In the real world, we know that deals are struck and the paperwork is not dealt with. We are often asked to unscramble the position when things do not turn out as expected.   There is an increased risk of allegations of trade mark infringement.  One such case is outlined below.  Our clients who did not have a written agreement managed to salvage the situation – however, not everyone manages to achieve the result they did.

To help you we explain the lessons to be learnt.

Lessons in how to avoid complications in a licence and trade mark infringement claim

If you are a business that licences its intellectual property in return for a fee, then there are risks if the terms are not set out in a licence agreement. For example, as this case has shown:

  • It is not easy to ascertain the extent of the licence and use of intellectual property if the extent is not clear from the agreement.
  • It is likely that the term of a licence is regarded as of unlimited in duration.
  • The verbal agreement is likely to lack some of the more important terms. For example: where your brand name is to be used.
  • There will be no evidence on what was intended and what was understood to be the motive behind an agreement. It is therefore impossible to rely on any of the implied terms.
  • There will be issues surrounding ownership of your IP due to dilution and goodwill through the extent of association and use by a party.

The case – all about trade mark infringement

Our client entered into a licence agreement with a Ceramic Company that manufactured bespoke ceramics tiles. Unfortunately, the licence agreement was only verbal. Sometime later, the Ceramics Company claimed trademark infringement. Our job was to have the claim dismissed. 

Events leading up to the case

Our client owned retail stores specialising in bespoke ceramics tiles. The parties agreed that our client would display and sell tiles manufactured by the Ceramics Company. During the negotiations, both parties agreed that our client would:

  • Operate as a separate company to manage sale of tiles;
  • Register a trademark and domain name for Ceramics Company products;
  • Our client was to use the Ceramics Company’s trade name, logo, product photographs on its website and for promotion in its outlets; and our client paid for the development of the website to display Ceramics Company products online.

Trading conditions

The Ceramic Company relied on our client to sell its goods. During the initial years there were large customer orders but our client found that the Ceramic Company failed to maintain the quality of their products.

Our client passed customer complaints to the Ceramic Company as this impacted on our client’s business. The relationship between both parties deteriorated.

Letter before action

The Ceramic Company faced with the prospects of compensating to our client’s customers for replacing large quantity of goods and payments for cancelled orders. Upon realising the Ceramic Company decided to take action against our client so it could escapes its liabilities. The plan was that if our client is found liable it would then deal with the customer complaints.

The Ceramic Company sent their letter before action which alleged:

  • Trade mark infringement of the Ceramic Company’s trade mark used in the trade of our client;
  • Invalidation of the registered trade mark based on ownership of prior rights and bad faith;
  • Unauthorised development of the Ceramic Company’s website; and
  • Use of the Ceramic Company’s products for sale in its retail outlets.

The Ceramics Company claimed:

  • Damages based on profits earned by our client in the amount of £50,000;
  • Damage to reputation based on unauthorised use of trade mark and logo; and
  • Legal costs.

The problem

There was no written licence agreement. The absence of written terms meant that we had to rely on corroborative evidence to prove the existence of an agreement.

Attempts to settle

Our client approached the Ceramics Company to settle this dispute. In an attempt to get a quick settlement it offered to return half of the profits it had made through the sales of goods.

This offer was rejected as the Ceramics Company refused to take responsibility for the existing issues with the customer orders. Our client was left with no option but to continue with the claim.

The defence

We responded to the letter of claim. Our case was that the Ceramic Company wanted our client to take control of its brand to benefit from sales to be generated from our client’s retail outlets. The main points of our defence were:

  • A verbal trade mark licence was in place;
  • The licence was for an unlimited time;
  • The defendant consented to the use of the trade mark for sales and there was implied consent for the use on website.

We investigated a number of emails that were exchanged between the parties to prepare evidence for the judge to support our defence.

The Court’s decision

The court had to decide whether the parties had a licence agreement. If there was no agreement to allow the use of the trade mark, then our client would have infringed the Ceramic Company’s trade mark and branding.

The court investigated the evidence to determine if our client had permission to use the Ceramic Company’s trade name.  The judge agreed with us in his conclusion that discussions between the parties constituted an implied grant of a licence. As the goods were manufactured by the Ceramic Company it was responsible for the quality of the products.

We then successfully argued that goodwill under the brand was never transferred to Ceramic Company. This goodwill vested in the trade mark that was used by our client from the outset. The Ceramic Company never used its brand to promote its products. The court agreed and dismissed claims seeking to invalidate  the existing registered trade marks owned by our client.

The court ordered the payment of client’s legal fees as we were the successful party. However, a full recovery of legal costs cannot be guaranteed in all cases.  The wasted management time may never be recovered.

John Deane is a partner in the commercial team. Licence agreements can work well. One party receives royalties, the other the chance to build a business.

However, when things don’t work out a resolution is required. Please do not hesitate to get in touch with John if we can be of assistance.

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