Background:
A foreign company (“Foreign Company”) had registered its trade mark in its head-quarter country but had not done so in Thailand. It entered into a franchise agreement with a Thai company (“Thai Company”), permitting the Thai Company to “use” its trade mark in Thailand. During the contract term, the Thai Company sneakily filed and registered copycat marks in Thailand, imitating the Foreign Company’s trade mark. As soon as the registration was approved, the Thai Company terminated the franchise agreement to pursue its own business exploiting the newly registered trade marks.
Action taken:
The Foreign Company took legal action against the Thai Company requesting the cancellation of the imitated trade marks on the basis of better rights, meaning on their prior trade mark ownership abroad and the bad faith of the Thai Company’s registration. All of the initial decisions were in favour of the Foreign Company. However, the Thai Company took its claims to the Supreme Court.
Outcome:
The court reviewed previous franchisor-franchisee disputes in an effort to identify the grounds of the better rights of the Foreign Company and establish the bad faith of the Thai Company. The court considered written agreements and found that they addressed the Foreign Company as the owner of the trade mark. During the proceedings, the Thai Company admitted to seeing the Foreign Company’s trade marks at trade fairs in other countries before entering into the franchise agreement.
In the end, the court ruled that the Foreign Company was the owner of the trade marks, and that the Thai Company acted in bad faith by registering trade marks that imitated those of the former. Therefore the latter’s trade marks has been canceled.
IP Lessons:
- A franchise agreement is a legally binding contract specifying the rights, costs, and responsibilities of a franchisor and a franchisee in the franchising relationship. Its typical component is a clause allowing the franchisee to use the franchisor’s IP assets to reap the commercial benefits of a successful brand or business model.
- Register your trade marks in the destination country before entering into a franchising contract to be on the safe side and discourage the franchisee from infringing your trade marks to avoid an unnecessary trial.
- Consult a lawyer with local expertise to prepare a precise and thorough franchise agreement, ensuring the inclusion of comprehensive clauses on the ownership of the IP subsisting in the products or services, the franchisor’s right to use such IP and setting strict limitations on such rights during the term and after the expiration of the agreement. Imprecise drafting may open up an avenue for the franchisee to misinterpret the contract.