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Contracts fail to keep businesses fully informed of their duties

On Behalf of | Jun 28, 2018 | Contracts

The courts in Oregon are kept busy with a wide variety of contract disputes between business entities. One type of dispute involving contracts is over royalty payments. Generally, when one business provides a product for promotion and sale to another company, the first business is entitled to a royalty on the sales of those products by the second business.

In a recent lawsuit filing, CrossFit, Inc. sued Reebok International Ltd. over what it claims to be some $4.8 million in royalty payments that Reebok owed but did not pay. Such shortfalls can occur in business transactions because in many instances, the company supplying the product or services must rely on the retailing entity to give an accurate accounting of what was sold and what has become due in royalties. The two companies had various sales channels, including online websites, through which the products were marketed and sold.

Their agreement required Reebok to begin investing in the project, starting at $4 million and going up to the top amount by $12.4 million in 2020. CrossFit claims in its lawsuit, which was filed in a federal court in the Northern District of California, that Reebok began changing the royalty formula in 2013 to its own benefit. This practice is alleged to have continued through 2016.

The disputes over their business contracts continued in 2016, when CrossFit began auditing Reebok’s royalty reports, through Reebok’s records and books. CrossFit alleges that Reebok eventually admitted to at least a $1.65 million shortfall, but it failed to reimburse CrossFit accordingly. The company accuses Reebok in the complaint of deceptive and dishonest conduct. The trading of allegations at this early stage does not indicate which party has a stronger case or a better prospect for winning the breach of contract lawsuit. This type of conflict is generally litigated regularly in the courts of Oregon.