Trade mark licensing as an afterthought

yes-ministerIn the 1980’s TV comedy series, Yes Minister, a British government minister Jim Hacker struggles to implement policies in the face of opposition by his senior civil servant, Sir Humphrey Appleby. Sir Humphrey uses complex language to obscure his intentions, but occasionally Hacker goads him into an outburst that uses simpler words. One of Sir Humphrey’s comments to Hacker has stuck in IP Draughts’ mind:

If you’re going to do this damn silly thing, don’t do it in this damn silly way.

This sentence comes back to IP Draughts when he sees a technology licence agreement to which has been added, seemingly as an afterthought, a sentence or two of text in which a trade mark licence is granted. While IP Draughts wouldn’t say the line out loud – it probably overstates the issue and shouldn’t get through the diplomacy filter – it sometimes lurks in his mind.

IP Draughts has seen this type of approach in several university technology licence agreements. His first questions, when acting for the university, are to ask who within the university has authority to license its trade marks (often, the answer will not be the technology transfer unit), and whether any assessment has been done of the potential advantages and disadvantages of such a licence. Do the benefits for the individual TT deal outweigh the risks, eg that the university’s hard-won reputation for scholarship and teaching may be prejudiced or that the university may be accepting legal liability for product defects (e.g. under the Consumer Protection Act). IP Draughts has seen situations where, in his opinion, a university has licensed its trade marks without any “big picture” assessment, focussing instead solely on the benefits for the TT deal, and in particular the benefits for the licensee of being able to associate itself with the university’s brand.

If the university decides to go ahead anyway, despite these risks, the next question is whether the trade marking licensing terms are appropriate. Often, this question is asked part-way through negotiations that the parties have started without specialist IP law advice. As a consequence, there may be limited appetite for negotiating a separate trade mark licence agreement. Can’t we just have a simple trade mark licence within the technology licence agreement?, cry the negotiators.

details1The problem with such an approach is that the technology licence template will typically not include many of the provisions that one would expect to see in a trade mark licence agreement. The university may be inexperienced in dealing with such issues and have little insight into why these provisions are important, both from a commercial or reputational perspecttive, and from the perspective of protecting its legal rights in the trade marks. The topics that such provisions typically cover include:

  • quality control of licensed products, including specifying any standards that the licensee must meet
  • prior approval of marketing materials that bear the licensed trade marks. Such approval may relate both to the content of the materials (e.g. are they tacky or misleading, and likely to damage the university’s reputation) and the way in which the trade marks are displayed. In the latter case, trade mark owners often require the licensee to comply with a style guide, that covers detailed issues such as the exact colour and sizing of the marks, use of trade mark registration notices, and so on.
  • prohibitions on modifying the marks, using them in combination with other marks, or as part of a company name, or registering any such marks
  • obligations on the licensee to assign any goodwill generated by it using the marks to the trade mark owner
  • obligations to register the licence

IP Draughts and his colleagues have some condensed trade mark licensing wording “up their sleeves” for when the parties are willing to add a few paragraphs to their technology licence agreement but are not willing to deal with trade mark licensing issues in depth (e.g. in the same level of detail as their agreement deals with technology licensing issues). Using condensed wording is not risk-free but is considerably better than the parties’ starting point, which may be just a sentence or two in a grant clause.

 

9 Comments

Filed under Intellectual Property, Licensing

9 responses to “Trade mark licensing as an afterthought

  1. I’m just trying to understand the mechanics in this trademark goodwill. So in the case of a trademark licence to a company that is sold does that mean the calculated goodwill in the balance sheet would be handed back to the licensee as a cash lump sum despite the licensee having derived cash benefit already over the term of the licence? If the licensor is never sold then the goodwill would never be realised by the licensee.

  2. According to Kerly on Trade Marks, goodwill as understood by TM lawyers is different to goodwill as understood by accountants. It is difficult to reduce the many paragraphs in that book on “what constitutes goodwill” down to a pithy phrase. One phrase, not especially helpful, that comes up in the cases is “the attractive force which brings in custom”.

    Carol, you are right that at a practical level is difficult to separate out the goodwill from the TM. The issue in contracts is establishing who is legally entitled to the goodwill and therefore who is entitled to certain remedies under TM law. This is a technical point of law and therefore it is not surprising that if the agreement is drafted purely to deal with commercial priorities, the point gets overlooked.

  3. What does it mean to assign “goodwill” and what happens if you don’t?

    • Carol, complex subject, but law recognises business reputation, customer loyalty, etc as a form of property. If TM becomes disconnected from associated goodwill, eg if licensee builds up and owns their own goodwill from use of TM, legal rights in TMs may be prejudiced. Usually important to keep ownership of TMs and associated goodwill together. Legal implications may vary according to jurisdiction. Assignment similar in legal effect to assignment of IP.

      • Mark, for me it still begs the question as to how you appropriate/asssign the goodwill in practice? It’s not as if anyone is handing over the goodwill in a balance sheet. If you are using a trademark surely the goodwill associated with it cannot be separated out in practice, customers who buy on the basis of the reputation in a trademark from its new owner will continue to do so.

      • vrkoven

        I may of course be wrong about this, but I always understood goodwill to be an accounting construct, basically the difference between the value of a business as a going concern and the value of its specific assets. How a firm generates goodwill, of course, can relate to trademarks and other intangible property, including IP, but the allocation of goodwill to specific property is usually a matter for the tax boffins, and only arises when a business is sold.

  4. vrkoven

    One ought to inquire whether the proposed usage by the licensee even requires a trademark license. If all they want to do is indicate that [part of] the technology embedded in their product is used under license from [the University of East Wessex], that factual remark wouldn’t necessitate a license. One wouldn’t, at least under US law, require a trademark (including, of course, service mark) license even to say that “this product includes software licensed from The University of East Wessex under its Tech4Tots℠ programme,” so long as USW’s service mark in that name is acknowledged.

    • Vance, agreed. The cases I was thinking of involved more than factual references. In one case the name of the institution was to be made part of the name of a licensed service.

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