CrossFit Sues Reebok for $4.8 Million in Allegedly Unpaid Royalties

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(Photo by Oleg Nikishin / Stringer / Getty Images.) CrossFit and Reebok enetered into a license agreement in 2010 that granted Reebok a 10-year license to sell CrossFit apparel as the exclusive licensee of CrossFit. In exchange, Reebok agreed to pay CrossFit royalties on its CrossFit-related net sales.

CrossFit Inc., Washington, DC, is suing its longtime partner Reebok International Ltd., Boston, over allegedly dishonest business practices and breach of contract, including depriving CrossFit of nearly $5 million in owed royalties.

A June 14 complaint filed in the U.S. District Court for the Northern District of California alleges that, over the course of the companies' eight-year partnership, Reebok has failed to pay CrossFit at least $4.8 million in royalties, in addition to failing to meet marketing commitments and funneling potential customers away from CrossFit's online store.

The complaint states: "All told, Reebok's deceptive and dishonest conduct has robbed CrossFit of the benefit of its bargain to the tune of at least $4.8 million in royalties and has tarnished what was once a golden opportunity for Reebok to revive its image and establish a long-term parntership with the highly valued CrossFit brand."

CrossFit and Reebok entered into a partnership in 2010 that granted Reebok a 10-year license to sell CrossFit apparel as the exclusive licensee of CrossFit. In exchange, Reebok agreed to pay CrossFit royalties on its CrossFit-related net sales, according to the complaint. This included a 10 percent royalty rate on products sold in the open category, lifestyle category, CrossFit Games apparel category as well as the performance category through the official CrossFit online store. CrossFit was also to earn a 5 percent royalty payment on Reebok products sold via a click-through from the CrossFit online store.

The partnership soured in 2013 when CrossFit claims Reebok began calculating royalty payments on a "wholesale equivalent price" instead of the previously agreed upon amounts. This allegedly decreased royalties owed by as much as 50 percent. This practice continued through 2016, prompting CrossFit to issue an audit.

Between 2011 and 2017, Reebok was required to spend $51.75 on marketing CrossFit-branded products and the CrossFit Games, which CrossFit claims Reebok failed to do.

CrossFit also alleges Reebok has failed to keep complete accounting records of its CrossFit-related sales.

"The allegations set forth in CrossFit’s complaint have no merit," a Reebok spokesperson recently told Forbes. "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."

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