In our practice we see a lot of trade mark settlement and co-existence agreements being entered into, often when one party requires the other’s consent in order to get its trade mark registered. It is important, while keeping the immediate goal in mind, to consider the broader, long-term effects of the terms of the agreement on each party’s business. In this article, we set out the key considerations that we take into account in negotiating and drafting settlement and co-existence agreements for our clients.
Who should sign the agreement? This should be the parties that own the relevant trade marks, but are there any other users of the trade marks that need to either be bound by, or have the benefit of, the agreement? Should each party be required to ensure that its related entities comply with the agreement? Do consents granted under the agreement extend to use by related entities, licensees and franchisees?
Defining the trade marks
What trade marks of each party does the agreement apply to? How does it allow for future changes and developments in those trade marks? Because settlement and co-existence agreements are generally perpetual, you need to take into account changes to each party’s trade marks over time. We recommend being careful when extending the agreement to trade marks other than those that each party currently uses.
Defining the goods and services
What goods and services are carved out for each party? Just the goods and services that party uses its trade marks on at the moment? A broader category that captures areas that party may move into the future? Again, we recommend being careful when extending the agreement to goods and services other than those that each party currently trade in.
Defining the scope of consent
Often a settlement or co-existence agreement arises when one party has difficulty registering its trade mark. In seeking consent to that registration, the parties should carefully consider whether the consent should only extend to registration of the competing trade marks or use of those trade marks as well. If the parties consent to use, then they are effectively granting a licence under their own trade marks. This decision should not be taken lightly, particularly if the arrangement only comes about because one party is having technical difficulty getting a trade mark registered.
What territory does the agreement apply in? We recommend that this be considered early in the negotiations, as we have seen negotiations become difficult when one party changes the territory late in the piece. Also consider whether you need to get local law advice if the agreement applies across a broad range of countries.
Consent for future use and registration
You need to be clear and precise about what future uses and registrations each party is agreeing to consent to. Because settlement/co-existence agreements are usually perpetual, you need to consider what the long-term effects of any obligations might be. As noted above, a consent to use is potentially a perpetual, royalty free licence.
For example, you don’t want to end up being obliged to consent to an application or use in an area you now operate in. Generally, it is better to agree to provide consent to registrations, rather than use, and in particular areas, rather than agreeing to provide consent as long as the use/application is outside of particular areas.
Obligations not to use
What, if any, obligations not to use a trade mark in relation to particular goods and services is each party willing to commit to? What is the long-term impact of agreeing not to use your trade mark in relation to those goods and services?
You don’t want to end up not being permitted to use your trade mark in relation to goods and services you now trade in. Generally, it is better to agree to provide consent for particular areas, rather than agree not to use your trade mark in relation to particular goods and services.
No challenge clauses
You should consider whether any obligations not to challenge the other party’s IP are going to be enforceable. No challenge clauses can be unenforceable in the US and the EU, except in the context of settling a dispute. Even in the context of a dispute, they are not always enforceable. An alternative is to provide that a party can terminate the agreement if the other party challenges its IP.
Because settlement and co-existence agreements don’t generally have a fixed term, we recommend including an express right to terminate for unremedied material breach or insolvency. But also consider what other termination rights should be included. Should a party be able to terminate if the other party ceases to use the trade mark the agreement relates to?
We generally provide that the terms of the settlement are confidential. But you should consider whether there is any other confidential information that has passed between the parties that should be protected.
As you negotiate, you should consider whether the settlement terms give rights to any competition or anti-trust law issues. For example, does the agreement contain any terms that:
- fix the price for any goods or services?
- amount to resale price maintenance or third line forcing?
- divide up the market between competitors (geographically, by market segment)?
- amount to an abuse of market power?
- could otherwise substantially lessen competition in a market?
What should happen if one party transfers its trade marks to a third party? Should it have to ensure that third party is bound by the agreement? What should happen if one party sells its business to a third party? Should it be able to transfer the agreement to the buyer without consent? What if the buyer is a competitor of the other party? We recommend including a general prohibition on assignment, with specific exceptions to address the issues above, if required.
We see many agreements which contain clauses stating that the agreement ‘enures to the benefit of successors and assigns’ or similar. While that type of clause may have legal effect in certain jurisdictions, in most common law countries (ie, New Zealand, Australia, United Kingdom), it is questionable at best what legal effect this has. We recommend being explicit about what happens if the trade marks or relevant business are transferred. We think it is better to state that, in those circumstances, the seller or assignor has to ensure the purchaser or assignee expressly agrees to be bound by the terms of the agreement.
We have a dedicated team of commercial lawyers who understand the complexities of trade mark settlement and co-existence agreements, and can provide specialist advice that is useful, practical, accurate and timely. If you need assistance in negotiating a trade mark settlement or coexistence agreement, get in touch with one of our experts below.