We seem to be writing a lot about Lotus this year, but then they’ve been making the headlines – usually for all the right reasons. Up until recently we were praising Lotus for the incredible albeit pricey Evora, their collaboration with 1 Malaysia Racing Team in F1 (licensed under the name ‘Lotus Racing’) and then the nostalgic return of the Lotus-brand to Indy Car Racing, run by KV Racing and driven by ex-F1 pilot Takuma Sato. 2010 looked like being a pretty good year for Lotus fans.

And then it all went horribly wrong.

At the Paris Motor Show last month, we were expecting the Evora S and Evora Auto plus some (at the time) unannounced new car(s) – however nobody was expecting Lotus’ highly ambitious New Era Strategy, underpinned by 5 new cars on display (Esprit, Elan, Elise, Elite and Eterne). Hard-core enthusiasts claimed Lotus was selling out, betraying the very essence that founder Colin Chapman had worked so hard to create.

A few days earlier at the Singapore GP, 1 Malaysia Racing announced they would be racing under the Team Lotus Name in 2011, news that was applauded by fans and the Chapman family alike, but Proton and Group Lotus immediately moved to stop such a name change, stating that Fernandes and David Hunt’s Team Lotus Ventures have never owned the right to race under the Team Lotus name. I won’t go through all the details of Proton’s statement – you can read it here, but suffice it to say this is part of a long-running feud between Proton and David Hunt (brother of 1976 F1 World Champion, James Hunt) who acquired the Team Lotus assets when the company went into administration in 1994.

When Proton, controlled by the late Yahaya Ahmad, bought Group Lotus in late 1996 the lines of demarcation were said to be clear from the start – Yahaya knew he was just buying the car-making and engineering business of Lotus and not the motor-racing business that has claim to the drivers and constructors championships.

Proton claims this distinction is now blurred after Hunt acquired the rights to Team Lotus, saying that original agreements stipulated that a deed would have to be signed by Group Lotus if there was a change in ownership of Team Lotus. However Hunt and business partner Kenny Wapshott acquired Team Lotus prior to Proton’s ownership of Group Lotus – so if this were true, then due diligence at the time should have uncovered such an issue. Besides, Proton have had over 13 years to resolve any dispute.

This all sounds horribly messy, how about an idiot’s guide to the key points?

I sat down during the weekend to digest recent events and try and decide if this was a matter we should care about, or merely a bit of sabre-rattling prior to some back-room deal being done. Given that I’d gone to the trouble of navigating through the issues, it seemed only logical to share my conclusions here on SkiddMark. It’s just my perspective, after reviewing the information currently available in the public domain, so you should still make up your own mind (and then you’re welcome to share your views in the comments and poll below).

For those of you who’d like to really delve into the matter, I encourage you to visit the links in our ‘FURTHER READING’ panel below, especially the recent interview between Peter Windsor and David Hunt and the anonymous ‘Save Team Lotus’ page, which although somewhat emotive does a good job in illustrating how tangled this web has become. Hopefully I can help untangle a few misunderstandings.

  1. Team Lotus and Group Lotus have always been separate – as you will read elsewhere Colin Chapman founded Lotus Engineering Ltd in 1952 and then the ‘sister company’ Team Lotus in 1954, this was a familiar practice for car makers entering F1 designed to limit the liability of the riskier racing operation on the main car business. The Lotus Group of Companies (now known as Group Lotus) was formed in 1959 and was made up of Lotus Cars Limited and Lotus Components Limited. Group Lotus (owned since 1996 by Proton) contains Lotus Cars (makers of the Elise, Exige, Evora etc) and Lotus Engineering (provider of engineering consultancy services to many of the world’s major automotive companies). The common link between Team Lotus and Group Lotus broke in the 1980s on the death of Colin Chapman and the acquisition of Group Lotus by General Motors, Team Lotus continued on as a separate company under the stewardship of Peter Warr, competing in F1 with drivers such as Mika Hakkinen and Johnny Herbert until the team went into administration in 1994 – David Hunt then purchased the company as a going concern from the receiver including the Team Lotus trademark, logo and staff.
  2. A Trademark or brand name is not the same thing as the company itself – when reading through some of the discussions on forums and blogs, one misunderstanding that frequently arises is the assumption that “Lotus must surely own Lotus”. When you register a trademark you are registering two aspects, the name and the uses to which that name will be applied – this usage is not implicit in all possible forms but instead must be stated. So for example if I decided to register a trademark for Lotus Coffee, then it’s unlikely that Group Lotus would have any say in the matter – unless of course I linked my new brand of coffee with cars. This is known in the law of torts as “passing off” or “palming off” in the US. The English law of torts is concerned with matters such as negligence, liability, nuisance, defamation and trespass – usually the kinds of civil matter that fall outside the neatly defined boundaries of contract law. Since Proton acquired Group Lotus they’ve challenged the Team Lotus trademark several times in the courts, most recently a few years ago, and each time such a challenge has been dismissed.
  3. The Heritage of the Lotus name in Racing is held within the trademark of Team Lotus – Proton/Group Lotus feels that the Lotus brand and the cars it makes are synonymous with each other, therefore it argues that all of Lotus (in both cars and racing) should by rights be held under their control (“Group Lotus is everything Lotus”). The law on such a matter is quite clear (where trademarks have been previously registered and the respective brands have been in public use) – the law is designed to prevent one trader misrepresenting his goods or services as those of another and therefore deceive customers into purchasing his goods (or services) when they thought they were purchasing those of another. Given how well known the distinction between Lotus (the car maker and engineering firm) and Lotus (the racing team) has been for over 40 years and the recent publicity around this dispute, then it’s unlikely many people would be confused except of course by the manner in which Group Lotus already present themselves as custodians of Lotus’ racing legacy.
  4. So where does 1 Malaysia Racing Team and Tony Fernandes fit in? – back in 2009 Tony Fernandes realised a childhood dream, taking advantage of the proposed $40m F1 budget cap and registering a team to compete in the 2010 F1 season. It all happened quickly, and very last minute and whilst Fernandes would love to have entered F1 as Team Lotus he’d not yet come to an agreement with David Hunt (the then owner of Team Lotus Ventures), so he reached agreement with Group Lotus to race under the ‘Lotus Racing’ name in 2010 whilst at the same time entering discussions with David Hunt to acquire Team Lotus. Hunt, being the sort of decent upstanding bloke that he is, agreed with Fernandes to give Proton first refusal on the Team Lotus sale, but they apparently blew it – hence eventually in September 2010 a deal was agreed with Tony Fernandes who then announced that his F1 team would be rebranded in 2011 as Team Lotus.

What’s REALLY going on?

Okay, so now we move from the messy to the ever-so-slightly sinister. Clearly there is more going on under the covers than is spilling over into the public domain and therefore it would not be wise to enter into too much speculation. However, what we can all see is that Proton/Group Lotus have ramped up their ambitions substantially in the past 12 months – is Dany Bahar’s arrival the cause or merely the catalyst of such activity? He’s certainly been the main spokesperson from within Group Lotus and whilst we admire his un-burstable enthusiasm and energy, he clearly has strong backing and significant financial resources to see through the company’s ambitions.

Last week Lotus announced a significant further move into Indy Racing, in a five year deal starting in 2012, Lotus will supply in-house engines and aero body kits for the IZOD IndyCar Series. This is a major undertaking for a company that has never competed in racing and which, up until now, has relied upon customer engines supplied by Toyota (and previously Rover) to power its cars. Group Lotus have also been in talks with Renault F1 to participate in the 2011 F1 season together – they were due to make an announcement last week in Abu Dhabi, but things have gone a little quiet for the time being.

We understand that Group Lotus and Team Lotus are under a long-standing contractual agreement to distinguish their respective brands from each other (and avoid confusion in the public’s mind) – therefore surely if Group Lotus enter F1 with Renault and apply their brand name to teams in the IndyCar Series, then this could be construed as a breach of that agreement?

There’s clearly much at stake, for both Group Lotus and 1 Malaysia Racing – Group Lotus need to manage and protect the Lotus name that their stakeholders are currently investing so heavily in, whilst Fernandes whom we understand now owns the Team Lotus trademark and brand is 18-months into his investment in F1 which is maturing nicely (10th place in the 2010 constructors championship) and whose recent purchase of Team Lotus from David Hunt is the next step in that plan.

Neither party can afford the costs nor the distraction of a long-drawn out litigation case, but it seems that Proton’s strategy may be to apply political pressure in Malaysia to force Fernandes and his partners to release the Team Lotus rights. This is where the whole story takes on a slightly sinister tone. You see, Proton knew that David Hunt was negotiating the sale of Team Lotus to Fernandes and rather than conclude such a deal themselves they allowed Fernandes to acquire the name.

Now given Proton’s influence in Malaysia (being part owned by the government) and Fernandes’ reliance on his Air Asia low-cost airline (whose domestic hub and routes are licensed by the Malaysian government), could this whole scenario be part of a well orchestrated plan by Proton to acquire Team Lotus when they were unable to do so directly with David Hunt?

Hunt has gone on record to state that if such a scenario were to play out, then it would mean that Fernandes had deceived him (and motorsport fans around the world) in claiming to be a serious motorsport enthusiast. We doubt such a conclusion to be likely – given the high-profile manner in which Fernandes has fronted the 1 Malaysia Racing campaign, any backing down now would be tremendously damaging both to his personal reputation and his businesses.

Keep an eye on this story though, because it’s bound to affect the wider establishment in motorsport and production sports cars – the ambitions of those at the centre of the dispute it seems cannot co-exist, therefore when two finally come head-to-head, there’s bound to be a few rogue fireworks setting fire to neighbouring properties.

Will the situation be resolved soon?

I am not sure how it can be resolved quickly, both sides have invested significantly in their own strategies, so are unlikely to change tact without testing the boundaries of each other’s argument. Clearly David Hunt (former owner of Team Lotus Ventures) is seething and believes Proton/Group Lotus to have taken a position that libels his reputation. He would also be very unhappy to see Team Lotus acquired by Proton through coercion, so we suspect he would challenge such an outcome. In fact he’s offered to take back the Team Lotus name from Fernandes, licensing him to use it in 2011 and reducing some of the political leverage available to Proton, he would then be free to directly rebut Proton’s claims in court.

To further complicate matters, Group Lotus have accused Fernandes of “..flagrant and persistent breaches of the licence by 1 Malaysia Racing Team, which were damaging to the “Lotus” brand.” So unless Proton retract this statement, then Fernandes will probably be advised to challenge it (in court) and neutralise any lingering claim for damages that might otherwise compromise the team’s future.

Often in such adversarial situations it can be an effective strategy to file a counterclaim – in this case for the use of the Team Lotus trademark and heritage in Group Lotus’ marketing, in fact it’s a wonder why such a case hasn’t already been presented. In fact such a counterclaim might now be necessary, especially given Proton’s argument that Team Lotus Ventures have lost their rights to the name due to lack of use.

Either way, you can see there are plenty of creases still to iron out of this argument and with a court appearance unlikely until well into 2011, I could see this dispute running well into 2012. Assuming Fernandes has completed his purchase of Team Lotus, then he could still potentially run under that name in 2011, so keep an eye on Tony’s Twitter account (@tonyfernandes) for further news..

Written By

Steve Davies

Steve is an investor, private equity advisor and former Partner at KPMG, PwC and Bain.   Most importantly he's a life-long car enthusiast, mountain biker and active sports enthusiast. He designs and builds technology platforms and is the architect behind Transmission.

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