When licensing a brand, a fashion licensee naturally wants to know not only that the licensor owns the trademarks that identify the brand to the public and the trade but that the licensee will be able to use the marks without having to contend with adverse claims from third parties. The last thing that a licensee wants is to have many thousands of units manufactured and, just as they arrive in ports and warehouses, get hit with an action for trademark infringement, alone or together with trade dress, copyright or design patent infringement. Indeed, an infringement action could contain any of those claims in combination, resulting in a rather complicated federal lawsuit. And if that is not quickly fixed, there goes the spring/summer season, and all those units, made at the licensee’s cost, might just as well never have been produced. As sub-optimal results go, that is about as low as they come for a new fashion collection.
To help protect against that from happening, counsel for the licensee will typically ask for a warranty of non-infringement. In the practical world of transactional law, there are no prizes for originality in draftsmanship, so all non-infringement clauses are like bees in a hive—they all look pretty much alike:
Fashion Company represents and warrants that the Licensed Manufacturer’s use of the Licensed Marks referenced in Exhibit A as contemplated under this agreement shall not infringe upon or violate the intellectual property rights or other rights of any third party in the Territory.
Of course, if things were that simple, licensees would not need lawyers. (Spoiler alert to licensors and licensees reading this series: Do not rely on what you read here as a substitute for legal representation. Please do not attempt to conclude a complex fashion license without benefit of counsel.)
Indeed, contractual law is about nothing if not the hidden complexity found in words and phrases. As signified by its capitalization, the word Territory should be a defined term. If the license is for a Territory defined as the “United States, its territories and possessions, and Canada,” the non-infringement warranty would cover claims made within those specific jurisdictions. Consulting the United States Patent and Trademark Office database to be sure that the licensor’s trademarks are registered and that there are no pending challenges to those registrations is good self-help for the licensee and a prudent caution for the licensor. But if the licensed Territory is defined more broadly—covering all of the Americas, Europe or even the entire world—the licensor may seek to limit the warranty of non-infringement to those portions of the Territory in which it is reasonably confident that it has protected its licensed rights.
And that is how licensees can find themselves with a predicament that is endemic but the fault of no one: there may be parts of the Territory where the licensor cannot be sure claims of infringement will not be made—as anyone who has seen, to his shock, that his trademark has been registered in another country by someone else for use on the same goods.
The solution? There are various methods that can be used here, but key is for the parties to identify the likely most important countries into which the licensed goods will be delivered (and where they will be manufactured—also an important consideration); they should work together to refine the warranty into something that is reasonable and fair under the circumstances. If that is done, the license should also provide a mechanism for the parties to cooperate in the event that the licensee will seek to introduce its products into areas in the Territory for which the warranty would not apply on execution.
The bottom line: It is a big world. Rights and remedies regarding licensed intellectual property can be very different from one nation to another. Care must always be taken to match the business plan for a license with the realities not only of the market but of the law. In the end, it is in the best interest of both parties to see that works out successfully. That proves again why all licenses are, if nothing else, documents of cooperation for the common good of the parties involved.
Credit: Alan Behr
See previously published related posts:
- “I Own It — I Mean, Really, I Do!“
- “I Hereby Promise That You Are My one and Only-ish“
- “I Promise, Therefore I Am“
- “No Guarantees In Life But Plenty in Contracts“
As we have discussed here, fashion is about nothing if not intellectual property, and most fashion intellectual property is comparatively easy to copy or emulate without great expense. If you have any success at what you do, the odds are fairly good that someone, somewhere on the planet will come out with what you believe to be a brand or product that infringes on your proprietary rights.
You will then have come to a fork in the road. The failure to take action to protect your rights may be used against you later. In the case of trade dress, for example, your silence may be used as evidence of everything from a showing that you suffered no lasting harm to the de facto abandonment of the right to the exclusive use of the trade dress. On the other hand, if you send out a strong cease and desist letter with a clear threat to sue for non-compliance but do not follow up in a reasonable time with a lawsuit should the recipient not comply, you may be deemed estopped (barred) from filing your lawsuit at a later date. That is why cease and desist letters typically threaten the “possibility” or the “potential” of the initiation of litigation—to avoid being estopped by the failure to carry out an explicit, promised remedial act.
Perhaps even worse, if you send a cease and desist letter that is strong enough to make the recipient fear an imminent lawsuit, and if the recipient believes it was within its rights to use the intellectual property that you claim infringes, it may make a preemptory strike. It would do that by filing a declaratory judgment action, asking a court to declare that what it has done was in fact lawful. To use jargon, when you have been so “d.j.’ed,” you have lost the “race to the courthouse door,” possibly to a “forum shopper.” For example, having been ready to sue in New York, where you are located or where you believe the law is favorable to your position, you may find yourself defending an action on the other coast in a court chosen by the plaintiff because it is near to its home base or in the belief that the law there is more favorable to it.
So there is an art in knowing when to send a cease and desist letter and what the tone and the content of the letter should be. As you may remember from your days on the playground, consider the advice you got never to make a threat you are not prepared to carry out and, of course, never to play the bully—because you just do not know what may come back at you.
Credit: Alan Behr