‘If your agent or distributor misuses your company’s intellectual property, through the unauthorised use of trademarks or designs or other misuse, this can cause serious reputational damage to your company and brand,’ says Mark Blake, Partner and dispute resolution solicitor with QualitySolicitors Parkinson Wright. ‘If you see or suspect any abuse of your IP, it is vital to act quickly to reduce the damage as far as possible.’
Mark looks at your options for dealing with disputes that arise from intellectual property matters with a distributor or agent, and what issues you need to be aware of, including jurisdictional issues for overseas agents or distributors.
Types of IP misuse by agents and distributors:
When you are trusting an agent or a distributor with your goods, inevitably you have to trust that they will protect your intellectual property and not abuse or misuse this. Unfortunately, this is not always the case. An agent or distributor might either deliberately or accidentally misuse your intellectual property when distributing or selling your product.
It is therefore essential that the intellectual property rights that you have taken a lot of time, effort and expense in creating, are not passed off as someone else’s, or damaged in the public eye due to action by a contractor.
Any agreement that you have with a distributor or agent should set out clearly defined boundaries of what intellectual property can be used by them, what they are allowed to do with that intellectual property during the course of their agreement with you, and be clear on who actually owns that intellectual property. It should also state what happens to intellectual property when the agreement comes to an end.
An agent or distributor of your goods can cause damage to your intellectual property in several ways.
Breach of contract
Most well drafted contracts with agents or distributors will contain a number of express clauses to protect a company’s intellectual property and confidential information that may have been provided to the agent or distributor to enable them to do their job for you.
For example, you may have agreed to give a distributor the exclusive right to distribute your patented software only within the United States, for a term of three years, paying you royalties based on number or value of sales.
You then discover that the distributor has in fact sublicensed the software to a company in Europe, despite your contract prohibiting distribution outside the United States and prohibiting sublicensing, and they have not paid you any royalties for sales made in Europe. This breaches several terms of your contract and will require action on your behalf to protect your property.
A standard contract should have a clause that when a contract comes to an end, all confidential information will be destroyed or returned, and a distributor or agent can no longer use any of the supplier’s trademarks or copyright, including logos and names, or patented information. However, sometimes agents or distributors will continue to use information that they have obtained through their contract, even when no longer authorised to do so. Alternatively, they may misuse or misrepresent information you have provided to them, so that the brand message being seen by the public, allegedly on your behalf, is wrong and damaging to the brand. It is vital that these issues are resolved quickly to prevent further damage.
Passing off
An agent or distributor might lead others to believe that the product supplied by you is actually theirs. This can have a serious impact on your reputation in the marketplace and can damage goodwill that you have spent many years building up.
Infringement
There are several ways in which an agent or distributor might infringe your intellectual property rights.
- Trademark infringement - this involves the unauthorised use of your brand name, logos, symbols or other trademarks. Taking our earlier example, if the distributor distributed outside of the United States without authorisation, this would be an unauthorised use of a trademarked brand name. Your brand often relies on certain trademarks, and it is vital to maintain control over these.
- Copyright infringement - this could involve the misuse of copyrighted material particular to your business. For example, by copying certain packaging, or software, or drawings that are specific to your own business. This misuse can have an adverse effect on your branding and position in the market.
- Patent infringement - this could be where a distributor or agent might start to make their own products and sell these, using your patented invention which they have obtained having worked under contract with you previously.
Unauthorised use
A distributor or agent will be authorised by you during the course of your relationship to use certain logos, branding, trademarks and other defining intellectual property while they are acting for you as agents or distributing your goods. However, this use will be limited to only using intellectual property during the course of authorised supply by you, and in accordance with guidelines laid out between you, preferably in a written contract. If a distributor or agent goes beyond this, and uses these without your knowledge or specific agreement, you will need to take action to prevent damage to your business.
Remedies to rectify a breach
There are several remedies available to you if you find that an agent or distributor has overstepped the mark. It is always better to resolve a dispute as quickly as possible, and pragmatically, to ensure that damage is limited and your costs can be kept under control.
If informal discussions have not been successful, the first option is usually for a solicitor to serve a ‘cease and desist’ letter, informing the contractor that they must immediately cease whatever behaviour is infringing your rights, or they will face court action. Their response to this will inform your next steps.
Negotiation
If the distributor or agent is willing to engage with you, then resolving your dispute through negotiation is the best option, as long as it fully addresses your concerns.
However, if it is clear that a simple request is not going to resolve the problem, we can help you to work quickly to prevent further damage.
Alternative dispute resolution
Depending on what the issue is, for example, if you are seeking financial damages for breach of your rights, or failure to pay what is owed to you by way of royalites, you may be able to use an alternative dispute resolution method such as arbitration or mediation to satisfy your claim before resorting to court action. This can have the benefit of keeping costs down, and ensure disputes are kept confidential.
Injunction preventing breach
Sometimes rapid court action is the only way to prevent more damage occurring. A court might have to intervene to order that the distributor or agent is immediately prevented from continuing the breach. The court can injunct them from taking any further action or face serious consequences.
This is the best remedy if, for example, you believe that confidential information is being leaked into the public domain, especially if this is negatively impacting your reputation.
Breach of contract and damages claim
If other remedies are not effective quickly, then we will issue a claim in court for breach of contract on your behalf, including a claim for any damages that have been caused as a result of the breach. A judge will then decide on the issues and may order an end to the behaviour and damages, and will inevitably order costs to be paid by the unsuccessful party.
Jurisdiction and other issues
Distribution and agency agreements can be a great way of getting your product into a new territory. However, it is important that you are clear on which geographical jurisdiction takes legal precedence if a dispute arises.
Any agreement with a UK supplier will usually stipulate that any disputes will be resolved under the laws of England and Wales. If this is not the case, we can work with our contacts in other jurisdictions to ensure the matter is resolved.
How we can help
If you discover problems with an agent or distributor which is threatening your intellectual property, you need to act fast. We can help you look at the best options to resolve your dispute, and take action for you to safeguard your rights and your product.
Our solicitors have many years of experience in this area. For further information and assistance, please contact Mark Blake or a member of the dispute resolution team on 01905 721600 or email worcester@parkinsonwright.co.uk
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.