Written by Lisa Navarro and Stephen C. Tupper

On 1 December 2012 the Court of Appeal (“CA“) upheld the High Court’s decision in the dispute between Wayne Rooney and his former management company, Proactive Sports Management Limited (“Proactive“). The case centred around whether or not the image rights agreement (the “Agreement“) that Wayne Rooney entered into with Proactive when he was 17 was unenforceable by reason of it being in restraint of trade. The High Court and the CA agreed that it was.

The Agreement appointed Proactive as Rooney’s sole and exclusive representative with regard to the exploitation of Rooney’s image rights. It was entered into in 2003 for a term of eight years and entitled Proactive to a 20% commission on all relevant contracts and arrangements negotiated by Proactive. As noted above, Rooney was only 17 at the time and did not take legal advice when signing up to the Agreement.

Following a breakdown in the relationship between Rooney and Proactive, Rooney began to use Triple S to manage his image rights, eventually purporting to terminate the Proactive contract in December 2009. Proactive sued Rooney, claiming arrears in commission and breach of contract. Rooney’s defence was that the Agreement constituted an unreasonable restraint of trade so was, therefore, unenforceable.

It is worth noting at this point that Proactive did not come out of this encounter empty-handed. The CA concluded that Proactive was entitled to post-term commission for contracts negotiated prior to the termination of the Agreement as, based on the wording of the Agreement, the right to commission was triggered by the making of a contract, not the continued provision of services under the Agreement.

Proactive, however, lost on all other substantive points in the case, most significantly in relation to restraint of trade. The restraint of trade doctrine is, in essence, a common law tool which can be asserted in cases where restrictions contained in contracts are deemed unenforceable for reasons of public policy. It is supported by a long established body of case law which provides that any restriction on an person or organisation’s freedom to carry on their trade or business in the way they see fit should only be enforceable to the extent that it is reasonable in the context of the interests of the parties to the agreement and the general public interest.

The High Court held that the Agreement was in restraint of trade as it substantially restricted Rooney’s ability to exploit his earning ability for a long period. The terms of the Agreement were not commonplace in the market, and it was not the outcome of commercial negotiation between equals, taking into account Rooney’s age at the time and the absence of independent legal advice. Proactive challenged this on three main grounds: the restriction related to commercialising image rights, which is an ancillary activity to Rooney’s principal trade as a footballer; the Agreement did not restrict Rooney’s earning potential but facilitated it instead; and the Agreement could not be considered either unfair or oppressive.

Proactive lost on each of these grounds of appeal. Importantly for all sports stars, or other celebrities, that earn additional income from exploiting their image rights alongside their main occupation, the CA confirmed that even though commercialisation of image rights is an ancillary activity, it is just as capable and deserving of protection under the restraint of trade doctrine as any other aspect of an occupation or trade. There is public interest in ensuring that people can reach their full potential, and when this takes the form of endorsement of goods, this has a positive effect on consumption levels which is generally good for the wider economy.

With regard to the issue of restricting or facilitating the ability to earn, the CA confirmed that an agreement such as this can be both things at once. Its purpose is to exploit image rights and generate wealth, but if in doing so it limits the subject’s ability to exploit those rights to their fullest potential, then it can, ultimately, have a “sterilising” effect.

Finally, the inequality of bargaining power, as demonstrated by Rooney’s failure to obtain legal advice, meant that, on the facts, this Agreement could be considered unfair and oppressive, even though all parties undoubtedly benefited to some degree from the arrangement.

On the one hand, whilst this decision explains how restraint of trade applies to image rights, this does not necessarily constitute a development of the law, merely a clarification, which arguably benefits only a relatively small percentage of the population that have image rights capable of exploitation. It is, however, a welcome reminder of the role that the restraint of trade doctrine continues to play with regard to regulation of economic activities in the UK.

The introduction of the Competition Act 1998 (“CA ’98“) in 2000 established a new set of standards for dealing with restrictive practices in the UK. Long term exclusive service arrangements, such as the Agreement between Rooney and Proactive, are, in some ways, a classic example of the kind of conduct that the CA ’98 deliberately set out to regulate. Indeed, under the CA ’98, the general rule is that agreements which oblige an economic entity (either a company or, in certain cases, an individual) to obtain all of their needs for a particular service from the same provider for a period in excess of five years are potentially anti-competitive and unenforceable. The only thing that would stop that analysis being applied to this Agreement is that it is unlikely to be considered to have a sufficient impact on any economic market to justify prohibition under the CA ’98. In such cases, therefore, the ability of entities, including individuals, to challenge unfair trading restrictions using common law, remains an important weapon.

There have been some judicial pronouncements that have suggested that the coming into force of the CA ’98 and other EU competition law reforms spelt the end for restraint of trade. Indeed, some have said that retention of a system of what are, in effect, competition rules to govern what EU competition law is meant to govern would be incompatible with the principle of supremacy of EU law. This decision, however, appears to suggest, albeit not expressly, that news of the demise of restraint of trade has been somewhat exaggerated. Whilst it probably remains true that it can not be used in mainstream cases to achieve a result different from that required by EU competition law, it remains operative in those instances/markets where competition does not extend because, primarily, of their size. This is good news for small players in niche markets – or in Rooney’s case big players in international sports markets.