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Recent changes to the IP licensing provisions of the Trade Mark Act 1994 – what Franchisors and Licensors need to know

01/04/2020

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United Kingdom

In 2019, the new European Trade Marks Directive was implemented in the UK.  As part of this implementation a number of changes were made to the licensing provisions of the Trade Marks Act 1994.  The most significant of these changes are set out below.
 

Limited direct enforcement rights for non-exclusive licensees 

Under the new rules, a non-exclusive licensee has the right to bring a trade mark infringement action but only if (i) the trade mark owner consents and (ii) the licence agreement does not exclude its right.

Trade mark owners should, therefore, not only be aware of their right to refuse consent for direct enforcement action by a non-exclusive licensee but they should also consider whether their trade mark licences should expressly exclude the licensee's right to bring such an action.
 

Enhanced direct enforcement rights for exclusive licensees

An exclusive licensee also has the right under the new rules to bring a trade mark infringement action if (i) the trade mark owner consents and (ii) the licence agreement does not exclude its right.  

In addition, however, an exclusive licensee also has the right (i) to require a registered trade mark owner to bring infringement proceedings in respect of any matter which affects the licensee's interests; and (ii) to take action against an infringer in its own name if the trade mark owner has either refused to take action itself or has failed to do so within two months of the exclusive licensee's request for it to do so.  

Previously, these rights extended to both non-exclusive and exclusive licensees but could be removed by contract.  Now the rights only extend to exclusive licensees.  In addition, it is no longer possible for an exclusive licensee to contract out of these rights.  

As a result of these key changes, trade mark owners should give careful consideration to the types of licences they grant and whether they should be granting exclusive trade mark rights at all.  A non-exclusive licensee no longer has the right to require them to bring proceedings and will only be able to bring proceedings in its own name with their consent.  An exclusive licensee, on the other hand, will have the right to require them to bring proceedings and also the right to bring proceedings in its own name (without their consent) if they refuse or fail to take action within the specified time, regardless of what is set out in the licence agreement.

Franchisors, for instance, should ensure that the licensing of their intellectual property rights is dealt with separately in the franchise agreement and granted on a non-exclusive basis.  It should not, for example, be included in the terms relating to the grant of territorial rights, particularly where those territorial rights are being granted exclusively to the franchisee.


Direct licensee intervention in infringement proceedings

Where a registered trade mark owner brings infringement proceedings, a licensee (whether exclusive or non-exclusive) who has suffered loss as a result of the infringement is now entitled to become a party to those proceedings in order to seek compensation for its loss directly.  This new right cannot be excluded by contract.
Previously, a licensee had no right to join infringement proceedings but had to rely on the court taking into account any loss it had suffered (or was likely to suffer) and ordering the trade mark owner to hold on the licensee's behalf any damages recovered in respect of that loss.
 
This is an important new right for licensees, particularly where an infringement may have a significantly greater impact on a licensee than the trade mark owner itself.  However, it is important to bear in mind the costs associated with being a party to legal proceedings.  A licensee still has the option not to intervene directly but to rely on the court to take into account its loss in any damages awarded and to order the trade mark owner to hold damages on its behalf and so will need to weigh up carefully the benefit of being a party to any litigation against the cost of such direct involvement.   


New statutory enforcement rights for licensors

A registered trade mark owner now has a statutory right to take legal action against any licensee (whether that licensee is an exclusive or non-exclusive licensee) that fails to comply with any of the terms of the licence relating to:
 
  • its duration;
  • the way the trade mark may be used;
  • the goods or services covered by the licence;
  • the geographic area in which the trade mark may be used; or
  • the quality of the relevant goods or services.

This new right is in addition to any contractual right the licensor might have to sue a licensee for breach of the terms of the licence and applies to any breach committed on or after 14th January 2019 irrespective of the date the licence was granted. 
 

Obligation to transfer registered trade marks on the transfer of a business

In addition to the changes to enforcement rights highlighted above, one further change introduced by the implementation into UK law of the European Trade Marks Directive should also be noted by trade mark owners.
The new rules provide that a contractual obligation to transfer a business will be taken to include an obligation to transfer any registered trade mark, except where there is express agreement to the contrary or it is clear in all the circumstances that this presumption should not apply.  

As yet, there is no guidance on the precise scope of this new rule and how it will apply in practice.  Whilst it is generally accepted that it will only apply to registered trade marks that are both owned by the transferor and relevant to the business being transferred, uncertainty still surrounds its application. For example, how would the rule apply to the sale of one business by a seller who operates a number of business using the relevant trade marks, or to the sale of part of a wider business to which the relevant trade marks relate? Which registered trade marks would be included in the obligation to transfer in these circumstances?

Given this uncertainty surrounding the scope of the obligation, it is vital that companies transferring a business ensure that the relevant transfer agreement (i) identifies all the trade marks that are owned by them and which are relevant to the business being transferred and (ii) specifies which of those trade marks are to be assigned as part of the transfer and which are to be retained by the transferor.  Failure to do so could lead to unanticipated and unwelcome consequences.

For further information on these changes or any licensing issues, please contact Gordon Drakes.
 

We are all navigating uncharted waters as business and society faces up to the impact of COVID-19.  We very much hope you and your loved ones remain in good health. 

 Please be assured that Fieldfisher is continuing to work with clients to navigate COVID-19 related issues and on business as usual needs.  Do get in touch with us if you would like to chat anything through.


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