and was told No, and thought Virgin would cave. Who knows. but bad lawyering on the deal. Or, as I said in another comment, maybe Alaska ignored its counsel.
Having considerable experience in M&A, I can tell you with almost 100% certainty that relevant parties did raise these issues, but management just decided to f*ck around and find out because they think they're untouchable.
It's just very confusing that Alaska didn't initiate buyout negotiations as part of the M&A. Showing no intent to continue using the Virgin brand, shoot, even throw a line in a visit agreement to pay now than $8M plus a penalty if they actually do use the brand after.
As I said in the original post, VS would win this lawsuit 100%
As to why AS and others do this?. That's $8 million per year earning interest, and other business-related write-downs and (I'm guessing insurance corporate shtick).
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YinDaoYan Diamond
February 17, 2023, 9:40 am
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OCTinPHL Diamond
February 17, 2023, 9:43 am
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Never In Doubt Guest
February 17, 2023, 10:58 am
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2 more repliesVS will lose on appeal.
Doubt it. What makes you say that? What is the reversible error?
@ YinDaoYan, Now you're an amateur lawyer in the OMAAT comments! You truly are multi-talented!
This is the kind of lawsuit that makes lawyers looked down upon. Two wealthy entities tying up resources in society for such a petty, inconsequential matter.
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OCTinPHL Diamond
February 17, 2023, 9:45 am
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Kelley P Diamond
February 17, 2023, 5:21 pm
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1 more replyOr Alaska screwed up. Don't blame lawyers. It could be their fault, but not necessarily - we don't know. Perhaps Alaska's M&A counsel warned Alaska about this, and Alaska went ahead with the deal anyway.
$160 million big ones is not exactly inconsequential.....
I'll take "Multi-Billion Dollar Mistakes" for $500, Ken.
Blunder of a merger. THey had an opportunity to be a real player in the transcon market. The Virgin America brand had real brand equity. Squandered.
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YinDaoYan Diamond
February 17, 2023, 9:32 am
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Jordan Diamond
February 17, 2023, 9:42 am
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Tim Dunn Diamond
February 17, 2023, 10:22 am
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OCTinPHL Diamond
February 17, 2023, 9:47 am
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Tim Dunn Diamond
February 17, 2023, 10:47 am
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SamB Diamond
February 17, 2023, 10:12 am
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5 more repliesThe transcon market isn’t lucrative and Virgin had a substantially worse product without flat beds.
Most people consider LAX and SFO to NYC to be the only transcon that matters, and those routes are VERY lucrative. You would not believe the money and profit AA makes on their A321T's, and this will only increase with the new config coming.
There are other small pockets of big money routes transcon for sure. SNA-JFK. LAX-ATL must pull down decent yields?
any airline's routes to LAX from its hubs are its strongest. ATL-LAX just happens to be Delta's largest revenue hub route other than ATL-LGA.
As for JFK-LAX, it is doubtful that AA makes near as much money as people think they do. AA gets a fare premium but they also have a unit cost premium.
AA has just 2/3 of the seats on its A321Ts than B6 has on its A321 Mint aircraft...
any airline's routes to LAX from its hubs are its strongest. ATL-LAX just happens to be Delta's largest revenue hub route other than ATL-LGA.
As for JFK-LAX, it is doubtful that AA makes near as much money as people think they do. AA gets a fare premium but they also have a unit cost premium.
AA has just 2/3 of the seats on its A321Ts than B6 has on its A321 Mint aircraft and AA does not get a proportionately large fare premium to make up for that precisely because B6 came in with the Mint product which undercuts AA's premium cabin pricing.
AA also has half of the seats that DL has on its 767-300ERs which fly transcons and DL carries millions of pounds of mail and cargo per month.
In reality, AA probably is the LEAST profitable on the JFK-LAX route and the fact that they have indicated that the A321T strategy will go away to be replaced by a new configuration that will be used for transcon and international flights seems to validate that.
And Alaska's transcon product now is competitive? Are you a troll?
Not sure who you are addressing but no Alaska does not have a transcon product and its average fares and service reductions prove it. B6 and DL have found the middle ground that neither AS and AA do not have
While airlines do not provide profitability by route the chances are that Delta gets the highest profits on transcons from JFK while United dies from Newark
I wish they had kept Virgin's first class seats on some routes or even upgraded them to flatbeds. VX was 55" vs the AS's current 41" maximum . It's woefully uncompetitive compared to what B6 and the legacies offer on a lot of transcons.
Alaska should have kept the Virgin brand
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YinDaoYan Diamond
February 17, 2023, 9:34 am
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jedipenguin Guest
February 17, 2023, 10:26 am
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DenB Diamond
February 17, 2023, 12:33 pm
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Ben Guest
February 17, 2023, 2:43 pm
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3 more repliesThere’s a social stigma in the US against being a virgin in the sense of intimate experiences. I’m relieved Alaska did away with the brand.
And Alaska has better name recognition nationally? Lay off the Alaska kool aid.
In other words, Americans are such prudes they wouldn't enjoy the name. Some names don't travel well. Like when Burger King introduced the Whopper in England. "whopper" has only one meaning in British English: very large male member. Or Fiat, whose most popular car in the 1970s was the 124. Their Hong Kong launch was a flop. In Chinese numerological superstition 124 means "Road to death". Can't blame Alaska for dumping the name in USA....
In other words, Americans are such prudes they wouldn't enjoy the name. Some names don't travel well. Like when Burger King introduced the Whopper in England. "whopper" has only one meaning in British English: very large male member. Or Fiat, whose most popular car in the 1970s was the 124. Their Hong Kong launch was a flop. In Chinese numerological superstition 124 means "Road to death". Can't blame Alaska for dumping the name in USA. I think they expected this suit and hoped they'd win, if not initially, on appeal.
I'm not sure I'm convinced by this argument the Virgin name is a liability in the US. Virgin America was successful using it, Virgin Atlantic's main market is the US and Virgin Voyages and Virgin Hotels are opening up. I think Alaska had to pick a name and they went for their own. I do agree some names don't travel well. Although Whoppers are plentiful in the UK so it can't have bene that much of an issue for BK. Maybe it even helped!