CoolBrands International, Inc. has filed a lawsuit against Weight Watchers International, Inc. and Well’s Dairy, seeking $360 million in damages over an alleged breach of a licensing agreement.
The lawsuit, filed Aug. 11 in New York Supreme Court in Nassau County, comes exactly one week after Weight Watchers filed a complaint against CoolBrands alleging “anticipatory” breach of the licensing deal.
The agreement allows CoolBrands to use the Weight Watchers Smart One trademark in manufacturing and selling frozen desserts until Sept. 28, 2004. Coolbrands, the maker of Eskimo Pies, said the deal includes the right to continue to use the trademark to sell out inventory through Sept. 28, 2005.
In its complaint, filed Aug. 4 in New York State court, Weight Watchers said that the two companies could not come to agreement for a deal to renew the licensing agreement. The complaint alleged that CoolBrands planned to stockpile Smart One inventories to extend the contract, Michael Serruya, the co-chairman of CoolBrands, said yesterday.
Serruya said the complaint was “frivolous” and “unfounded” and vowed to fight it out in court.
In a statement, Weight Watchers confirmed its agreement with CoolBrands through September 2004 and said CoolBrands had a limited right to sell off remaining inventory until it was depleted, standard practice in such licensing agreements. It also said CoolBrands lawsuit was without merit and plans to vigorously contest the matter.
The CoolBrands lawsuit alleges that Weight Watchers unlawfully entered into a licensing agreement with Well’s Dairy in July, violating an agreement that it would not enter into future licensing agreements for its Weight Watchers trademark on frozen novelties and ice cream until the CoolBrands deal expired this September.
“It’s very clear to us that they breached the contract,” Serruya said.
Weight Watchers and Well’s Dairy jointly announced the new licensing deal July 28, which gives Wells’ Dairy the right to be the exclusive marketer, producer and distributor of an extensive line of frozen desserts under the Weight Watchers’ brand. The deal takes effect Oct. 1, 2004.
Weight Watchers said it had “properly entered into the agreement with Well’s Dairy.”
On news that the Weight Watchers deal was ending, CoolBrands stock plunged 29% last Thursday, after the company said the loss of the deal would cut earnings and revenues. The licensing deal is expected to account for about 16% of CoolBrands revenues and a third of its earnings this year, Serruya said.
Woodbury, NY-based Weight Watchers stock also took a hit yesterday following news of the CoolBrands lawsuit, dropping more than 5%.
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