After two years of arbitration and lawsuits, The United States District Court of Minnesota has ruled in favor of Cabelas regarding a Trademark License Agreement between Gander Mountain and Cabelas. The agreement effectively prevents Gander Mountain from using many of its trademarks, including the Gander Mountain name and logo, in any direct marketing business.
The agreement dates back to 1996, when Gander Mountain was on the verge of bankruptcy and sold its catalog and direct marketing business to Cabelas for $35 million. Cabelas paid $20 million for Ganders inventory, $7.5 million for Ganders customer list, and $7.5 million was paid in consideration for two separate agreements. First was a seven-year non-compete agreement and second, a Trademark License Agreement.
According to Cabelas, Gander tried to sell its entire business, but Cabelas was only interested in the direct marketing catalog aspect. The seven-year non-compete clause expired in June of 2003, and Gander began selling merchandise on Gandermountain.com. This is when Cabelas tried to enforce the second Trademark License Agreement.
According to court documents filed by Cabelas, “Even after the non-compete term expires, if Gander Mountain takes active steps to reenter the Direct Marketing Business Gander Mountain has the affirmative obligation to notify Cabelas of the same in writing and, in that event, Cabelas has the right to purchase a perpetual, exclusive license to certain Gander Mountain trademarks ” As laid out in the original purchase agreement for Gander Mountains Direct Marketing assets, the purchase price for these trademarks was set at $1,000.
Gander was fighting to have this clause thrown out of the original agreement. The company attempted to make the argument that the Trademark Licensing Agreement was “an unreasonable and unenforceable perpetual extension” of the seven-year non-compete clause. Under Wisconsin law, “If a covenant not to compete is unreasonable, it is unenforceable.”
Cabelas countered this argument by showing that Gander Mountain is free to compete through direct marketing, simply not under the Gander Mountain name and without the Gander Mountain logo. Court Documents filed by Cabelas and obtained by BOSS/SEW stated, “Nothing in the Contingent Trademark License Provision prevents Gander Mountain from competing with Cabelas in the Direct Marketing Business. The only restriction on Gander Mountain is that it cannot use the Trademarks in the Direct Marketing Business because it bargained away those rights.”
The U.S. District Judge presiding over the case, Richard H. Kyle, agreed with Cabelas argument, stating, “Even if the restrictions in the agreement prevent Gander Mountain from competing as effectively as it otherwise might, the agreement does not prevent competition altogether To the extent that Gander Mountain is wounded by the enforcement of the Contingent Trademark License, its wounds are self inflicted.”