Easyjet founder takes airline to court in row over branding rights

A simmering row between flamboyant entrepreneur Sir Stelios Haji-Ioannou and the company he founded, easyJet, is to be taken to court in a battle which could limit the operation of the no-frills airline, and even lead to it losing its name.

The Chancery Division of the High Court is due to begin hearing a two-year legal case on Monday over how much money the airline, founded by the Greek-born businessman, should make from services including hotels and car hire.

Should the judge side with Sir Stelios, and if easyJet – which insists it has behaved reasonably – refuses to comply with the judgment, the airline could be forced to drop or limit some of its lucrative sidelines and remove the name "easyJet", forcing it to rebrand at a cost estimated to range from £50m to £150m.

The subsequent confusion among passengers could severely damage the airline – which carries more British passengers than any other – as well as the litigant's own pocket, because Sir Stelios and his two siblings are the largest shareholders. They own £646m of the company, which is valued at £1.7bn.

While the details of the dispute are arcane, they touch on Sir Stelios's frustration at the running of his pioneering enterprise – which to his frustration has never paid a dividend – and the ability of the airline to found new businesses carrying the "easy" name.

Yet there is no doubt that the dispute shows the depths to which the relationship between the unorthodox billionaire businessman and his most famous creation has broken down.

Sir Stelios, the son of a Greek shipping magnate, resigned from the easyJet board last month, saying he would rather be an activist shareholder than be "gagged" about its current performance. He has also publicly described the outgoing chief executive, Andy Harrison, as "overrated".

The antipathy is in stark contrast to the honeymoon period that easyJet enjoyed thanks to bargain-conscious passengers and City investors.

Then plain Stelios Haji-Ioannou, the businessman founded what was to become Britain's leading low-cost airline at unglamorous Luton airport in 1995, with £30m of his father's money, two leased Boeing 737s and the aim of stripping away unnecessary costs.

Prior to the flotation of the business on the London Stock Exchange in 2000, the tycoon, who had already started other "easy" businesses such as easyInternet, signed a deal licensing the easyJet brand to the airline.

The 56-page agreement was designed to give investors security about the name, while preventing the carrier from moving into markets into which he might launch small new ventures. As such, it stipulated that the airline must make no more than 25 per cent of its revenue from "ancillary" activities.

Under the move towards ever lower "headline fares", easyJet has since moved into selling hotel rooms and car hire and charging for baggage, all of which has increased the level of ancillary income way above the 1 per cent it was when the deal was signed.

According to Sir Stelios, 43, who was knighted for services to entrepreneurship in 2006, more than 25 per cent of its revenues now come from these spin-offs. He also claims it has failed to declare properly its ancillary income by registering only the commission it makes from hotel and car-hire sales rather than the total amount of the transaction.

While not part of the case itself, Sir Stelios's attitude towards the performance of the airline has hardened his attitude in bringing the action. He served legal papers in August 2008 but has recently stepped up his criticism, complaining that the management has placed a US$4bn (£2.8bn) order for 88 aircraft rather than paying shareholders.

Instead of focusing on profit, he claims, the carrier has carried ever larger numbers of passengers and, as a result, its share price has not matched rivals such as Ryanair – which this month announced plans to pay its first dividend. Announcing that payment, Ryanair's chief executive, Michael O'Leary, predicted that his intention to return €500m (£420m) to shareholders in three years would drive Sir Stelios "absolutely nuts".

Mr Harrison – who will be replaced by the chief executive of Guardian Media Group, Carolyn McCall – has rebuffed the claims, saying that the share price has risen by more than 30 per cent since 2000.

Yesterday, easyJet declined to comment on the legal action. In a statement to investors last month, it said it had been "proactive" in trying to achieve a settlement, adding: "As you will be aware, the view of our professional advisers Herbert Smith is that the company's interpretation of the brand licence is well-founded, and therefore the board does not feel it is right, in the interest of all shareholders, to offer material concessions to easyGroup."

Founder: Some sectors are not so easy for entrepreneur

One could never accuse Sir Stelios Haji-Ioannou of not trying. Planes, internet cafés, bus services, car hire, hotels, cruises, pizzas and a cinema have all been given the "easy treatment" by the tycoon, who describes himself as a "serial entrepreneur".

The philosophy is simply: pare back the costs, give people value and give it a go. The execution, though, has not always been easy. There have been some flops as well as some successes and one triumph.

Sir Stelios, who was knighted in 2006 but prefers to be called by his first name, achieved fame and fortune with his outstanding career move; founding easyJet as low-cost travel between regional hub airports was about to take off.

He realised there was no need for optional extras associated with aviation, such as travel agents and in-flight peanuts. Instead, there was a basic approach: direct phone and internet booking for services on modern planes, with high reliability and low maintenance costs. Millions flocked on to the no-frills flights at Luton's municipal aerodrome, where landing charges were lower than at other airports in the South-east.

But Sir Stelios was not interested just in running an airline and soon stood back from its day-to-day running to concentrate on starting other ventures, leveraging the "easy" brand and its distinctive orange livery. Some were failures – 70 easyInternet cafés closed; easyCar could not afford the costs of the Mercedes vehicles and now acts as a booking agent for car hire around the world. EasyCinema struggled after the Hollywood studios refused to let their films be shown on a low-price screen – it now lists film times and rents DVDs.

Others, using the power of the "challenger" easy brand, were licensed profitably for a while: Boots launched products under the easyMan range, and a Danish telecoms company bought the rights to easyMobile.

Others have been rolled out as profitable franchises. Easyhotel, offering cut-price rooms in the centre of London, now has 13 hotels run by franchisees, with a total of 20 planned by the end of this year.

EasyOffice rents office space at seven locations, six in London and one in Manchester. EasyBus carries 1.5 million passengers a year between Luton, Stansted and Gatwick.

The value of the sales of these businesses in the privately held easyGroup empire approaches £100m a year, according to Sir Stelios. Not a patch on easyJet, which carries 47 million passengers a year with sales of more than £2bn. But they are run in accordance with the wishes of their biggest shareholder – unlike, frustratingly, easyJet.

Martin Hickman

Battles of the brands

Apple

Among the most famous brand disputes was the case of Apple versus Apple. The Beatles music company, founded in the heyday of the Fab Four's freewheeling ways, took Apple Computer of the US to court for allegedly breaching an earlier agreement not to become involved in the music business. Apple, the record label, claimed that the American Apple's iTunes digital store had broken the deal. Apple Computer settled the case in 2007 for a reputed but unconfirmed $500m. In a sign that the dispute may be lingering, Beatles songs are not available on iTunes.

Budweiser

The US drinks giant Anheuser-Busch, the brewer of the best-selling American Budweiser lager, launched a legal case against two historic brewers that had been marketing their drink as Budweiser in Europe: Budweiser Bier Burgerbrau, founded in 1795, and Budweiser Budvar, founded in 1895. The outcome varies country by country. According to UK law, no one owns the right to the Budweiser name, allowing both Anheuser-Busch and Budvar to market "Budweiser". Under a deal with Anheuser-Busch in 2007, Budvar Budweiser is allowed to market its drink in the US as Czechvar.

Stolichnaya

One of the most famous vodkas gave a legal hangover to judges for a decade. In 1991, the Soviet patent office revoked the Soviet agency's right to use the Stolichnaya name in Russia. Ten years later, the Russian government claimed back the Stolichnaya trademark from Soyuzplodimport, claiming it should never have been taken away from the Ministry of Agriculture.

Abba

Pop history is lined with disputes among band members about who has the right to the group's combined identity when it splits up. A twist happened this month when lawyers for Abba's record company, Universal, sent legal notices to more than 15 tribute acts telling them to stop using "Abba" in their title as it was infringing on the band's intellectual property rights.

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