Why CrossFit Is Suing Reebok After an 8-Year Partnership

It started out so well.

Eight years into its 10-year partnership with Reebok, CrossFit Inc. is taking its brand partner to court.

The popular fitness training program on Thursday filed suit against Reebok alleging breach of contract and breach of covenant of good faith after it said the brand made a “unilateral change” in how it calculates CrossFit’s royalties.

In documents filed in U.S. District Court for Northern District of California, CrossFit claims that when it entered into a licensing agreement with Reebok in 2010, the company agreed to pay it royalties on the net sales of its branded merchandise. (As part of the agreement, Reebok had the exclusive license to sell fitness apparel and footwear products bearing the CrossFit trademark.  No one other than Reebok — including CrossFit itself — could produce clothes or shoes bearing the trademark.)

“In 2013, Reebok secretly reneged on the terms of the agreement,” the lawsuit stated. “Specifically, without ever advising CrossFit, Reebok unilaterally began calculating royalties based on a fictional ‘wholesale equivalent price’ … a dramatic departure from the net sales calculation Reebok and CrossFit negotiated (and which Reebok had been using for two years).”

CrossFit said this method of alleged underpayment continued through 2016 until an audit of Reebok’s financial records by CrossFit compelled the brand to make changes.

“For the first three quarters of 2017 — and for the first time since 2012 — Reebok paid royalties in accordance with the [initial] agreement,” CrossFit said in a statement. “Yet by the end of 2017, Reebok reverted to its previous royalty calculation scheme, and to date, Reebok has never paid CrossFit for any portion of its admitted ‘payment shortfall.’”

In total, CrossFit alleges it was underpaid at least $4.8 million in royalties.

Among its other claims in the suit, CrossFit said that between 2011 and 2017, Reebok was required to spend $51.75 million on marketing the cross-branded products but failed to do so. CrossFit also accused Reebok of trying to avoid paying higher royalties on sales transacted on Store.crossfit.com by undermarketing the site and funneling customers to Reebok.com, where it paid lower royalties on Crossfit sales.

In an emailed statement to FN today, Reebok denied CrossFit’s claims.

“The allegations set forth in CrossFit’s complaint have no merit,” the company said. “We are disappointed that CrossFit chose to escalate a disagreement between longtime partners in an unreasonable manner that damages Reebok’s reputation. We will respond through the appropriate legal channels, and we expect a favorable outcome. In the meantime, Reebok will continue to fully support the community of coaches, athletes, boxes and members who inspire us every day with their passion, energy and camaraderie.”

Last week’s filing isn’t the first time CrossFit has gone after its brand partner. In 2015, its founder, Greg Glassman, suggested he wasn’t pleased with how Reebok owner Adidas ran the brand.

“I’d like to see Reebok sold,” said Glassman during an interview on CBS’ “60 Minutes.”“[I’d like to see them sold] to someone young, fresh, excited and willing to enter into the modern era of things.”

In a press release regarding Thursday’s lawsuit, CrossFit also took credit for aiding Reebok’s revival.

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