The Trademark License
Download the white paper "The Brand License"
Téléchargement de fichier
"*" indicates required fields
At the heart of distribution contracts is very often the provision of distinctive signs, and more specifically a brand that the distributor then uses as a brand.
Thus, whether it is a franchise agreement, an affiliation commission agreement or a concession agreement, they will all include a brand license for the benefit of the distributor, when the brand license will not be the sole subject of the signed contract.
A pivotal element of many distribution contracts, it is therefore fundamental to understand the regime and issues of brand licensing.
A trademark license can be defined as a contract by which the owner of a trademark grants a third party the right to exploit it, most often in return for remuneration. So it seems quite simple: it would be nothing more or less than a form of rental.
However, given the particular nature of a brand, and its importance in terms of distribution networks, several aspects of these contracts, beyond its very purpose, require special attention, not the least of which is respect for the image of the brand. Finally, it will be worth highlighting the differences between brand licensing and franchising.
1. The purpose of the trademark license agreement
The purpose of the trademark license seems quite obvious: it is the provision of a trademark. However, the brand has a specific nature, the protection of which is obtained at the end of a particular process. This has an impact on the drafting of a trademark license.
A few brand reminders
The owner of a trademark has a property right, on a “sign capable of graphic representation used to distinguish the goods or services of a natural or legal person” (Article 711-1 of the Intellectual Property Code) .
This property right “is acquired by registration” (Article 712-1 CPI) . It is therefore necessary to apply for registration of the mark with an authorised authority. In this case, in France it is the National Institute of Intellectual Property (INPI). Once this registration has been obtained, the trade mark proprietor is protected for a period of ten years from the date of application.
Since the function of the mark is to identify goods or services, the application for registration of a mark must indicate the goods or services that will be designated by the sign whose registration is requested. These products or services are grouped by categories within classes, defined by the Nice Classification. It has 45 classes, of which 34 are for goods and 11 are for services. Where the mark is protected for products, it may be affixed to those products to identify them. Where it is protected for services, it may be used as a sign to render those services.
Once the trademark is registered, protection is only granted for said goods or services. As part of the identification function, the sign must therefore be distinctive in relation to these goods or services, otherwise it would not fulfil its identification function.
The process of registering a trademark involves several steps before culminating in the issuance of the registration certificate. For a French brand, it lasts about five months. The request addressed to the INPI is notably published in the Official Bulletin of Intellectual Property (BOPI). This publication opens a period of two months during which owners of identical or similar earlier trademarks who consider that there is a likelihood of confusion with their trademark may oppose the new filing made. Depending on whether the opposition is found to be well-founded or not, the application will ultimately be rejected or registered, in whole or in part.
Implications for trademark licensing
The first question is whether a simple trademark application, for which registration has not yet been confirmed, can be licensed. This is possible without any problems. However, in the event that the trademark is ultimately not registered, for example because a third party has formulated an opposition that has been accepted, the license concluded would then be devoid of purpose and therefore null and void. It is therefore prudent for both parties to wait for the registration of the mark before concluding a license or, failing that, to make the entry into force of the license conditional on the final registration of the mark.
The second question is the definition of the products and services covered by the license. It is obvious, given that a trademark is protected only for the goods and services covered, that the license cannot be granted for goods or services not covered by the registration certificate. Then, among the goods and services covered, the license may cover all the goods and services referred to in the trademark or only part of them. It is important to specify this in the license agreement. Otherwise, the license will cover all the products or services covered by the trademark.
Example:
A trademark is protected for (i) furniture and (ii) training activities.
A license granted for clothing would be void.
On the other hand, a license could be granted for furniture, or for training activities, or for both activities.
In connection with this question, the question of the authorized use of the mark is crucial: does the licensee have the right to affix the mark himself to products, or does he only have the possibility of using it as a sign in order to disseminate the products or services? In other words, is the purpose of the license to allow the licensee to manufacture products, or only to distribute products or services? In the absence of details in the license agreement, the licensee will be authorized, as long as the trademark is protected for products, to affix the trademark itself on the products referred to in the filing.
Finally, the question of exclusivity will have to be decided. The licensee may or may not benefit from an exclusivity, defined, over a given geographical area and/or for certain products, services or distribution channels for example. As for the geographical scope of exclusivity, it cannot of course exceed the scope of the protection granted by the trademark. However, it may be limited to a part of the territory in which the trademark is protected. Where applicable, the conditions for maintaining the exclusivity granted must be defined. So for example, is it subject to the realization of a certain volume of activity?
Conversely, an exclusivity or quasi-exclusivity of activity may be requested from the licensee. If such a requirement appears in the contract, the licensee must have been given by the Licensor, at least twenty days before the signing of the contract, a pre-contractual information document (dip) in accordance with the requirements of Articles L. 330-3 and R. 330-1 of the French Commercial Code. This requirement is not specific to franchise agreements but applies to any agreement involving the provision of a trademark in return for the requirement of exclusivity, or quasi-exclusivity, on the part of the party to whom the trademark is made available.
2. What are the specific points of attention in a trademark license agreement
Beyond that, other issues need to be addressed in the license agreement. Without claiming to be exhaustive* , here are some points of particular attention.
Ownership of the brand.
A trademark may be assigned, or its owner, if it is a company, may be absorbed. The owner of a trademark may therefore have to change. It is fundamental to ensure that these changes are registered in the national register of trademarks. Indeed, failing this, they are not enforceable against third parties. This can then create difficulties. Thus, for example, the purchaser of a trademark whose assignment has not been entered in the register could be opposed by someone he decides to sue for infringement that he is not entitled to initiate such an action, since he is not the owner of the trademark.
The licensor of a trademark may not be the trademark owner. He may only be dismissed. In this case, it is again desirable that the license from which it benefits be recorded in the register of trademarks. It would also be desirable to ensure that it has been authorised to enter into sub-licences. For the owner of a trademark who concludes a license, it will be important to confirm in the contract whether or not the licensee can itself conclude sub-licenses, and under what terms. It is also useful to specify that the licensee may not assign the rights it derives from the contract without the express agreement of the holder.
The territorial scope of the licence
The geographical scope of the license must be specified. Otherwise, it is the territory for which the trademark is protected. Thus, a license of a French trademark that would be granted exclusively to a licensee, without specifying the territory in which this right would be conferred, would cover the whole of France and would therefore prohibit the licensor from granting another license to any other person whatsoever.
It is also impossible to grant a trademark license for a territory in which the trademark is not protected. A license of a French brand would be null if it were granted for the territory of Belgium for example.
On the other hand, it is possible to provide for terms or conditions of territorial extensions. This can be organised when the exploitation of the area concerned reaches certain predefined thresholds for example, or in case of trademark registration in other countries for example.
Conversely, it is also possible to provide that the area for which the licence will be granted will be reduced when certain conditions are met. Thus, for example, if the licensee has not exploited this or that part of the area from a defined
date.
The duration of the license must also be mentioned. It may be granted for the legal term of protection of the mark, or for a shorter period. If it is granted for a longer period, this entails an obligation for the licensor owning the trademark to renew the protection at the end of the current period of protection.
This may also be the case when, through renewals, the license runs for a longer period than the initial term of legal protection of the mark.
In this case the renewal may be tacit or may be express and require specific agreement of the parties. In all cases, if one of the parties does not intend to renew the licence, it is important to take into account the prohibition of the sudden termination of established commercial relations, resulting from Article L. 442-6 I 5° of the Commercial Code. However, this article is not applicable if the contract is not concluded between merchants. It is therefore advisable to leave in practice a notice period taking into account the total duration of the relationship as well as the existence or not of exclusivity, regardless of the notice period that may be provided for in the contract. Thus, for example, a contractual notice of 6 months may be justified for a period of 5 years but if, due to successive renewals, the total duration of the relationship is 15 years, such a notice will be manifestly
insufficient.
The terms of remuneration must be provided for: is it a lump sum or a proportional fee? The method of calculation and the terms of payment must be precisely defined, as well as, if applicable, the terms of control of the basis of calculation when the fee is variable.
The defense of the brand
Article L. 716-5 of the CPI specifies that “The civil action for infringement is initiated by the owner of the trademark. However, the beneficiary of an exclusive right of exploitation may act in infringement, unless otherwise stipulated in the contract if, after formal notice, the holder does not exercise this right “.
It is useful that the license agreement contains a stipulation on this issue. Networks have an interest in centralised management at their level of infringement actions, so that it is consistent within the network. It is therefore desirable to provide for a derogation from this article so that only the proprietor of the mark can act if this proves necessary.
Respect for the brand image
This is an essential element of trademark licensing. Indeed, in order to ensure a consistent brand image and in accordance with the wishes of the trademark owner, it is necessary that the license agreement includes specific stipulations. Differentiation can happen at many levels.If the purpose of the trademark license is the manufacture of products, it will be necessary to define the criteria to be met by the products manufactured. A quality control must be provided. For services, it will be necessary to determine the services that can be performed under the brand.
Criteria for the layout of the point of sale can be defined. Similarly, compliance with a graphic charter must be imposed.
More generally, the contract must make it possible to ensure compliance with the brand’s marketing mix, defined by the licensor and which covers the following four elements:
– The product
– The price
– Communication
– Distribution
Specifically regarding price, it is not possible to impose resale prices or margin on a distributor. The contract may, however, include indications on the brand’s pricing policy and, if necessary, provide for the communication of recommended prices or maximum prices. In the case of maximum prices, these must be set in such a way that they are not in fact imposed prices, so that the licensee, an independent trader, remains free to determine its prices below this maximum price.
As part of the communication, it will be useful, for example, to impose compliance with a given graphic charter and to ensure that the communication campaigns that would be developed by the Licensor will be consistent with the image of the brand, both with regard to the form, and with regard to the messages conveyed on the brand.
With regard to distribution, while it is possible to impose certain standards for points of sale, whether physical or websites, the question of prohibiting all online sales to a distributor is more delicate.
3. Brand License & Franchise
The franchise
While a franchise agreement necessarily includes a trademark license, a trademark license, even one that would detail precisely the obligations of the licensee, is not necessarily a franchise agreement.
The deductible is not legally defined. It is schematically presented as a contract to repeat a success.
More specifically, both the various definitions that have been proposed, and the case law, retain three elements that the franchisor must make available or provide to its franchisee:
In practice, a franchise agreement therefore includes a trademark license. The developments relating to the trademark license are therefore applicable in this respect.
However, this trademark license will be supplemented by the provision of assistance and the provision of know-how, the latter constituting the characteristic element of the franchise.
A large number of franchise disputes concern the effective provision of know-how fulfilling the required qualities. Indeed, the lack of know-how may lead to the cancellation of the contract, for lack of cause, resulting in a restoration of the parties resulting in reciprocal refunds between the parties.
Article 1. g) of the Community exemption regulation No330/2010 of 20 April 2010 defined know-how as: “A secret, substantial and identified set of non-patented practical information, resulting from the experience of the supplier and tested by the latter (…)“, where
– “secrecy” means that the know-how is not generally known or easily accessible;
– “substantial” refers to know-how that is significant and useful to the buyer for the purposes of the use, sale or resale of the contract goods or services;
– “identified” means that the know-how is described in a sufficiently complete manner to make it possible to verify whether it meets the conditions of secrecy and substantiality. This involves in particular the drafting of an operating manual, formalising the know-how
The assessment of the know-how made available under a franchise agreement must be carried out globally.
It constitutes a set of techniques, information and services that does not have to be original but must allow the franchisee to avoid long and expensive searches to access it.
The franchise must allow “access to a field whose access would have required long and expensive research or personal studies, both in terms of money and time”.
Since frankness should in principle make it possible to repeat a success, it is important that the know-how has been tested and ideally that the possibility of repeating it has been tested.
Brand
License & Franchise
From the point of view of the essential elements of each contract, it can be summarized as follows:
The franchise agreement has more obligations for the Franchisor than a trademark license agreement. While franchising is the most well-known type of distribution contract, it is also the most demanding for those who wish to develop a network. The provision of know-how and assistance are, on the other hand, elements that can reassure candidates, especially if they do not have experience in the sector concerned.
Some commonalities and differences include:
The know-how will very often be the criterion of choice: does sufficient and experienced know-how exist and if so, does the brand have the desire / the capacity /the means required to make it available and make it live and evolve throughout the contract and does it agree to bear the legal consequences associated with the provision of the know-how?
A trademark license agreement can be relatively detailed and provide a framework for the use of the trademark. This is not to say that this is actually a franchise agreement. There is the same difference between a brand license agreement and a franchise agreement as there is between a car rental agreement and a driving apprenticeship agreement: in both cases tools are made available for use, within certain limits. But in only one case is there a transfer of know-how. The fact that the lessor takes the time by entrusting the vehicle to go around with the lessee to tell him the specifics of the driving of the chosen model, does not mean that he will teach him to drive…
Whichever choice is made, it is important that each of the parties is fully informed and aware of the commitments it makes and the rights it enjoys under the contract concerned. It is necessary to be vigilant about the information issued to the distributor so that he cannot argue that he would have been deceived as to the nature of the contract, and try to obtain the cancellation.
Also check out our video “What’s the Difference Between Franchise and Brand Licensing?” on our site.
* For example, we will not address in this note the issue of non-compete clauses, approval or pre-emption clauses in the event of assignment of the contract by the licensee, confidentiality commitments or the fate of stocks at the end of the contract, which are not necessarily specific to the trademark license.
Découvrez nos services et outils associés
Réseaux de distribution, Concurrence
Choose the legal organisation of your distribution network
You created a business, invented a service, developed a product, a brand?
You want to develop a distribution network to expand your market share. You have a number of objectives in mind for this network, but you are wondering about its legal organization.
You created a business, invented a service, developed a product, a brand?
You want to develop a distribution network to expand your market share. You have a number of objectives in mind for this network, but you are wondering about its legal organization.
Réseaux de distribution, Concurrence
Create Brand Licensing Network
You have a brand and want to build brand awareness by allowing freelancers to use it to distribute the products or services it is associated with.
In this case, the brand license can allow you to create value and accelerate your growth by creating a distribution network.
You have a brand and want to build brand awareness by allowing freelancers to use it to distribute the products or services it is associated with.
In this case, the brand license can allow you to create value and accelerate your growth by creating a distribution network.
Réseaux de distribution, Concurrence
Pre-contractual Information Document (dip Loi Doubin)
You grant a right to use a brand and require your distributor to make an exclusivity commitment of some kind (supply, use of software, non-competition for example).
You are then required to deliver pre-contractual information to the regulated content and prove that you have delivered it, at least 20 days before signing the distribution contract.
You grant a right to use a brand and require your distributor to make an exclusivity commitment of some kind (supply, use of software, non-competition for example).
You are then required to deliver pre-contractual information to the regulated content and prove that you have delivered it, at least 20 days before signing the distribution contract.
