US rail operator claims Virgin Group suffered ‘brand disaster’ during pandemic

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Sir Richard Branson’s Virgin Group was heading for “brand catastrophe” as a result of the difficulties it faced during the coronavirus pandemic, according to an internal company email cited in a $250 million lawsuit that began on Monday.

The value of one of Britain’s best-known brands – whose logo has adorned banks, record shops and even spacecraft – is at the center of legal action a former business partner at Virgin America, the train operator Taking against in the High Court of London. Brightline.

Brightline, owned by Fortress Investment Group, signed a 20-year deal with the UK-based group in 2018 to rebrand its service in Florida and a planned route from Las Vegas to Southern California as Virgin Trains USA.

However, the US company left the alliance after less than two years, arguing that an exit clause had been triggered in the contract because the brand Branson had established in the early 1970s had lost its “international high reputation”. .

Brightline claimed that some Virgin employees appeared to agree with this assessment. In documents filed with the court on Monday, it cited internal company communications in which its employees discussed how to manage various reputational problems.

These included public criticism of Virgin Atlantic during the pandemic, when it requested bailout funds from the UK government and asked employees to take unpaid leave while Branson was living in a tax haven.

“We are sleepwalking towards a brand disaster,” wrote Greg Rose, Virgin’s director of content and communications, in an email.

Patrick McCall, senior partner at Virgin Group at the time, also warned that Virgin Atlantic’s difficulties were a “reputational nightmare”. “Tax residency is a reputation killer,” he wrote.

Virgin, which argues that Brightline is in breach of a trademark licensing agreement, said in its lawsuit that the US company’s claims were “slanderous and bogus”.

The UK-based group said Brightline was “looking for an opportunistic excuse to extricate itself” as it “had second thoughts about the deal”. He is seeking damages of approximately $250 million.

Licensing agreements like the one Virgin made with Brightline have been at the core of Branson’s business model for years, allowing him to build a diversified global conglomerate while putting relatively little of his own money at risk.

Court filings offer a glimpse into how Branson pitches the value of his brand to potential partners, describing a dinner between entrepreneur and Fortress co-founder Wes Edens at which the Virgin team said His brand can and does allow Brightline’s revenue to grow by 10 percent. The train operator will increase the fare.

Brightline also cited other problems in its wider group of Virgin companies in its defence, including its disqualification in 2019 from bidding for the renewal of the West Coast mainline train franchise in the UK.

In its lawsuit, Virgin acknowledged that it faced “challenges” during the early stages of the pandemic, but that these were “resolved”. It added that despite intense public criticism at the time in the UK, there was “no notable negative press” regarding the brand in the US.

Daniel Toledano Casey, representing Virgin, told the court on Monday that Brightline had to represent more than just a “temporary blow” to Virgin’s reputation.

Virgin said: “The Virgin brand has been a symbol of global innovation and entrepreneurship for more than 50 years.

“While litigation is never our preferred option, our case against Brightline seeks to uphold our contractual rights and protect our brand following Brightline’s attempts to break our long-standing licensing agreement.”

The ongoing trial, overseen by Judge Mark Pelling in central London, is expected to last around three weeks.

Fortress was sold in May by SoftBank, an arm of Abu Dhabi’s sovereign wealth fund and its employees to the asset manager.