Licensing best practice (Roundtable)

Given the economic pressures faced by many companies, the need to exploit the value inherent in intellectual property has never been greater. One route which companies can use to capitalise on their brand identity is licensing. However, it takes only one misstep to inflict fatal damage to your brand proposition. Reflecting this, World Trademark Review has convened a panel of experts from across the globe – B Brett Heavner from Finnegan, Henderson, Farabow, Garrett & Dunner in the United States, Sergey Medvedev from Russian firm Gorodissky & Partners, Christian Thomas of Kuhnen & Wacker in Germany and Canadian firm Smart & Biggar/Fetherstonhaugh’s Timothy O Stevenson and Theodore Sum – to take a strategic look at the factors at play, offer practical advice on the must-have contractual provisions and explain how to avoid common pitfalls.

At what point in the deal-making process should trademark counsel be involved?

Sergey Medvedev (SM): I would say that trademark counsel should be involved at every step in the licence deal-making process. First of all, they have to check whether the licensed mark is fully registered and ready to be transacted in favour of a third party. In Russia, for instance, trademark applications or pending marks are not subject to licensing, so you must ensure that the mark at issue has matured into registration and is valid. Second, counsel should help to register the trademark licence contemplated by the agreement. In Russia, trademark licence recordal is imperative; parties cannot avoid this procedure, even by applying a foreign governing law, which does not make such registration mandatory. There are other reasons why it is important to involve counsel in terms of licensing, including on the pre-transaction as well as posttransaction levels.

(To read the complete article with the interviews of other experts please follow the link)

When considering new licensing activities, how should brand owners approach rights audits to ascertain whether their portfolios are actually geared for expansion?

SM: In general, brand owners should take the following steps when conducting trademark audits. First, obtain trademarkrelated information and documentation from the trademark owner or target (as applicable). Second, conduct trademark searches and necessary investigations of the registers, public records and the Internet, and also verify the validity of the trademark registrations (both national and international). Next, confirm the trademark ownership, transfers and encumbrances.
Additionally, review trademark-related contracts, including assignments, licences, franchises and security agreements.
Finally, review trademark-related dispute resolution and litigation files, as well as the status of existing infringement or invalidation claims. Depending on the transaction at issue, there may be the other points to consider when conducting audits or due diligence before the launch of the licence deal.

What are the most common licensing mistakes made in your jurisdiction?

SM: Apparently, the most common mistakes in Russia-related licensing transactions include mistakes about the rights holder’s details, attempts to license pending marks or applications, failure to stipulate trademark registration numbers, improper or vague definition of the scope of licensed products, unclear definition of the term of licence and failure to register trademark licences with the Russian Patent and Trademark Office (Rospatent).
Other problems and mistakes in licensing practice occur, but these can usually be corrected with the assistance of local trademark counsel and respective IP lawyers.

What are the most common licensing mistakes made in your jurisdiction?

SM: Apparently, the most common mistakes in Russia-related licensing transactions include mistakes about the rights holder’s details, attempts to license pending marks or applications, failure to stipulate trademark registration numbers, improper or vague definition of the scope of licensed products, unclear definition of the term of licence and failure to register trademark licences with the Russian Patent and Trademark Office (Rospatent).
Other problems and mistakes in licensing practice occur, but these can usually be corrected with the assistance of local trademark counsel and respective IP lawyers.

What legal risks are there with respect to licensing activities in your jurisdiction?

SM: In Russia, one of the most significant aspects of licensing activities is registration. Before October 1 2014, the validity and enforceability of a licence agreement depended on this – if the licence agreement was not recorded with Rospatent, the contract between the parties was not recognised by the law or by the courts. Moreover, the contracting parties could not enforce licence grants against third parties in the absence of the registration of the underlying licence agreements. However, since October 1 2014 – when Russia’s IP laws were substantially amended – licence registration no longer affects the validity and enforceability of a contract itself. In other words, if the licence agreement has been executed, it becomes valid for the contracting parties immediately from the effective date, while registration effectuates the licence grant given by the licensor under the contract.
Of course, if the licence grant under the executed contract has not been recorded at Rospatent, this is considered to be invalid.
Under this scenario, the licensee cannot claim the already paid licence fees to the benefit of the licensor, as this is not treated as the unjust enrichment of the latter, instead it may force the licensor to grant and register the trademark licence in its favour. Alternatively, if the licensee can prove the same before a court, it can claim damages from the licensor.

What are the requirements – if any – with respect to recording the licence with the trademark office in your jurisdiction?

SM: In Russia, in order to record the trademark licence, the parties must submit the application accompanied by one of the following documents, duly signed by the contracting parties: an original licence agreement or notarised excerpt of this, or a notification on the occurred disposal (licence) of IP rights. If the parties are sensitive about revealing the financials provided in the contract, the recommended course is to submit an excerpt or notification. In addition, because the obligation to register usually lies on one of the parties, that party will be engaging local trademark attorneys, which will file documents with Rospatent. Therefore, the application should also include a power of attorney allowing the trademark attorney to file. Finally, it should include a document confirming the official fee payment.
The practical term of licence recordal in Russia is between two and three months (in the absence of office actions or Rospatent inquiries).

In broad terms, what are the key contractual must-haves to incorporate into licensing agreements?

SM: In Russia, a number of key contractual must-haves should be incorporated into any trademark licence agreement.
First, details of the parties to a contract (company names and addresses of the licensor and licensee, as well as their authorised officers), the subject matter of the licence (trademark registration numbers), details of the licensed goods or services subject to the trademark registrations (as per the certificates) and clarity on the type of licence (ie, whether it is sole, exclusive or non-exclusive) are important. Second, information on the licensable rights (ie, the specifically permitted use of the licensed mark), a compensation clause and detail of the licensed territory (the default territory is the whole of Russia) and licensed term (the default term is five years) should be included. Then there may be sub-licence clauses (ie, whether sub-licensing is permitted automatically or whether it is subject to the licensor’s consent) and termination for convenience clauses (whether the licensor and licensee has the right to terminate the licence unilaterally).
In addition, the contract would usually contain clauses related to quality control, trademark protection and infringement, termination and post-termination, as well as other provisions depending on the specificity of the transaction.

What are the essential provisions and controls to include if sublicensing is permitted?

SM: In Russia, a licensee has the right to grant sub-licences only if the licensor has consented to this in writing. Any sub- licensing rights must, therefore, be either expressly provided in the trademark licence agreement or further approved by the licensor on a separate (written) basis. If the licence agreement is silent on sub-licensing and there is no licensor’s consent to sub-license, a licensee is not entitled to grant sub-licences to third parties. Any trademark sub-licence that is filed with Rospatent for recordal without the licensor’s consent or approval will be rejected. Hence, the licensor is protected in this regard to a certain extent.

While quality control is critical, licensors also need to give licensees room to operate. What is the best practice in your jurisdiction with respect to monitoring and auditing licensees?

SM: In Russia, licensees must ensure compliance with the licensors’ quality standards. Licensors reserve the right to carry out checks and inspections.

Where problems arise and an immediate break in the relationship is necessary, what are the key considerations for licensors?

SM: In terms of breaking the relationship, the licensor should consider inserting special termination (as well as post-termination) clauses into its contracts in order to have some leverage against licensees.

For example, the law in Russia provides for ex parte termination procedures, which licensors can choose to incorporate. On the ongoing and post-termination side, the law allows the possibility of including default interests, late payments and other monetary compensation clauses into licence agreements in order to make the breaching licensees more liable.
Finally, licensors should take into account the possibility of bringing trademark infringement claims where licensees break the contracts and refuse to stop using the licensed trademarks.

Are there any other issues you would like to raise?

SM: I think it is worth highlighting the dispute resolution options available in Russia. These include the national (civil) court system, arbitral tribunals and mediation. The national court system comprises two main divisions: the courts of general jurisdiction (ie, civil courts), which resolve disputes involving individuals, and the state courts (ie, commercial courts), which have special jurisdiction over all types of business-related dispute, including those that arise from intellectual property. The Russian IP Court specialises in resolving IP disputes only. It acts as the court of first instance for trademark non-use cancellation actions and disputes against Rospatent. It also acts as the court of cassation for IP infringement matters and is a powerful judiciary, helping businesses to resolve IP matters in a professional manner. Trademark licensing disputes, whether national or cross-border, are no exception.

However, when there is an arbitration clause in a trademark licence agreement, the contracting parties may resort to commercial arbitration (permanent or ad hoc arbitral tribunals). Alternative dispute resolution institutions are usually chosen in heavyweight, ‘multi-dollar’ licensing deals. The oldest and most reputable arbitration institution operating on a permanent basis with international authority in Russia is the International Commercial Arbitration Court.

Additionally, mediation procedures are becoming increasingly popular. Despite the rapid growth of different mediation centres in Russia, their role on dispute resolution in the context of trademark licensing remains undeveloped. Practically, it is customary for contracting parties to resolve disputes under trademark transactions using the national judicial system or arbitral tribunals.

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