Share this article:
Back to News & insights

Brand Appeal

•

Welcome to the July edition of Brand Appeal, our e-publication reporting on legal issues affecting brand owners.

In this edition we are looking at various principles of English contract law and how they apply to contracts involving trade marks and brands.

Happy reading!

Contract law, trade marks and brands – the devil is in the detail

Background

Trade marks and brands are often the subject of contracts. For example, licenses, assignments, co-existence agreements, settlement agreements governing the resolution of trade mark disputes and franchise agreements.

There is not sufficient space in this short article to address and explain all nuances of English contract law and how they apply to contracts involving trade marks and brands. So, we have taken five key principles for the reader to consider.

What do you need for a valid contract?

For any contract involving trade marks and brands to be valid under English contractual law, certain key elements must be satisfied.

There needs to be:

  • An offer made by one party to the other party, to contract on specific, clear terms.
  • Acceptance of that offer by the other party, and that acceptance must be unconditional.
  • Consideration – each party much exchange something of legal value with the other party. This can be a promise to do, or not do, something, or can involve paying money or giving something to the other party.
  • An intention to create legal relations. The parties must have intended the agreement to be legally enforceable.
  • Legal ability and right to contract – the parties must have the legal ability to contract (e.g. they are not under 18) and those entering into the contract must be able to bind the party for whom they are contracting (e.g. they are a director of the company entering into the contract).
  • Contracts don’t have to be in writing, signed by the parties. Oral contracts are possible, as are informal contracts formed by conduct and/or email exchanges.

Principles of contractual interpretation

The starting point for the Court is to identify the mutual intention of the parties to the contract at the time they entered into it.

This is an objective test: what would a reasonable person, having all the background knowledge which would have been available to the parties at the time they contracted, have understood them to be using the language in the contract to mean?

The Court usually gives effect to the natural and ordinary meaning of the words used in the contract, whilst also bearing in mind the overall purpose of the contract and whether the meaning would make commercial common sense (whilst always remembering that it is not the job of the Court to remedy a bad bargain on the part of one of the parties to the contract). The facts and circumstances known by the parties at the time the contract was entered into are also relevant.

But, the Court will not look at the parties pre-contract negotiations, nor consider their subjective intentions. It will not review and consider what was said in meetings or emails before the contract was entered into.

Mistakes in drafting

If a trade mark agreement contains a drafting error rectification by the Court may be possible to remedy the error, so that it reflects the parties’ true, mutual agreement. Rectification claims are not easy to bring successfully. You need to convince the Court that both parties intended to contract on different terms to what the contract says. Careful drafting at the outset is essential to avoid such pitfalls arising.

You cannot assign goodwill alone

You cannot assign goodwill in a brand separate from the business which generated the goodwill (what is known as an “assignment in gross”). For an assignment of goodwill to be legally valid you must also assign the underlying business itself, as a going concern.

You don’t have to register a licence – but no damages available

English contract law and UK trade mark law and procedure do not require a registered trade mark licence to be registered with the UK IPO before the licence is a legally binding contract. The licensee can rely on its terms as a defence to any claim that it is infringing the trade mark proprietor’s registered UK trade mark.

However, neither the licensee (nor the registered trade proprietor) will be able to claim damages against an infringer for any loss suffered by the licensee unless and until the   trade mark licence is registered with the UK IPO.

Conclusion

Never underestimate the need to obtain specialist legal advice when it comes to the interaction between principles of English contract law and UK trade mark law. The devil really is in the detail.

Need assistance?

This is for general information only and does not constitute legal advice. Should you require advice on this or any other topic then please contact hlk@hlk-ip.com or your usual HLK advisor.