Managing a licensing business can be sometime challenging for a trademark owner.
In a licensing agreement, a trademark owner (the licensor) receives royalty payments in exchange for allowing another party (the licensee) to use his mark.
One of the risks of trademark licensing is losing control of the brand. Sometimes a licensor may find himself giving up control on material elements of his brand, such as packaging, costs, distribution in discount markets and more.
There could be also other risks such as fraud reports and losing the ability to police the licensee’s activities.
A recent case in Israel (Management Europe Meeting International v. Forum Publishing) shows that there might be another serious risk, which is losing a trademark registration as a consequence of a legal conflict with the licensee.
Here are some basic facts of the case:
Management Europe Meeting International (MEM) is the owner of the Israeli trademark PRODUCT OF THE YEAR. Forum Publishing (Forum) has signed a license agreement with MEMI (a sublicensee of MEM) for the use of the mark in Israel.
In accordance with the license agreement Forum is obligated to pay royalties to MEMI for the use of the mark PRODUCT OF THE YEAR, that allows certain manufacturers to label the mark on their product packaging for marketing purposes.
After several years a conflict erupted between MEM and Forum.
Eventually, MEM has sued Forum in the Israeli Court asking for a declaratory judgment that the license is no longer valid due to lack of trust and bad faith behavior of Forum’s manager. Alternatively, MEM has claimed that the license agreement is no longer valid since the license period has ended and not renewed.
It should be noted that those claims have been denied by the Israeli Court who decided that there were no grounds to cancel the license agreement and that there is no evidence for such a lack of trust.
The trademark owner has also raised an unusual claim in order to attack his licensee. MEM claimed that the license has never been recorded at the Trademark Office, therefore the license was not valid, and the result is that Forum has no license to use the mark.
Can a trademark owner cancel an existing trademark license by claiming that the License wasn’t recorded in the Trademark Office?
Let’s understand the context. Why does a trademark owner need to record a license at the Trademark Office?
According to the Israeli law (Section 41 of the Trademark Ordinance) any trademark registration that has not been in use by its proprietor for a period of three consecutive years (from date of registration) can be cancelled on the ground of lack of use. Actual commercial use in the market is required in order to meet the use requirements.
According to the Israeli case law, using the mark in Israel only by a local licensee (and not by a trademark owner) will not be considered to be “use” by the proprietor, unless the license was recorded at the Trademark Office.
In the case of A.L. 364/74 Samuel Davidovich v. Miromitt Metal Works 27 Ashkelon Ltd., PD 29 (1) 703 (9.1.75), The Supreme Court has ruled that a trademark license that wasn’t recorded is simply not valid, but the contractual license may be still valid and binding.
It is important to mention that this claim is generally raised by third parties to attack trademark owners in invalidation cases (in a lack of use claims) and not against licensees.
In the case of Management Europe Meeting International v. Forum Publishing, it was the first time that a brand owner itself has raised this claim against his licensee in order to support his claims that the license should be canceled.
Unfortunately, not only that the claim was rejected by the Jerusalem District Court, but the Court has acknowledged the fact that the license indeed wasn’t recorded in the Trademark Office and ruled that the trademark is not valid!
“Therefore, and in accordance to the Davidovitch case law, since the trademark in the country (Israel Y.S) is not registered on the name of the Defendant it’s not valid…”
This is clearly a precedent decision since no party has challenged the validity of the registration and still the Judge took the liberty of declaring the registration as not valid.
This is for sure a fatal result for the trademark owner, who tried to cancel a license but ends up in cancelling his own registration.
I guess this is the classic case of a brand owner who “cuts off one’s nose to spite one’s face” in the fight against his licensee.
The conclusion is that a trademark owner needs to be very careful in managing disputes against his licensees.
Also, trademark owners need to make sure their license is recorded at the trademark Office.
It will be interesting to know how the invalidity of the registration will affect the contractual relations between the parties. It might surely affect the ability of the licensor to negotiate new licensing deals.
Nothing in the above shall be considered as any legal advice or any legal opinion whatsoever. This is just an informative article. We strongly recommend consulting with a professional attorney in such matters.