Assigning a trade mark licence?
Things to consider following GNIC v Holland & Barrett. Disputes concerning trade mark licences very rarely make it to the doors of the court. This case involving Holland & Barrett (H&B) and sports supplement company GNIC therefore provides us with useful reminders / guidance on important issues concerning trade mark licences.
In particular, it highlights that trade marks and the relationship between licensor and licensee change over time. Trade mark licences need to be made as future proof as possible from the outset and should be reviewed regularly especially if there is a change as to ownership or nature of use of the mark.
The case centred on whether a licence to H&B to use the brand GNC had been validly terminated. The decision is subject to appeal but still provides useful guidance.
One of the major issues in the case was which company had attempted to terminate the licence agreement. The original trade mark owner had transferred its rights to the licensed trade mark to a group company. However, no notice of the assignment had been given to H&B and the court ruled that the new owners’ attempts to give notice to terminate the licence were invalid. The court held that the new trade mark owner could not exercise any rights under that licence agreement against the original licensee, until notice of the assignment had been given to the licensee.
A trade mark licence is first and foremost a contract. It is therefore important to ensure, if you do not do so already as a matter of course, that if you have been assigned trade marks that are subject to a licence agreement, you give notice to the licensees under that licence agreement as soon as possible if you wish to exercise the rights under the same. If you don’t, you run the risk of not being able to enforce the substantive contractual rights transferred to you including termination of the licence agreement itself.
One of GNIC’s contentions was that H&B had changed the GNC brand in the UK from being a general health and wellness brand to being a sports nutrition brand and was therefore in breach of the licence agreement. An example of the evidence put forward by GNIC was the use of “SPORTS NUTRITION” in conjunction with “GNC” promotion within H&B shops.
The court was satisfied that sports nutrition was a core part of GNIC’s business and didn’t agree with GNIC’s suggestion that customers interested in health and wellness products would be put off purchasing products under the GNC label because, there were promotions of GNC focused on sports nutrition. The court was also satisfied that H&B had not breached the licence agreement for dilution of the brand by using the marks only in respect of sports nutrition products. H&B were acting as a licensee seeking to exploit the marks.
If you licence your marks to third parties, you need to recognise that how you perceive the brand at the time the licence is entered into may change over time. Ultimately as the owner of the trade mark you need to retain control over how it is used. It is therefore vital to ensure that you include specific restrictions of use where relevant in your licence agreements and include non-compliance with such restrictions as a material breach of the agreement. Further, consider requiring compliance with a brand guidelines document which can be updated over time.
The duty of good faith
Good faith can be implied into certain types of “relational” contracts where the parties have an ongoing relationship and need to cooperate to make the contract work. H&B counterclaimed that GNIC had breached its duty of good faith for not attempting to control the way H&B sought to market or promote its products. The court held that the licence agreement was not a relational contract as, despite it being a long-term contract, it was one where there ought to be no need for any ongoing communication required to enable the contract to operate effectively.
The court also made the point that the relevant clause within the licence agreement provided that H&B “shall reserve all reasonable directions given by GNIC”, and that the word “reasonable” therefore negated any need for an additional obligation of good faith. The problem with the Judge’s analysis is that it failed to acknowledge how trade marks are used and how their position in the marketplace can change over time. The relationship between trade mark owner and licensee should therefore be dynamic; make sure that you reflect this in your licence agreements.
The Judge also referred to an issue of contractual construction. Within the termination clause the Judge considered whether the words “to an extent likely to cause material loss to the Licensor” related to the whole of the clause:
5.2 The Licensor may terminate this Agreement immediately by notice in writing if:
a) The Licensee materially breaches this Agreement or any other member with the H&B Group commits an act which would amount to a material breach of this Agreement or (without prejudice to the Licensor’s other rights to terminate under this Agreement) otherwise infringes the Licensor’s rights under the Trade Marks to an extent likely to cause material lost to the Licensor;
or merely the last three lines: –
(without prejudice to the Licensor’s other rights to terminate under this Agreement) otherwise infringes the Licensor’s rights under the Trade Marks;
The Judge concluded that the quoted words qualified only the last three lines. The reason for this was that the draftsman was clearly intending that a material breach of the licence agreement should give rise to a right to terminate, but also that the Licensor could suffer material loss by an infringement of its rights under the trade mark, not under the licence agreement and so provided termination of the licence agreement in such circumstances. If the quoted words were intended to qualify the whole of clause 5.2(a), a breach of the licence would have to be both “material” and be likely to cause “material loss”, whereas any infringement of the Licensor’s rights under the trade mark (not the licence agreement) would not need to be material but would only need to cause a material loss. When drafting a termination clause within a licence agreement ensure that you make clear the reasons for immediate termination to avoid any ambiguity on breach. Often this can be helped by breaking clauses down with the use of sub-clauses.
General Nutrition Investment Company v (1) Holland and Barrett International Limited  EWHC 746 (Ch).