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As reported, Jones first acknowledged rifts in the licensor-licensee relationship in February. Polo believed that Jones’ failure to meet established sales minimums with the Ralph by Ralph Lauren license, scheduled to expire at the end of the current year, would result in a co-termination of the Lauren license, which Jones has maintained that it owned through 2006.
The lawsuit also seeks enforcement of the noncompete agreement between Jones and Nemerov in force since Nemerov left the firm in March 2002. On an afternoon conference call with analysts, Boneparth noted that Jones had paid Nemerov “about $20 million to avoid the situation we’re in today.” A check of company and government records puts the amounts for confidentiality and noncompetition at more than $18.8 million.
In a “Dear Ralph” letter dated June 3 from Boneparth to Polo ceo Ralph Lauren, included as an exhibit in the lawsuit, Boneparth said that, “In your letter of Feb. 11, 2003, you stated Polo’s intention not to perform its obligations under the license and design agreements for the Lauren line for the full duration of their effective term, which does not end until Dec. 31, 2006. This repudiation constitutes a material breach of the Lauren agreements.”
Jones will retain the Polo Jeans license, acquired when it bought Sun Apparel in 1998, which wasn’t part of the dispute. Whether Polo is pleased with that, remains to be seen.
The Jones-Polo ballistics sent both issues down in New York Stock Exchange trading on Tuesday, although Polo bore the brunt of investor concern. Polo shares dropped $1.08, or 4 percent, to $26 in trading that was more than 7 times average levels. Jones shares were off 55 cents, or 1.8 percent, closing at $30.25 as the number of shares changing hands fell just short of 3 times their daily average.
Discussing why he decided to give up the Lauren by Ralph Lauren business if he believes it still has three years left on the contract, Boneparth said in a telephone interview, “Operating this business in this environment is very difficult. We’ll let a third party decide what is right.”