Background
An up-and-coming European fashion boutique chain was approached by a local business to open an outlet in an ASEAN country. The local company requested a 5-year exclusive dealership agreement with the European boutique chain.
The licence was granted exclusively for the use of the trade mark amyclick with the European boutique’s logo. In addition, the local outlet committed itself to exclusively selling the amyclick branded clothing which was to be supplied by the European company only. The local outlet agreed that no other brands would be sold in their store.
Despite the original agreement, the local ASEAN-based outlet began to introduce non-amyclick branded clothing into their store and failed to meet minimum order requirements previously agreed with the European company. The relationship quickly started to deteriorate.
Meanwhile, the local company applied to register the amyclick trade mark under its own name for a class 35 registration. Class 35 deals with retail services. It is important to note that a manufactures who manufactures under a brand such as amyclick would register the trade mark for the actual product – in this case clothing. A retailer on the other hand, as they do not manufacture the clothing but sell as part of a wider chain, would register the product trade mark for the service of ‘retail’ rather than for the actual product.
The local outlet tried to terminate the original agreement but was advised that a court order would be required to effectively terminate the agreement. In the meantime, the European boutique chain was forbidden from signing on any new licensees despite its relationship with its local partner being completely broken down at this point.
Action taken
The European boutique chain commenced litigation proceedings in a local court to terminate the agreement and to cancel the trade mark registration in question. While the litigation was ongoing, they approached the local party in order to negotiate an amicable settlement.
Outcome
The European boutique chain eventually paid a significant amount of money to the local party in order to resolve the dispute. They reached this decision based on advice that the outcome of litigation proceedings was uncertain and likely to be drawn out. The worst case scenario presented to them was that the local company would be entitled to use their trade mark by virtue of registration for class 35.
IP Lessons
- This case study demonstrates the risk of signing long term agreements without conducting adequate due diligence on the prospective local partner.
- Background checks are vital before entering into any deals with local parties in ASEAN (or indeed elsewhere).
- Where possible, a short term contract should be used in order to test out the potential partner.
- Additionally, it is a common and useful practice for the manufacturers to register a trade mark not only for their products but at the same time for the retails services concerning such products.