CHICAGO (CN) - Playboy wrongfully severed a licensing agreement with the company that makes and sells the Playboy Energy Drink and tried to cut it out of the distribution network, Play Beverages and its distributor claim in court.
Play Beverages and CirTran Beverage Corp. sued Playboy Enterprises International, brokers United Licensing Group and RLC Partners, and distributor Redi FZE in Cook County Court. They also sued individual broker Jimmy Esebag, RLC principal Ron Coopersmith and Redi FZE principal Paul Levin.
In 2006, Playboy allegedly granted Play Beverages (referred to as "PlayBev" in the complaint) the right to manufacture and sell the Playboy Energy Drink. A year later, Play Beverages struck a distribution deal with CirTran.
"During the last four years, PlayBev and CirTran have successfully grown the network to a point where they have launched the product into more than 30 countries and have obtained distributors for more than 80 countries," the lawsuit states. "Last year, PlayBev and CirTran sold more than a half million cases of the Playboy Energy Drink worldwide."
The companies say Playboy knew that some of the distribution agreements extended beyond the initial five-year license term, and that Playboy "represented to prospective distributors that PlayBev's license was in good standing."
"Despite its best efforts," Play Beverages acknowledges it failed to meet the minimum net sales required by its licensing agreement. It claims PlayBoy knew this, but chose not to declare it in default "because Playboy appreciated that PlayBev had made significant progress in developing the market for the Playboy Energy Drink."
It claims Playboy's vice president of global licensing represented that minimum net sales "would never be an issue from Playboy's perspective as long as PlayBev continued to develop its territory and expand its distribution network."
But when a new management team took over at Playboy last spring, Playboy almost immediately began searching for a replacement licensee, the beverage companies claim.
"Playboy began working with Mr. Jimmy Esebag and Mr. Ron Coopersmith during the spring of 2011 in order to cut PlayBev out of the energy drink distribution network," according to the lawsuit.
"Playboy did not disclose to PlayBev that it had entered into negotiations with alternative licensees, and did not disclose to PlayBev that its brokers were attempting to secure an alternative licensee. To the contrary, Playboy actually encouraged PlayBev to invest additional funds and resources into its distribution network in order to better position itself for the next license renewal period," the complaint states.
"Playboy was simultaneously asking PlayBev to make an additional royalty payment of approximately $1.8 million, even though Playboy planned to declare PlayBev in default once one of Mr. Esebag's alternative licensee placed its sufficient funds into escrow to demonstrate its commitment to the proposed deal."
Playboy started negotiating with Redi FZE while Play Beverages was still under contract, despite the contract's non-circumvention provisions and against the advice of Redi FZE's counsel, Play Beverages claims.
"Playboy also began working closely with Redi FZE, in order to assist that distributor in breaching its distribution contract," the complaint states.
On July 14, Playboy allegedly notified distributors that it Play Beverages had defaulted on its licensing agreement, and that Playboy was in the process of terminating it.
"Playboy's communication was unsolicited and intended to disrupt the distributor network by creating unnecessary concern and uncertainty among the distributors," Play Beverages claims.
The plaintiffs seek an injunction barring Playboy from terminating the license agreement, and unspecified damages for breach of contract, breach of good faith, tortious interference and promissory estoppel.
They are represented by Michael Conway with Grippo & Elden in Chicago.