Keep your friends close – how to stay partners in co-ownership
While co-owned patents are not uncommon, it is unusual to find trademarks being jointly registered by more than one user. Are businesses missing a trick and how can co-owners ensure that they remain on good terms?
While joint ownership of Community trademarks is permitted, unfortunately for brand owners, there is no harmonised or unified European law regarding co-ownership. Instead, the national law of the first recorded owner applies. Paragraph 16 of EU Regulation 40/94 notes that where this is not European, the law of the second or subsequent owner(s) will apply – if none of these are European, then Spanish law will apply.
In order to consider joint ownership of trademarks in Europe, it is necessary to consider specific national regimes. This article examines some of the benefits and pitfalls of co-ownership, using French law for the purpose of analysis.
Under French law, trademarks can be filed or acquired in co-ownership, regardless of the proportion of the shares. That said, co-owned trademarks represent a minority of all French trademark registrations – only 7.7% of trademarks were filed jointly in France in 2013.
The system is not encouraged by IP attorneys, who anticipate deadlocks or legal disputes. However, co-ownership can sometimes be a good fit with economic needs, as well as a useful way to avoid protracted lengthy negotiations or to facilitate dispute settlements.
Co-ownership does not mean co-exploitation
There may be a variety of situations involving joint ownership. In some cases it may result from the division of the right between different persons following an inheritance or the division of a company. In such cases, one or more of the co-owners may not necessarily be willing or able to make use of the trademark. However, the most usual situation is where a brand is created by two or more parties which are willing either to share its exploitation through a common company or business, or to exploit it individually in a different field of activity corresponding to their own business.
The system of co-ownership is governed by national laws and the situation can become extremely complex where the co-owners are of different nationalities. There is no specific regulation regarding co-ownership of trademarks in France. It is thus recommended that an agreement to govern co-ownership be put in place. Such an agreement should be recorded at the French trademark office (INPI) in order to be enforceable against third parties, which in itself is a helpful measure to avoid future conflicts.
Nonetheless, conflicts may indeed arise – both between third parties and between co-owners. Disputes frequently arise in cases where joint owners want to exploit the co-owned mark individually. Such independent exploitation may well contradict the general principle of global ownership of the mark. Co-owning a trademark does not mean owning a part thereof – each co-owner owns the entirety of the mark. This principle applies both to the signs themselves and to the covered goods and services. For example, a party that files a trademark in co-ownership renounces the use of any element comprised in the mark (eg, a logo or tagline) in such a way that might infringe the joint ownership. In addition, each co-owner is prohibited from filing a competing trademark covering similar goods and services.
Difficulties may also arise if the common company or business goes bankrupt or is dissolved and the co-owners subsequently become rivals for the co-owned mark; or where shares in the co-owned mark are transferred, thereby creating a new contractual or economic relationship between the co-owners, which might have very different aims.
In any event, the mark has value only if it is used to designate goods or services. Nevertheless, such value should not result from a non-compliant exploitation and some key provisions should be considered when drafting co-ownership regulations.
Is exploitation by only one co-owner allowed?
The legal framework governing use of a trademark by one co-owner differs from country to country. Some countries prohibit personal exploitation by one co-owner without prior approval from the others. More freedom is granted to co-owners in France and Italy, where they may exploit the mark themselves either directly or indirectly (through the grant of non-exclusive licences).
In France, one co-owner may use a jointly owned mark if such use is not detrimental to the other co-owners’ rights. Use of the mark by one co-owner therefore does not require the agreement of all other co-owners.
In return for this personal right of exploitation, the co-owner using the mark must pay compensation to the others, unless otherwise agreed. Current doctrine and existing case law suggest that this be calculated based on any gains resulting from the exploitation, usually divided pro rata based on each co-owner’s share.
One for all and all for one?
How extensive are the rights of a sole user, given that this is also likely to be the only one with the motive to develop and maintain the mark?
Trademark maintenance must be carried out at INPI by all co-owners through their appointed representatives. This serves as a useful opportunity to check the consensus between the co-owners, as expenses must be paid in a timely fashion in order for rights in the joint trademark to be preserved. It is strongly recommended that if only one co-owner intends to use the mark, it be supplied with a signed authorisation by all other applicants when an application is filed, to enable it to take all necessary steps for maintenance in a timely manner. Without such authorisation, INPI will refuse to renew or to extend the rights, since the renewal form will be deemed inadmissible. Without an agreement between all co-owners, one of them could paralyse the process of trademark maintenance, resulting in all rights in the mark being lost.
Since 2006, when the law was amended, one or several co-owners holding at least two-thirds of the ownership have been allowed to carry out administrative tasks, provided that they inform the other co-owners of this. Without such notice, any decisions taken by one or more co-owners will not be enforceable against the others. For instance, a sole user can now instruct IP attorneys with regard to brand protection and brand management, setting up a trademark watch in the name and on behalf of all co-owners while fulfilling the formalities required by the IP regulations (power of attorney signed by all co-owners).
On the other hand, unanimity is required for any act which falls outside the scope of normal exploitation, as well as for acts of disposition.
The question arises as to whether the decision to file an opposition or to extend the trademark abroad qualifies as an act of administration or disposition, since it creates new rights and might also jeopardise the existing rights (eg, an opposition might prompt a counterclaim of cancellation for non-use). It is strongly recommended that such issues be addressed in the co-ownership agreement. Oppositions cannot be undertaken by one co-owner alone before INPI. The same recommendations as are made for renewal apply (ie, prior power of attorney from all co-owners in favour of their representative, who will commence the opposition in the names of all, but will give instructions alone with subsequent notification). Co-ownership regulations may also provide that co-owners must engage in discussions in order to undertake the necessary steps to extend the trademark abroad. If one co-owner refuses or defaults, it shall be deemed to have given up its rights to co-ownership of the trademark abroad. In such case the interested co-owner may extend the trademark – in particular, if the priority period is about to expire – in its own name and on its own initiative. The priority right should normally vest in the co-owner extending the mark abroad in its own name. However, it is safer to specify in the co-ownership agreement that the priority right of the abandoning co-owner will also be abandoned for the benefit of the receiving co-owner.
The grant of a simple licence should also be qualified as an act of administration and granted by the sole user. With regard to patents, the law establishes a control procedure allowing the other co-owners to oppose the grant of a licence, provided that they then acquire the share belonging to the co-owner which is willing to grant the licence. Trademark co-owners may provide a similar mechanism by convention.
In contrast, the grant of an exclusive licence may qualify as a serious act which requires unanimity. An exclusive licence triggers the loss of economic use of the trademark for all co-owners. The procedure is the same as for patents ruled by special provisions, establishing a right to approve the exclusive licensee. In the patent field, the case law states that if an exclusive licence has been granted in breach of the other co-owners’ rights, it is unenforceable against them. The licensee is then considered to be an infringer. The exclusive licensee may call in warranty the co-owner which granted the licence (Paris Court of Appeal, first ch, September 9 2009: Publication Propr Industr 2010, 13). This case law might also apply to trademarks.
Co-ownership of trademarks makes more sense when the co-owners agree to exploit the mark jointly. Ideally, co-ownership in such circumstances ensures fair and transparent sharing of trademark management and branding.
Co-ownership results from a joint project involving two or more individuals and facilitates stronger integration and better development of the project. Co-ownership may exist between two companies – for instance, the trademark CANAL FACTORY was filed by Groupe Canal+ and Canal+ France, while the trademark KICK ON was registered in the name of Endemol Productions and another company that was in the process of being set up, for television broadcasting. Co-ownership is also possible between public bodies. For example, the trademark TOULOUSE SPACE SHOW was registered with INPI by the French National Centre for Space Studies and the Toulouse Chamber of Commerce and Industry, among others, for exhibitions, conferences and shows jointly organised by the co-owners.
Co-ownership regulations may prohibit the parties from granting a simple licence for the trademark or part of it separately
Co-ownership regulations may prohibit the parties from granting a simple licence for the trademark or part of it separately, since this does not accord with the purpose of jointly exploiting the mark.
However, in practice, joint exploitation rarely involves co-ownership. It is not common for economic players to choose to go into partnership – or at least, not to the extent of sharing ownership and management of their trademark rights.
Often, two marks with similar degrees of fame combine their production in order to derive an equal benefit (eg, to enter new markets or target a larger audience). These partnerships may be undertaken for many reasons, including:
- to sell complementary goods (eg, Nespresso capsules and Krups machines);
- to create a common new product (eg, Air France/American Express cards offering clients American Express banking services while accumulating FLYING BLUE loyalty points); or
- for a specific marketing campaign (eg, Jean-Paul Gaultier/Coca-Cola, with examples of the former’s designs appearing on drinks bottles).
In such situations, licensing arrangements between two economic players which allows for the joint exploitation of the trademarks involved shall be privileged. For instance, New Era Caps has concluded about 200 licence agreements in order to create clothes and accessories reproducing the logo of sports teams (eg, Major League Baseball, USA Hockey, National Basketball Association, FCB Barcelona and Real Madrid) and famous characters.
However, among the many various forms of partnership, few lead to co-ownership – even where new products are being launched. Instead, what often occurs is the creation of a third-party company which will use the trademark. For instance, YOLKA is a cross between yoghurt and ice-cream for which Danone and Motta created a general partnership, buying the yoghurt from one and outsourcing the manufacture of the end product to the other. Alternatively, a jointly used trademark may be filed in the name of one of the companies involved (eg, the COOL SKIN mark is used by both Nivea and Philips, but is registered in the name of Koninklijke Philips NV).
In co-ownership arrangements, it is important to contractually set out the conditions of exploitation and rules for the use of the mark in order to avoid any unintended exploitation. This might include defining the roles of each party and how the royalties should be divided, which could easily become a source of conflict, depending on the investment provided by each.
Competing trademark exploitation may occur where a joint exploitation ends and ownership in the mark is divided: for example, where a business collaboration ends and the trademark is partially transferred.
In this case, each co-owner may become an exclusive owner of the trademark rights covering only some of the goods and services set out in the co-owned trademark registration. The co-owners may thus divide the use of the trademark between them. As a consequence, each co-owner will be authorised to use the trademark in accordance with its own interests and will then be in direct competition with the other co-owner(s).
An example of this is the trademark PAYEZ MOBILE for mobile payment, which was filed and registered in co-ownership by various major economic players in the fields of telecommunications and banking – all of which are competitors in their respective fields of activity – for goods and services in Classes 9, 35, 36, 38, 42 and 45. The services applied for in Classes 35 and 38 (concerning telecommunications) are different from those in Class 36 (concerning banking and finance). Thus, each co-owner may exploit the co-owned mark for its own line of business and in combination with its own house mark.
Competing use may eventually result in a loss of market share and the original motivation for co-ownership may be overtaken by individual interests.
When a co-owned trademark is used by co-owners in different sectors or territories, or to target different customers, the question may arise as to whether this kind of exploitation might result in an anti-competitive agreement under competition law. Such agreements can be characterised by cooperation between several companies in order to share markets. However, agreements can be authorised on a case-by-case basis, especially if they help to improve the production or distribution of goods, or to promote technical or economic progress while allowing consumers a fair share of the resulting benefits. This practice should not excessively restrict the freedom of participating firms, or allow them to eliminate competition.
Do co-owners have a common interest in defending the mark?
The French Intellectual Property Code provides that civil infringement proceedings must be instituted by the owner of the mark (Article L716-5). The following question then arises: if the party bringing the action is a co-owner, must it provide evidence that the other co-owner(s) have agreed to the action and given it a mandate to act in their name?
Some decisions suggest that such proof is necessary, holding that a civil infringement action cannot be classed as a protective measure which can be taken by any co-owner. The agreement of the other co-owners is necessary; otherwise, the action is inadmissible. However, if the co-owner transfers its rights to the claimant during the course of proceedings and this transfer is registered with INPI before any judgment is issued, then any motion to dismiss based on the failure to act is inadmissible.
However, a contrary decision was issued in 2008 (CA Paris, fourth ch B, November 28 2008, PIBD 2009, no 892, III, 887). The Paris Court of Appeal considered that civil infringement proceedings are designed to protect each co-owner’s rights, which is an act of conservation. Since all co-owners may take any necessary measures to preserve the undivided property, each co-owner may bring an action itself to end the infringement or damage to the trademark.
In the authors’ view, any joint ownership agreement should anticipate the authorisation given to each co-owner to act individually for the defence of the joint IP rights. In addition, it should compel any co-owner that wishes to take action to inform the other co-owners in advance, so that they can decide whether they wish to join the action. Likewise, the parties should inform one another of any infringements that they discover. Where there is common agreement, the parties may appoint a mandatory representative. Each co-owner shall contribute to the costs of the proceedings in proportion to its share of the mark and any eventual benefits should be allocated in the same way. Failing such an agreement between all parties, each party may act in person at its own expense, provided that it informs the other co-owners of such action in advance in order to give them the chance to join the action. Any benefits from such actions will then return to the party that initiated the proceedings.
As soon as a trademark application has been proposed, each co-owner should sign an authorisation nominating one of the co-owners to be responsible for renewal and any future extensions of the trademark rights. This nominated co-owner can then carry out all trademark maintenance in a timely and proper manner. Ideally, it should pay the renewal fees and any related costs itself, and then recoup them from the other co-owners on a pro rata basis.
In addition, the co-ownership regulations provide that if one party refuses to maintain the trademark, then the other parties may proceed, in their own name and at their own expense, with the formalities required to keep the trademark in force. This abandonment by one co-owner to the others may be completed free of charge. As a result, the uninterested party loses the ownership and exploitation right to the trademark – although a co-owner which is uninterested in the life of a trademark probably has no place in a co-ownership system.
The key provision of co-ownership is Article 815 of the Civil Code, which provides that if the co-owner intends to assign all or part of its rights in the undivided assets to a third party in return for consideration, it is bound to notify the other co-owners of the price and conditions of the contemplated assignment (Article 815-14 of the code), so that they may exercise their right of pre-emption.
In a September 23 2009 decision taken by the Paris Court, the judges approved the transfer of a share of a patent that had been jointly registered. However, they held the co-owner contractually liable for transferring its share without the approval of the other co-owner, as the regulations governing co-ownership specifically provide for notification and pre-emption procedures. Although this decision concerned a patent, the grounds of the judgment may be extended to trademarks and designs as well.
Ultimately, co-ownership of trademarks is rarely used by major companies because of the rigid legal framework to which it is subject – although this can be made more flexible by convention. Neither has it proved particularly attractive to independent businesses.
Registering a trademark jointly with future partners may be a useful way to control its subsequent ownership, as much for fiscal as for legal reasons
The investment necessary to create and protect a brand is far less than that needed for the R&D necessary to create a new patented technology and thus does not justify the sharing of the initial cost. However, registering a trademark jointly with future partners may be a useful way to control its subsequent ownership, as much for fiscal as for legal reasons. This mechanism is probably most useful for individuals who are willing to become partners and share in a business, which fits with the original aims of co-ownership agreements.