Virgin Group’s much anticipated entry into the cruise
business could come to a grinding halt if a federal lawsuit filed March 11
against the enterprise is successful.
The lawsuit alleges that Virgin misappropriated the idea, business
plan and other aspects of Virgin Cruises from a blueprint developed by Colin
Veitch, a former CEO of Norwegian Cruise Line.
Veitch, who filed the suit in U.S. District Court for the
Southern District of Florida, said he created the plan prior to Virgin’s
involvement and spent more than a year working on it with Virgin before the
terms of the deal were abruptly changed in early 2012.
The Virgin name, owned by Richard Branson, brands numerous
ventures, including an airline, a hotel chain and a record label. The suit
claims that Virgin’s initial interest lay in licensing its name to the project
and that Veitch’s VSM Development would be a partner with Virgin in owning and
running the cruise line.
The suit seeks an injunction against Virgin Cruises and a judgment
In a statement, Virgin Group said it strongly believes the
claim lacks merit.
“Richard Branson and the Virgin Group first looked at the
cruise market in the late 1970s, and our current team has been exploring the
opportunity for more than a decade,” the statement said. “Over the years, we
have been in discussions with a number of parties including the plaintiff, and
those discussions ceased in 2012.”
Virgin confirmed its long-rumored entry into the cruise
business in December. An announcement of a contract to build its two megaships
is expected as soon as this month.
According to the lawsuit, those ships will be built at
Germany’s Meyer Werft shipyard. A rendering contained in the suit shows a
super-sleek, streamlined ship with a fully enclosed bow area and a large window
that resembles the visor on a suit of medieval armor.
The familiar Virgin script is written in white letters
diagonally across a red-and-gray color scheme.
In the suit, Veitch said the ships are directly modeled on
his plan for two “Ultra Ships” that could reap outsized profits and enable a
new entrant to breech the high barriers to entry in the cruise business.
Veitch brought the plan to Virgin in 2011 after meeting
Anthony Marino, who manages Virgin’s investment program in North America, the
In addition to the plan, Veitch also brought an investment
bank, Allen & Co., assembled a project team and spent a year and “hundreds
of thousands of dollars” on development, according to the suit.
Veitch agreed to invest $1 million to $5 million, and Virgin
Group agreed to put up as much as $10 million, with most of the funding to be
raised from private equity partners through Allen & Co.
Initially, terms called for a fixed return for those
partners, with Veitch and Virgin splitting profits above that level 90/10, the
suit says. Virgin would get a licensing fee from revenue regardless of profits.
Under the most favorable scenario, Veitch would have earned
$315 million over 10 years, according to the suit.
But in February 2012, after Meyer Werft issued a letter of
intent to build the two ships, Virgin sent Veitch a revised term sheet
drastically reducing his profit share, the suit says.
It would have also required him to be CEO of the new cruise
line as a condition for collecting most of that money. Veitch balked.
The suit seeks an order halting construction of the two
Virgin ships and, if they are built, a ban on bringing them into U.S. waters,
on docking them at U.S. ports and on selling Virgin cruises to U.S. passengers.
Among the things the suit alleges is that Virgin Group broke
a confidentiality agreement the two sides signed before they started working
together on Virgin Cruises.
“If you use the information that’s protected by a
confidentiality agreement, you definitely owe damages,” said Mark Pestronk, a
Washington-based lawyer with expertise in travel issues who also writes the
Legal Briefs column for Travel Weekly.
“The question will be if the information was really
protected under that agreement,” he said.
Pestronk also said federal judges typically put pressure on
the parties in such cases to compromise.
“Ninety-nine percent of these cases will settle before they
go to trial,” he said.