Trademarks in contracts

Purpose and characteristics. A trademark is a symbol, logo, word or other indicator to identify a certain product or service and to distinguish it from other (similar) products and services. Trademarks serve to identify the commercial source of origin of a product or service, and distinguishes such source of origin from other suppliers. Many people attribute much broader purposes to trademarks, such as a means of communication with consumers or customers (e.g. by creating a ‘limited edition’ of their products by combining it with an icon of style or quality) or as a means for people to communicate with each other (e.g. by wearing certain clothing or icons of class). Also courts generally acknowledge that trademarks contribute to brand positioning and encourage businesses to invest in high quality of products by awarding high infringement damages, taking into account the inherent goodwill.

From a legal point of view, trademarks include word marks and service marks; their protection and enforcement follows the same rules. In a trademark licence, the licensed word mark is usually identified in uppercase: PRECONTRACTUAL, MDLCNTRCTS, WEAGREE, etc. A slogan can also qualify as a trademark. Non-traditional marks such as colours, sounds, fragrances and tastes are increasingly accepted as trademarks.

One trademark may reflect both a product and a service at the same time, and a trademark may be both a word mark and (its design as) a logo. Similarly, a trademark will often coincide with a trade name.

Requirements for trademark protection. In order for a symbol, logo, word or other indicator to be protected under trademark law, it must be ‘distinctive’. Usually, several degrees of distinctiveness are identified, ranging from inherently distinctive (readily distinguishable as a mark) to a generic or descriptive indicator (without legal protection):

  • Inherently distinctive marks are readily protectable because they are:
    • arbitrary marks: usually a common word used in an unrelated context (e.g. “Apple” for computers). Arbitrary marks consist of words or images which have a particular (dictionary) meaning, but which are used in connection with products or services unrelated to that dictionary meaning. For example, Salty would be an arbitrary mark if it is used in connection with telephones such as Salty Phones, as the term salt has no particular connection with telephones.
    • fanciful marks comprise a word that is entirely made up or invented to be used as a trademark. For example, “Kodak” had no meaning before it was adopted and used as a trademark for photographic and other goods.
    • suggestive marks invoke the consumer’s perceptive imagination. Suggestive marks tend to indicate the nature, quality or characteristics of the product or service, but do not describe this characteristic and therefore require imagination from the consumer to identify the specific characteristic. An example is Blu-ray, a technology used for high-capacity data storage.
  • Acquired distinctiveness (not merely descriptive): if the mark’s descriptive element and the related product or service is less remote, the mark is only protected if the mark has acquired distinctiveness in the relevant market. As per the above example: if Salty is used for saltine crackers or anchovies, it is not protected as a trademark unless it can be shown that a distinctive character has been established through extensive use in the marketplace.
  • Not a generic word: if a mark indicates a category of products (rather than a particular supplier or a specific product in that category) it is not distinctive and therefore not protected as a trademark. For example, the mark “salt” in connection with sodium chloride is not capable of distinguishing the products or services of a business from the products or services of other businesses.Some examples of such genericised (eroded) trademarks are: aspirin, yo-yo, zipper, thermos, heroin, escalator and kerosene.

In many jurisdictions, a trademark must be registered with the (national) trademark office in order to receive the desired protection or to intervene when others infringe the trademark.

Classification. Upon registration, the application should specify the class under which the trademark falls according to the Nice Agreement[1]. This classification serves to differentiate trademarks according to the types of goods or services. A trademark can fall in more than one class. The ‘Nice classification’, which has been adopted by 148 countries, consists of 45 classes (34 classes of products and 11 classes of services).

Geographical indications. Consistent with the TRIPS convention[2], the European Union restricts the use of geographical indications for certain ‘protected designations of origin’. In principle, a geographical indication cannot qualify as a trademark because it does not identify a specific company as the producer of goods. Nonetheless, the EU recognised the distinctive nature which a consumer may attribute to a product coming from a specific geographical area and therefore decided to grant protection. This is somewhat controversial because a geographical indication may have already been registered as a trademark elsewhere. Well-known examples of geographical protection in the EU are wines (e.g. Bordeaux, Champagne and port) and cheeses (e.g. Gouda, Roquefort, Parmesan and Feta).

Duration. Other than patents and copyrights, a trademark does not expire or end after a specific term. Although the registration of the trademark may expire, the trademark itself would not be affected. Nonetheless, in order for a trademark to remain valid and enforceable, it must continue to be used in the relevant market (and not become genericised).

Use and exhaustion. A trademark must be used in order to maintain the protection. Many jurisdictions require that a trademark owner (or its licensees) must genuinely use a trademark within five years after registration, unless there are valid reasons for non-use. Although many trademark laws provide that the use of the trademark by a licensee accrues to the benefit of the licensor/owner of the trademark, it might be helpful to provide that such use does not accrue to the licensee. If it did, that would enable the licensee to terminate the trademark licence and start using the trademark itself without any obligations vis-à-vis the licensor, or even with a right to prohibit the licensor to use the trademark in the licensee’s territory.

After a product with a trademark has been ‘put into circulation’ on the market, the intellectual property rights in the trademark are ‘exhausted’. This means that the trademark owner cannot take action against the way the subsequent vendor (e.g. of second hand products or outlet stores of past-year products) presents the trademark.

Dilution and blurring effects. One of the most treacherous effects of poor trademark management is dilution or blurring of the trademark: when a trademark loses its distinctiveness. There may be several causes for dilution, a few can be prevented contractually and most require alert and adequate action. A trademark may lose its distinctiveness because:

  • it is used or presented inconsistently;
  • colours of the trademark are not always exactly the same (or contrast differently depending on surrounding colours), shapes of the trademark are similar across the product portfolio but not exactly the same, fonts used in connection with the trademark differ (e.g. Times New Roman vs. Garamond, or Arial vs. Helvetica or Verdana);
  • the emotion or personality attributable to the trademark varies in a confusing manner (e.g. used in intimate contexts as well as aggressive statements, or both in a picture of a natural landscape and in a city nightlife setting, or to convey a sense of exclusiveness and a sphere of basic cheapness at the same time).

If a licence does not contain quality controls regarding the presentation of the trademark or the way it is presented in advertising and promotional materials, such licence is referred to as a ‘naked licence’. Lack of such quality control by the licensor entails a serious risk of dilution (i.e. loss of the trademark).

[1]           Agreement concerning the international classification of goods and services for the purposes of the registration of marks (Nice, France, 15 June 1957), as revised and amended.

[2]           The Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS”, Annex 1c to the Agreement Establishing the World Trade Organisation). Article 22 provides for a protection of geographical indications about the origin of goods in a way (and based on criteria) similar to trademarks.

Franchising – a few notes #

Licensing a ‘concept’. Franchise arrangements are very similar to trademark licences. Franchising concerns the licensing by a franchisor of a ‘concept’ or ‘system’ to one or more franchisees. The concept usually consists of a trade name, trademark, use of an internet domain name, and trade secrets (see section 5.5(d)) in connection with a product and service, accompanied by detailed instructions or a manual regarding the production, marketing, sales and business model of the product and service. Some examples of franchising are hotel chains and fast food restaurants (e.g. Hilton, Meridien, NH Hotels, McDonalds, 7-Eleven, Subway, Burger King, Wendy’s, Kentucky Fried Chicken). Any combination of products or services and set of instructions to ascertain uniformity and recognisability is capable of being franchised.

A franchise often consists of several layers: the main franchisor licences the franchise concept to a limited number of franchisees, with typically one or two franchisees per geographical area. The franchisees, in turn, will have the right to grant sub-licences to sub-franchisees (in parts of the franchise territory). This is a common way to delegate the exploitation of the franchise concept to local entrepreneurs and to limit the management time required to instruct and supervise the sub-franchisees.

Compliance with the concept. More than with trademark licences, a franchise agreement requires strict compliance with the licensed concept and the often-detailed instructions in the operations manual. For example, upon entering such franchise restaurant, the personnel will approach each time exactly the same way, often with exactly the same sentence (“Is there anything else I can do for you?”) or with ‘prohibited’ phrases (such as never say “No problem” after the customer said “Thank you”). Such uniform approach reinforces the consumer’s positive perception and recognition of the trademark.

Developing the concept. A franchised concept usually develops continuously. Compliance with the concept therefore includes a contractual obligation to adopt all the changes in the franchised concept as they are adopted by the franchisor and communicated to the franchisees. Usually only the timing of adopting changes and the contribution by the franchisor in the costs of such changes are (to a limited extent) open to negotiation.

Collaborative element. In order to streamline the feedback of customers and to optimise the franchised concept, many franchise arrangements contain a committee of franchisees (or geographically oriented sub-committees of franchisees). Such committees enable large numbers of franchisees to communicate with the franchisor and to jointly improve the franchised concept.

Terms of Use

I hereby accept (or reconfirm my acceptance of) Weagree’ Terms of use, in which:

Terms of Use

I hereby accept (or reconfirm my acceptance of) Weagree’ Terms of use, in which: