All’s well that ends well.
Reebok International Ltd. and CrossFit Inc. have reached a settlement in their legal dispute over a licensing agreement the pair made in 2010.
Eight years into the 10-year partnership, CrossFit in June 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.
“Every partnership confronts challenges from time to time. Great partnerships learn from them, overcome them and become stronger in the resolution of them,” said CrossFit CEO Jeff Cain in a statement issued this week. “Our shared resolution is a victory for CrossFit trainers, affiliates and athletes.”
In its suit, the popular fitness-training program had alleged it was owed at least $4.8 million by Boston-based Reebok, which is owned by Adidas AG. While the details of the settlement, announced Tuesday, remain confidential, it does include a payment to CrossFit for disputed royalties.
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“We look forward to our continued collaboration with CrossFit,” said Reebok president Matt O’Toole in Tuesday’s joint statement. “Our brands are stronger together in the resolution of this dispute, which means great things on the horizon for the CrossFit community.”
In 2010, CrossFit and Reebok entered into the licensing and sponsorship deal, which makes Reebok the title sponsor of the CrossFit Games and gives Reebok a license to sell fitness apparel and footwear products bearing the CrossFit trademark. Part of the deal, CrossFit said, included a promise by Reebok to pay royalties on the net sales of the branded merchandise.
In its June lawsuit, CrossFit had claimed that in 2013 “Reebok secretly reneged on the terms of the agreement.”
“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 stated in the suit.
CrossFit said that this method of alleged underpayment continued through 2016, until an audit of Reebok’s financial records by CrossFit compelled the brand to make changes.
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 under-marketing the site and funneling customers to Reebok.com, where it paid lower royalties on CrossFit sales.
Reebok had denied CrossFit’s claims.
“The allegations set forth in CrossFit’s complaint have no merit,” the athletic company said in June. “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.”
Based in Scotts Valley, Calif., CrossFit has more than 15,000 affiliate gyms across the U.S.
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