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