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

According to a company email, Sir Richard Branson’s Virgin Group is heading for “brand disaster” due to the difficulties it faced during the coronavirus outbreak. The lawsuit began on Monday and seeks $250mn.

Virgin’s legal action in London’s High Court is based on the value of one Britain’s most famous brands, whose logo was used to decorate banks, record stores, and even spacecraft.

Brightline, which is owned by Fortress Investment Group in the UK, struck a twenty-year deal with Virgin Trains USA in 2018 for rebranding its service in Florida and a planned route between Las Vegas and southern California as Virgin Trains USA.

The US company, however, abandoned the tie up less than two year later. They claimed that the exit clause was activated because Branson’s brand, which he established in the 1970s, had lost “international high reputation”.

Brightline claimed that some Virgin employees seemed to agree with their assessment. Brightline cited in documents filed on Monday internal communications of Virgin’s staff discussing how to handle various reputational issues.

Virgin Atlantic was criticized for requesting bailout money from the UK Government during the pandemic and asking staff to take unpaid leaves, while Branson lived in a tax-haven.

Greg Rose, Virgin’s director of content and communication, wrote in an email: “We’re sleepwalking our way into a brand disaster.”

Patrick McCall warned at the same time that Virgin Atlantic was having a “reputational nightmare” due to its difficulties. He wrote that “tax residency is a killer of reputation”.

Virgin, in a lawsuit in which it claims Brightline has violated an agreement for trademark licensing, called the US firm’s claims “cynical” and “spurious”.

The UK group claimed Brightline “was looking for an opportunistic excuse to get out of the mess” as it “had second thoughts about the deal”. It wants to recover about $250mn.

Since years, licensing agreements like the one Virgin signed with Brightline are at the core of Branson’s business strategy. They allow him to build an international group without putting much money on risk.

The court documents offer a glimpse of how Branson pitches his brand value to potential partners. They describe a dinner held between the entrepreneur, Wes Edens, and the co-founder of Fortress. At the dinner the Virgin team claimed that its brand would boost Brightline’s revenue by 10% and allow it to increase fares.

Brightline, to defend itself, cited problems with the larger group of Virgin Companies, such as being disqualified in 2019 from the renewal of the West Coast Mainline Train franchise in the UK.

Virgin acknowledged in its lawsuit that it had faced “challenges”, but said that they were “addressed”. Virgin said that, despite the intense criticism in the UK at the time, the brand received “no significant negative press” in the US.

Daniel Toledano KC representing Virgin told the court Monday that Brightline needed to show more than a “temporary blip in Virgin’s image”.

Virgin said: “The Virgin Brand has been a global symbol of innovation and entrepreneurship since more than 50 Years.

Brightline has attempted to violate our long-term license agreement. We are suing Brightline to protect our rights under our contract and to enforce our contractual obligations.

The trial will last approximately three weeks. It is being overseen by Mark Pelling, a judge in central London.

SoftBank sold Fortress in May to an Abu Dhabi sovereign wealth fund arm and employees of the asset manager.