This article first appeared in World Trademark Review magazine issue 43, published by The IP Media Group. To view the issue in full, please go to www.worldtrademarkreview.com
According to Article 23.2 of the IP Code and Article 22.1 of the EU Community Trademark Regulation, a trademark licence may:
• be exclusive or non-exclusive;
• be total or partial; or
• refer to all or part of the national territory.
Exclusive licences are characterised by the fact that only one licensee has the right to use the mark for a particular type of good. The licensee is granted an exclusive licence for all products throughout Italy or the European Union; the licensee is
the sole authorised entity which can use the licensor’s brand to distinguish its products or services within that territory. A partially exclusive licence can also be granted for part of the goods or services for which the mark is registered. In such case, the licence will cover an entire category of similar products in order to avoid confusion among brands used by different companies. Where the exclusive licence is limited to one part of the country, but additional licences in relation to the same goods have been granted in other areas to
other entities for the same goods, there will be products on the market bearing the same mark, but which originate from different companies. This is considered to be joint use of the sign. Territorially limited exclusive licences are treated as non-exclusive licences, and the relevant regulations apply.
Although non-exclusive licences are expressly recognised by Italian law, they can be problematic. There are two types:
• those for which multiple licensees can use the same mark for the same goods or services; or
• those for which the rights holder reserves the right to use the mark for the goods or services covered by the licence.
In the second case, identical products bearing the same mark but originating from different companies will be available on the market simultaneously. Therefore, there will be co-existence between similar signs used by different companies. In such circumstances, the issue of how to avoid deceiving the public in relation to products that appear identical, but are qualitatively dissimilar, may arise. For this reason, the law subordinates the legitimacy of nonexclusive licences on the condition that the licensee “expressly undertakes to use the mark to distinguish goods or services equal to those corresponding marketed or
supplied in the territory of the State with the same mark by the trademark holder or by other licensees” (Article 23.2 of the IP Code). This aims to guarantee the consistency of products bearing the same trademark, but originating from different companies.
Article 23.4 of the IP Code – which states that “in any case, by the transfer and licensing of the trademark must not derive deception in those characteristics of the products or services that are essential to the public” – aims to protect consumers. However, the meaning of this provision remains unclear. The prevailing view in the literature is that the licensee must take all necessary measures in order to ensure that it delivers goods to the market that are the same quality as those produced by the licensor. However, the article does not impose an absolute obligation to ensure the same level of quality as that offered by the licensor. This means that the standard will be met even in case of minor qualitative improvements or deteriorations,
or ultimately of significant deteriorations made public through adequate warnings.
In addition to its distinctive function, a trademark carries an inherent message as to the nature, quality or geographical origin of goods or services. Thus, while the licensee is not obliged to ensure a certain abstract level of quality, it must not mislead the public as to what the trademark promises in practice. This can be problematic if the brand promises certain qualities, but the product offered by the licensee fails to provide such
Breach of licensing agreement
Rights holders have various remedies at their disposal in case of contractual breach by a licensee. Article 23.3 of the IP Code and Article 8.2 of EU Directive 95/2008/EC list a number of possible factors which could constitute breach of a licensing agreement by the licensee and state that, in case of violation, “the proprietor of a trademark may invoke the right to the exclusive use of the trademark against the licensee”.
Contractual breaches of a licensing agreement relate to:
• method of use;
• the nature of the products or services for which the licence is granted;
• the territory in which the trademark may be used; and
• the quality of the products and services provided by the licensee.
According to Article 23.3 of the IP Code and Article 8.2 of the directive, a licensor can act in accordance with the rules governing both contractual obligations (eg, performance, termination, compensation), and cases of trademark infringement.
The European Court of Justice (ECJ) has stated that the list of violations of a licensing agreement as set down in Copad
(April 23 2009, Giurisprudenza Annotata di Diritto Industriale 2009, 1377) is exhaustive. Consequently, rights holders can use only normal contractual remedies against violations of any other kind. Thus, in such cases, an action for trademark infringement against a licensee can be brought only if the rights holder has previously obtained a resolution for breach of the licensing
In the same judgment, the ECJ interpreted broadly the notion of violation of the terms of a licensing agreement relating to the “quality of the products produced” by the licensee. In this sense, the concept of quality referred not only to material characteristics, but also to the image, reputation or “aura of luxury” enjoyed by certain products. Therefore, violating a clause “prohibiting, for reasons of trademark reputation, the sale to discount stores” is one of the offences referred to in Article 8.2 of the directive (and Article 23.3 of the IP Code) if the violation “in the concrete circumstances, damages the allure
and prestigious image which grants to those goods an aura of luxury (thus compromising the ‘quality of the products produced’
provided by art. 8.2 of the Directive)”.
The ECJ’s interpretation was based on:
• the function of the trademark; and
• the principle that a trademark must offer the consumer a guarantee that the goods or services are “manufactured or supplied under the control of a single undertaking which is responsible for their quality”.
It seems that the court intended to counterbalance the exhaustive nature of the above-mentioned list in Article 8.2 with a broad interpretation of this specific case in order to cover all cases of violation of a licensing agreement that could result in harm to the protected functions of a trademark and to rights holders’ related interests.
This highlights the issue of the exhaustive or non-exhaustive nature of the list of violations of a licensing agreement, addressed by an authoritative doctrine, with particular reference to the quality of products on which the licensee is authorised to affix the mark. In the case at hand, the majority doctrine argued that the violation did not permit the rights holder to act against the licensee for infringement; the licensor could rely only on contractual remedies for breach of contract.
While EU law regulates analytically a licensee’s legal standing to defend a trademark, Italian law does not expressly provide for such a right. However, the prevailing doctrine and jurisprudence give heed to exclusive licensees. The locus standi of a non-exclusive licensee is more ambiguous.
A licensing contract is atypical and can be concluded both verbally and tacitly. This is usually the case for implied or de facto licences, which exist between companies within the same group.
Two Court of Milan decisions (August 3 2011 and September 13 2011) addressed the issue of the tacit conclusion of a licensing agreement concerning an unregistered trademark. Since there was no written agreement, proof that the trademark had been licensed on a commercial partnership basis relied on presumptions.
In 2007 the rights holder agreed that an Italian company could use its non-registered trademark for products and services similar to those offered by the licensor in Italy since 1998 through a separate foreign company. In 2010, following termination of the partnership between the two companies, the rights holder asked the Italian company to cease using the mark, but it refused. The trademark was never the subject of a written licensing agreement. However, recognising the rights holder’s need to revoke the contract, the Ccourt granted interim relief, arguing that a licensing agreement had been concluded tacitly between the parties, and that such a contract permitted withdrawal ad nutum. The court based its conclusion that a valid licensing agreement existed on the following presumptive evidence:
• use of the mark by the rights holder in the same territory as that of the licensee;
• participation in the corporate structure of the licensee by the most important shareholder of the pre-user company, where ‘pre-user company’ meant the company which used the mark before use was made by the licensee;
• the name change and simultaneous restructuring of the licensee company during zeroing of its share capital;
• simultaneous use of the trademark in Italy by the applicant and respondent;
• tolerance of the recurring use of the trademark by the defendant for the period during which the parties worked
• publication of the partnership between the two companies to customers; and
• the immediate reaction by the rights holder against continued use of the sign when the business relationship between the two companies broke down.
Italian jurisprudence is keen to protect licensors’ rights. This has a positive outcome: trademarks can be easily licensed and consequently better exploited.