A recent High Court case illustrates – and answers – two Frequently Asked Questions: who should register the trade mark for my products in the UK – me, or my UK distributor; and why does it matter?
In 1991, Dalsouple (DS), a French manufacturer of rubber floor products, appointed an exclusive distributor for the UK (DDL). UK sales flourished. By the late 1990s UK turnover was c £2m pa. In 1998, according to DDL’s owner, he and the owner of DS discussed registering the Dalsouple name as a trade mark in the UK. He said DS’s owner was reluctant to spend any money on doing so and agreed that DDL could make the application. DDL did so, and thus became registered proprietor of the Dalsouple trade mark in the UK.
In 2009 DS was taken over by another company. In 2011 it applied to register a trade mark containing its name in the UK. DDL objected. It relied on its earlier registration of the Dalsouple mark. It also alleged that it, not DS, was the owner of goodwill in relation to products sold under the Dalsouple brand name in the UK.
In March 2014 the UK TM Registrar’s Hearing Officer heard the case. Although DS disputed DDL’s evidence as to the oral agreement as above, the Officer ruled in favour of DDL. DS appealed to a High Court Judge. In December 2014 the appeal was dismissed.*
Why does it matter who owns the trade mark?
Because the owner of the mark has the right to prevent anyone else from placing products of the relevant class(es) on the relevant market under that mark. In this case, therefore, DS could not sell its products in the UK without DDL’s consent. Furthermore, DDL could employ another supplier to make the products and apply the trade mark to them.
Counsel for DS suggested to DDL in cross examination that it was inconceivable, surely, that DS would have given away its brand in the UK in this way, by an oral agreement? But the Hearing Officer accepted DDL’s evidence that this had indeed had happened, and the High Court Judge saw no reason to overturn that decision.
Where did DS go wrong?
Bizarrely, there was a written distribution agreement, but it seems not to have dealt with the trade mark question at all. DS should have either:
- registered the mark itself, and granted DDL a licence to use it while it was DS’s distributor; or
- agreed to DDL registering the mark, but holding it in trust for DS, to be assigned to DS on termination of the distributorship.
Provisions such as the above are normally included in a formal written Distribution Agreement, and are routinely agreed to. The trade mark point alone is a compelling reason why a producer should insist on a written agreement, but there are plenty of other points it will be in the producer’s interests to have covered. As this case shows, if there isn’t a written agreement, the other party is free to allege that some key point was agreed orally – and the court might believe him.
What should DDL have been entitled to for building the brand?
DDL believed its stance was entirely justified. When it was appointed distributor, DS had no UK business to speak of. DDL had built the Dalsouple brand in the UK, and was entitled to benefit from that. In many cases, such an argument will have some merit. But the better way to deal with it is to agree that while all the IP rights and goodwill generated are the producer’s, on termination of the relationship D will be entitled to compensation for its efforts in building goodwill for P’s benefit. To minimise potential for argument, it will be in both parties’ interests to agree a simple formula for calculating D’s entitlement.
Protecting brand goodwill generally
The Dalsouple case is a true cautionary tale, showing what a producer should not do if it wants to ensure it benefits from goodwill built up by a UK distributor. But goodwill can be lost in other ways. For example:
A producer (P) allowed its distributor (D) to sell its products in packaging that did not identify P as the original source of the goods, or even reveal P’s existence. As buyers of the products were completely unaware that P existed, and assumed the products came from D, it was held that only D was the owner of the relevant goodwill.
A large UK wine brand-owner (B) sourced its wines from a Spanish supplier (S). B registered the trade mark in the UK, but S registered it in Spain. When B decided it wanted to switch to a lower cost supplier, it ran into difficulty. Because S was the owner of the trade mark in Spain, no one else could produce substitute wines in Spain under that mark, even though they were intended for export.
If you want to secure the full benefit of the goodwill generated by selling wine under your brand name in the UK market, you must ensure:
(a) that you have control of all necessary trade mark and other IP rights, and
(b) that any distributor and other parties who help you have clearly delineated licences in respect of those rights.
Except where otherwise stated, all information given and any legal opinions expressed on this website assume that English law applies. See Conditions of use.