Cautionary Tale: The licensee who tried to take it all

When a licensee turns competitor

This is the story of a prestigious brand with over a century of history and a trademark portfolio spanning the globe.

Over the decades, the company merged, was acquired, and restructured. With every change, a few trade marks slipped through the cracks. Some were never properly assigned, others weren’t renewed, and deadlines were missed and not correctly monitored.

The company entered into a licence agreement with an entity which gave the licensee a wide scope of rights to use, exploit and enforce the company’s trade marks and even access to confidential style guides relating to its IP. During this time, as would be expected, the licensee became familiar with the trade mark portfolio of the company and indeed any gaps in the portfolio which had resulted in non-renewal of previous rights. Further, during the term of the licence, the licensee actively used the trade mark and to some extent, became recognised as the local representative or “face” of the company.

The licence agreement was ultimately terminated.

Despite the licence agreement stipulating that the former licensee could no longer use the company’s trade marks and IP, and prohibiting the licensee from applying for identical or similar trade marks, the former licensee used the knowledge of gaps in the trade mark portfolio and commenced filing identical marks to that of the company worldwide. Suddenly, the company found itself fighting a costly legal battle to claw back its own name. This included numerous trade mark opposition actions worldwide, a new filing strategy and in some cases, even commencing legal proceedings before the courts in various jurisdictions.

The Outcome

In Australia and in some other jurisdictions, the company successfully opposed the licensee’s applications and advanced its own filings. But the clean-up continues — with significant costs and administrative headaches. What began as a commercial arrangement intended to grow the brand turned into years of expensive litigation and portfolio repair.

Lessons & takeaways

This tale underscores the importance of staying vigilant and conducting thorough due diligence when it comes to trademark ownership and licensing:

• Know your licensee — do your due diligence before granting rights, and think carefully about what powers they should (and shouldn’t) have.
• Draft carefully — agreements should anticipate not only the licence term, but also what happens when it ends.
• Audit after acquisitions — when companies merge or are acquired, ensure that IP rights are properly assigned, maintained, and monitored worldwide.
• Don’t leave gaps — unattended registrations are an open door for opportunistic filings.

As with our previous tale on overgenerous IP assignments, this case shows how contracts that seem straightforward at the time can have unexpected, long-term consequences if not handled with care.