Licence and trade mark infringement
Gannons supported a client in dismissing a claim for trade mark infringement made against them.
In the real world, we know that deals are struck, and the paperwork is not dealt with. We are often asked to address a situation when things do not turn out as expected. There is an increased risk of allegations of trade mark infringement. We outline one such case 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.
Our client entered into a licence agreement with a ceramic company that manufactured bespoke ceramic tiles. Unfortunately, the licence agreement was only verbal. Sometime later, the ceramic company claimed trade mark infringement. Our job was to have the claim dismissed.
Events leading up to the trade mark infringement
Our client owned retail stores specialising in bespoke ceramics tiles. The parties agreed that our client would display and sell tiles manufactured by the ceramic company. During the negotiations, both parties agreed that our client would operate as a separate company to manage sale of tiles and register a trade mark and domain name for the ceramic company’s products.
Our client was to use the ceramic company’s trade name, logo, product photographs on its website and for promotion in its outlets. In addition our client paid for the development of the website to display the ceramic company’s products online.
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 the prospect of compensating our client’s customers for replacing large quantity of goods, and payments for cancelled orders. Upon realising this, the ceramic company decided to take action against our client so it could escape its liabilities. Their plan was that if our client was found liable, then they would then have to deal with the customer complaints.
Letter before action
The ceramic company sent a letter before action. It alleged that our client infringed upon the ceramic company’s trade mark. It further alleged that the registered trade mark was invalid, based on the ownership of prior rights and bad faith. Based on this, it went on to remove our client’s authorisation to develop the ceramic company’s website, and to sell the ceramic company’s products in their retail outlets.
Claims in the letter
The ceramic company claimed damages based on profits earned by our client, to the amount of £50,000, as well as further damages to their reputation, based on the alleged unauthorised use of their trade mark and logo. They also claimed their legal costs from our client.
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 ceramic 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 dismissing the claim.
We responded to the claims in the letter. Our case was that the ceramic company wanted our client to take control of its brand to benefit from the sales generated by our client’s retail outlets.
The main points of our defence were that a verbal trade mark licence was in place for an unlimited time. The ceramic company had also consented to the use of their trade mark for sales. They also implied consent for the of the brand use on the 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. Because the ceramic company manufactured the goods, they took responsibility for the quality of the products.
We then successfully argued that the ceramic company never acquired any goodwill under the brand. 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 ceramic company to pay our client’s legal fees in full, following our successful victory. However, a full recovery of legal costs cannot be guaranteed in all cases.
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 you undertake 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.
In general, it is likely that the term of a licence is regarded as of unlimited in duration, unless specified otherwise. A verbal rather than written agreement is likely to lack some of the more important terms. For instance, where the licensee will use your brand name.
Without a written agreement, 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.
Finally, there will also be issues surrounding ownership of your IP due to dilution and goodwill through the extent of association and use by a party.
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 and you require help in reaching a resolution. Please do not hesitate to get in touch with John if we can be of assistance.