LICENSING
Licensing Lessons Learned
Trademark licensing agreements are familiar to legal practitioners in the IP field. But there are still lessons that can be learned when drafting them, especially in different jurisdictions. Sarah Morgan reports.
“The court is not in the business of saving people from bad bargains they have made, and neither will it apply hindsight or save parties from having taken bad advice on the contract in the first place,” said Simon Chalkley, partner at Keystone Law (UK), outlining some of the key principles of the courts’ approach to contract interpretation in the United Kingdom.
Mr. Chalkley was speaking during yesterday’s session Global Licensing Annual Review: Lessons from Trademark Licensing Decisions.
“There’s a temptation sometimes for parties to assume when they’re negotiating an agreement that if something is unclear, and it’s for the other party’s benefit, then the person who is not benefiting under the clause will get the benefit of the doubt if there is a dispute in the future.
“That’s a very dangerous assumption under English law,” said Mr. Chalkley.
Pinning Jelly to the Wall
It’s a similar scenario in Singapore, said Catherine Lee, principal, Rodyk IP (Singapore). While the city-state does not have many cases or court judgments on licenses specifically, the case law very closely follows the United Kingdom’s position.
Ms. Lee added that it was permissible for a court to consider the context as long as the relevant contextual points are “clear and known to both parties.” She said: “The court must always be careful to ensure that extrinsic evidence is used to explain the written words and not to contradict or vary them.”
In the United States, the court may consider extrinsic evidence when interpreting ambiguous terms, said Lori J. Shyavitz, partner at McCarter & English (US). If extrinsic evidence is used, it must not add to or change the terms of the agreement.
Extrinsic evidence may include the parties’ circumstances when they were nearing the signing of the contact, the type of transaction, any preliminary negotiations, and reasonable custom or usage in the trade, she added.
“It’s of the utmost importance that the license provides parties with a clear path to termination, but in reality, this doesn’t always happen. In cases of material breaches, it is difficult to pin down just how serious and substantial the consequences need to be to become material,” Ms. Shyavitz said.
For Mr. Chalkley, “It is a bit like pinning jelly to a wall. In my view, it’s much better to define specific breaches and deem them to be material than to rely on general language.”
“It’s much better to define specific breaches and deem them to be material than to rely on general language.”
Simon Chalkley, Keystone Law (UK)
Parties must also consider the impact of termination of the head license on any sublicense granted, being careful not to make the assumption that a sublicense could not survive a termination.
Ms. Shyavitz explained that while a sublicense will generally terminate when the head license terminates, there is a possible exception in a bankruptcy context when a debtor-licensor rejects the primary license, as held in the case of Mission Products Holdings, Inc. v. Tempnology, LLC, 139 S. Ct. 1652 (2019).
“This rejection didn’t deprive the licensee of the right to use the trademark, because rejection was merely a breach of contract. It didn’t rescind the contract so any rights that would ordinarily survive a contract breach remain,” Ms. Shyavitz said.
She added: “I query whether that principle could be extended downstream one step to the sublicensee. It’s probably an issue that will be resolved at some point in the future.”
“The nature of the rights granted can also affect your standing when it comes to enforcement and infringement actions.”
Catherine Lee, Rodyk IP (Singapore)
Exclusivity and Efforts
Sublicenses also come into play on the scope of exclusivity. Ms. Lee said that it is important to be clear on the degree of exclusively granted in a license. Are you engaging in an exclusive license or a non-exclusive license? Can the licensee grant sublicenses?
"Where there’s a right to sublicense, aside from the obvious problem of finding other licensees in your space and unexpected competition, the nature of the rights granted can also affect your standing when it comes to enforcement and infringement actions,” said Ms. Lee.
Similarly, in the United States, exclusivity can impact actions and remedies, according to Ms. Shyavitz. She explained: “Exclusive licensees may have standing to bring trademark infringement and dilution actions, provided that in the course of the grant they are getting rights that amount to essentially a proprietary interest or an assignment of interest.”
To have standing before the U.S. Patent and Trademark Office’s Trademark Trial and Appeal Board a person must believe they are, or will be, damaged by the registration of a mark.
“This is a much broader requirement. Arguably, even a nonexclusive licensee could commence an action before the Board to enforce certain rights in a trademark,” said Ms. Shyavitz.
Turning to “efforts” clauses, Ms. Shyavitz explained that there isn’t any universal definition of standards.
“In some instances, courts will use ‘best efforts’ and ‘reasonable efforts’ interchangeably even though on a plain language reading of these terms, you would think ‘best’ would rank above ‘reasonable,’” she said.
“It would be more helpful to define what the actual obligations are and the steps that the licensee needs to take in order to achieve the obligations.”
Lori J. Shyavitz, McCarter & English (US)
In Singapore, the Court of Appeal has found that there is “very little or no difference” between “best endeavors” and “all reasonable endeavors,” Ms. Lee said.
The benchmark test is the standard of a “prudent and determined man, acting in the obligee’s interests and anxious to procure the contractually stipulated outcome within the time allowed.”
Ms. Lee suggested: “If you are a licensee that has to carry out obligations, you want to go for something lower than ‘best’ or ‘all reasonable’ efforts, which would be a ‘reasonable endeavors’ obligation.”
Meanwhile, with U.K. case law, it is difficult to “discern common threads of principle from case authorities,” said Mr. Chalkley. “Under English law, ‘all reasonable efforts’ is often used as a sort of halfway house between ‘best’ and ‘reasonable.’”
“I have to say, where this sits on the spectrum is open to considerable doubt. The authorities seem to suggest that the answer depends on the context,” he added.
Essentially, said Ms. Shyavitz, if you are the licensor, you should ensure you are using sufficient certainty in your contractual terms, particularly in the efforts context.
“It would be more helpful to define what the actual obligations are and the steps that the licensee needs to take in order to achieve the obligations,” she said.
Ms. Shavitz concluded: “The licensee must remember that it holds the licensor’s feet to the fire wherever it can, so the licensee will also get the best benefit from the agreement that it possibly can.”
Video courtesy of Envato Elements / brostock
Wednesday, November 17, 2021
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