Forgot your password?
Please enter your email & we will send your password to you:
My Account:
Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
This model is intended to cover the situation where the owner of a well-known trademark licenses such trademark to a company which will use it with respect to products other than those manufactured or sold1 by the Licensor. In this case it is assumed that the licensed products will be designed and developed by the licensee2 and that the main preoccupation of the licensor is to ensure that the licensed products conform to the overall image of the licensor and its trademarks3.
The Task Force is of the opinion that such situation has some special characteristics that justify a separate model.
Considering the variety of situations falling within the scope of this model (trademark licenses of this type are by their very nature rather different from case to case), it is rather unlikely that it can be used as such, without modifications and adaptations. Parties are therefore advised to use the model as a basis for negotiation and for drawing up their contract, possibly with the assistance of a lawyer with expertise in international contracts.
The model has been drafted on the assumption that the licensee would use the trademark on products, without considering the possible option to include the licensing of services. If parties wish to use this model in connection with services provided by the licensee under the trademark of the licensor, they should check if all clauses are appropriate for such different situation.
The licence is given for a certain range of products (for example, eyeglasses, ties, perfumes), for which the licensee obtains an exclusivity, i.e. the licensor undertakes not to licence to others the trademark for these products, nor manufacture them itself under the trademarks. These “licensed products” are defined in Annex A-1.
Of course, the licensee will actually manufacture under licence only such products, within those defined in Annex A-1, as have been submitted to the approval of the licensor and have been actually approved by the latter: see also Art. 6.
[Page6:]
As regards the products to be actually manufactured under licence, we have assumed that the licensee would be free to decide which products he wants to propose to the licensor for manufacture. However, a possible alternative is that the parties agree in more detail upon the number and characteristics of products to be developed within the licence or, even, that this choice is reserved to the licensor.
The “normal” scenario considered in this model contract is the situation where the licensee designs and develops the products he wishes to manufacture under licence, and the licensor’s role is mainly to make sure that the products proposed by the licensee have the required quality level and conform to the corporate image of the licensor.
However, there are also cases where the licensor wishes to have a much stricter control over his corporate image and therefore decides to directly participate in the development of the licensed products, particularly with respect to their design. In such a case, the design may be carried out by the licensor, and the licensee will develop the products in conformity with such design. This means that the licensed product will finally be the result of a cooperation between the parties, which may give rise to a number of issues that the parties should consider in the contract.
In some cases, the parties may decide that one of them should be entitled to manufacture and sell the products after contract termination. So, where a very close connection exists between the product and licensor’s image, the latter may not wish that the same product be put on the market under a different trademark. Or, on the contrary, where the licensee has designed the product and has invested in specific production facilities, it may be reasonable that he continue manufacturing the same product under a different trademark. If the parties find an agreement on this issue, they may also provide that one of them will have the right to register possible trademarks, designs and models regarding the products.
If the parties cannot agree on this issue, they may provide that none of them will be entitled to continue manufacturing the products. This solution leaves space for an agreement when the licence is terminated, but each party will be certain that the other may not manufacture the licensed products without its consent.
If it is agreed that after contract termination the licensor shall manufacture the products previously made by the licensee, the parties may need to clearly state that the licensee will transfer to the licensor whatever is necessary for enabling the licensor to do so, such as in the following clause:
Transfer of moulds and design rights. Upon Termination, Licensee shall transfer, and Licensor shall acquire, all moulds, and/or all rights Licensee has in the moulds, exclusively used for the manufacture of the Product as used by Licensee to carry on the Business immediately prior to Termination. The price to be paid by Licensor to Licensee for all the moulds will be based on the historical cost of such moulds, less depreciation.
[Page7:]
Upon Termination, Licensee shall transfer to Licensor the Design Rights (such as design applications and registrations and the unregistered design rights and copyrights covering the Packaging Design of the Products) and the Product Information (such as list of ingredients necessary to manufacture the final commercialized version of the Products) and the Fragrance Rights.
It is important to specify in the contract the regulations of the trademark, designs and model ownership, in order to avoid conflict regarding the legal title on the above matters pending the term of the contract, and/or after the expiration or earlier termination. Therefore the parties should resolve the following questions:
The way the products are manufactured is of course of great importance for the quality and characteristics of the products. However, the licensor’s involvement at this stage may vary substantially from case to case.
There are situations where the licensor does not interfere with the manufacture, provided quality standards complying with its image are met. In other cases, the licensor will want to make sure that the manufacturing process complies with certain quality norms and will retain the right to verify such compliance at the place where the products are manufactured. In this context the licensor may also require that the products be manufactured by the licensee itself or by third parties it has authorized in advance and that the licensee inform the licensor about the place of manufacture and recognize its right to verify at such place how the goods are manufactured.
In some cases, particularly where it is important for the licensor that the products bear the indication that they are made in a certain country, the place[Page8:]of manufacture may have great importance.
Furthermore, where the products are to be marketed in countries that impose that the products comply with specific rules, parties may wish to address this issue in the contract. See for example the following clause:
Licensee guarantees Licensor that it shall use only materials in compliance with both the Italian and European regulations on the use of plastic, metal, chemical ingredients, ink and other materials used for industrial transformations.Therefore, Licensee shall take all the necessary precautions and care in choosing the materials which will be then used for the products and shall guarantee the compliance with the national and European regulations.
In the model, a more general clause on the respect of laws and regulations in force in the territory has been included in Article 8.2.
One of the basic issues for the licensor is to make sure that the licensee’s activity is in compliance with the corporate image of the licensor and its trademarks.
This means on one side that the licensee must bring its action in line with the requirements of the licensor, but also, on the other side, that the licensor must supply the necessary information to the licensee.
This is why the notion of licensor’s corporate image is of substantial importance within this type of agreement.
The model contract is based on the assumption that the licence shall be exclusive, i.e. that only the licensee shall have the right to manufacture and sell the licensed products in the contractual territory. In fact, it is normal to expect that a prospective licensee would not be interested in undertaking the manufacture of the licensed products and in effecting the necessary investment, if the licensor retains the right to grant the same licence to others or to sell the licensed products himself in competition with the licensee.
Of course, the above considerations do not exclude that in certain cases parties may prefer a non-exclusive licence or a sole licence (where the licensor agrees not to grant other licenses, but itself retains the right to manufacture and/or sell in the contractual territory). Where this is the case, the clauses of the model should be adapted to such situation.
If the licensor, instead of granting a worldwide licence, chooses to grant parallel licenses for different territories, problems may arise regarding the position of the licensees with respect to each other.
First of all, the licensees will normally expect to be protected against the competition of licensees of other territories, requiring that the licensor impose on each licensee that it does to sell the licensed products outside the[Page9:]contractual territory.
However, this type of solution, which prevents competition between licensees of the same trademark, may be contrary to the law in certain countries.
Thus, under the EU rules of competition, export limitations to other EU countries are likely to be contrary to Article 81 of the Rome treaty.
This is why Article 4 of the model contract provides two alternative clauses: one stating a strict prohibition of any sales outside the territory (Article 4.1 A) and the other limiting the prohibition to the active promotion of sales outside the territory, thus leaving the licensee free to effect “passive” sales to customers outside the territory.
In principle, option B should comply with the EC rules on competition. However, no precise indications can be given, since trademark licenses of this type are not covered by Regulation (EC) 772/2004 (TTBER, Transfer of Technology Block Exemption Regulation) nor by Regulation 2790/1999 on vertical agreements4.
Another problem that may arise regards whether the various licensees should be treated in the same way, e.g. through a most-favoured licensee clause. Actually, no general answer can be given. If the market conditions in the territories of the licensees are different, it is obvious that the licensor may follow different policies with respect to each of them. If, on the contrary, the various licensees compete with each other (e.g. because they are within the EU and parallel imports between their countries cannot be prevented), there may be good reasons for granting similar treatment to all of them. In any case, no general rule can be suggested and it is up to the parties to work out the most appropriate solutions.
In principle, the licensor can only licence a trademark (either registered or not registered) to which he has acquired certain rights.
It is in principle advisable that the licensor should have registered the trademark in the licensed territory for the class(es) of products to which the licensed products belong.
There are, however, situations where this is not the case, for instance (i) where the licensor owns a “well-known” trademark that is protected independently from its registration (ii) where the territory includes countries in which the licensor has not registered its trademark (because it does not consider such country to be of strategic importance) but which the licensee wishes to be included in its territory, or (iii) where the licensor does not intend to register the trademark for the class of products the licensee is to manufacture.
In such a case, the licensor may nevertheless “grant the licence”, in the sense that it agrees that the licensee may use its trademark in the territory on the conditions stated in the contract and also agrees to respect the licensee’s exclusivity.
[Page10:]
However, in this case two different situations must be distinguished.
In certain cases, the trademark may nevertheless enjoy some protection: this may be the case if the trademark is a well-known trademark (i.e. a mark that has acquired a significant notoriety) in the contractual territory, in which case there may be – according to the applicable law – a certain protection even in the absence of registration;5 or in case the trademark is registered, but not for the class of products to be manufactured under licence.6 Also, when the trademark has been previously used in the territory for the licensed products, some legislations provide for a limited protection (i.e. de facto or unregistered trademarks).
If, on the contrary, the trade mark enjoys no type of protection, the licensor will be unable to warrant that there are no third party rights to the trademark, nor that third parties are prevented from using the same or a similar trademark.
In all the above cases, the parties should make clear that the licensee has been informed that the trademark is not registered with respect to certain territories or with respect to certain classes of products and that it consequently accepts the risks connected to this situation.
A further issue that should be kept in mind is that in most jurisdictions the right of the trademark owner can be lost in case of non-use for a certain period and that consequently the licensor must make sure that the licensee actually sells the products in all the countries for which it has the licence.
The most common type of solution is that the licensee pays royalties calculated on the price of the licensed products sold.
However, it is also common that an initial lump-sum payment be provided. This solution has the advantage of making sure that the prospective licensee is genuinely interested in the deal and that the licensor will in any case be paid for its initial efforts.
As regards royalties, parties may wish to provide a minimum royalty in order to warrant that the licensor will be granted a minimum revenue independently from the actual sales. Since this is a common solution, it has been retained in the model.
It should in any case be considered that payment clauses must be adapted to the specific situation of each case and that consequently parties should verify[Page11:]whether the standard solutions contained in the clause meet their actual needs.
It is in the Licensor’s interest to make sure that the licensee promotes in the best possible way the sale of the licensed products, at least where – as it normally happens – the compensation of the licence is calculated with reference to the products sold (or manufactured). This is why the model contains a general obligation of the licensee to this effect (Article 10.2).
The parties may, however, choose to be far more precise in determining the licensee’s obligations by agreeing upon specific strategy plans and by determining further aspects, like advertising. The following clauses are an interesting example of this type of contractual solution:
Three year strategy plan. The parties have mutually agreed on a three-year strategy plan by which (every year) New Licensed Products will be launched (“new Launch”). The parties shall develop a project calendar for the development of such New Licensed Products, including but not limited to: a) development of the concept; design, creation of prototype, engineering, marketing and distribution plan relative to the Launch, advertising support, including b) a business plan of the prospective sales generated by such Launch and c) a list of strategic countries where Products shall be distributed. Failure to meet the yearly Launch shall be reason for earlier termination under 16.3.
Minimum advertising and promotion (A&P) obligation. For each new Launch, Licensee agrees to support the Licensed Product through a minimum spending of X% of the Net Sales for each Annual Period. The parties will agree to divide such X% in the following activities: a) print advertising in newspapers and magazines, b) Television advertising; c) direct marketing; d) in-store events. To accomplish the above A&P minimum spending obligation, the parties will jointly prepare a Media Plan to agree on the above-listed activities. Every six months, Licensee shall deliver an A&P Report to demonstrate effective spending on the above activities.
In addition to this, there is another very important issue regarding the way the licensed products are marketed. Particularly where the licensor’s corporate image requires that its products are sold in prestigious, high-end outlets, it is important that the licensee’s marketing comply with these criteria and the contract may require the licensee to use certain distribution channels.
So, if the licensor’s corporate image requires its products to be sold only in a certain type of premises, the licensor will need to make sure that the licensee’s marketing activity (and choice of the distribution channels) complies with its criteria.7
The usual situation, considered in this model contract, is where the sale of the licensed products is the exclusive business of the licensee.
[Page12:]
However, in some cases the licensor also sells the licensed products. This happens especially where the licensor sells the whole range of products bearing its trademark in wholly owned or franchised stores identified by its trade name.
Where this happens, two types of issues will need to be dealt with in the contract.
First, the sale of the licensed products from the licensee to the licensor must be considered in the contract: this will imply special clauses on prices, delivery terms, etc. An example of a clause dealing with this issue is the following:
Licensee agrees to deliver the Licensed Products with priority to the stores belonging to Licensor’s sales network (“Licensor’s Stores”). With respect to new Licensed Products, the Licensee undertakes to deliver them to the Licensor’s Stores at least 1 month before starting delivery to other purchasers.
Licensee agrees to grant the Licensor’s Stores an extra discount of 15% with respect to the wholesale price granted to third parties.
Second, if the licensor sells the products through a network of its own that has a very exclusive image and is closely linked to a prestigious trademark, the issue of how the same products are sold by the licensee will be be particularly important and the licensor will tend to set very precise criteria for the marketing of the products by the licensee in order to make sure that the marketing policy of the licensee does not conflict with its own marketing policy.
An example of a clause could be the following:
Licensee shall make sure that the Licensed Products are sold in the Territory only to Licensor’s Stores and to other high quality sales outlets of unquestionable prestige and quality, consistent with the prestigious international image of Licensor.
The location in a prestigious area, decoration, equipment, tasteful window display, environment and sign of the sales outlets must correspond to the image of the Trademarks and the high-end positioning of the Licensed Products, so as not to damage the prestigious Corporate Image of the Licensor.
The personnel in contact with the customers will, in particular, possess suitable professional skills, qualifications and know-how in line with Licensor’s Corporate Image.
The sales outlets shall display and distribute a significant number of other luxury and internationally known brands and shall maintain a wide and representative range of the Licensed Products.
In order to protect Licensor’s Corporate Image, Licensee undertakes, at its own initiative, or at Licensor’s request, to cease distributing the Licensed Products in sales outlets that the Licensor determines to be inconsistent with the prestige and the Corporate Image of the Licensor.
It should be noted that the setting up of a distribution system where the products are sold only in outlets complying with restrictive criteria (as to location, prestige, etc.) will normally imply that such outlets agree not to sell to third parties8 and consequently possible limitations applying to selective distribution (if applicable) will need to be respected. So, in the context of the
[Page13:]
EC rules on competition, Regulation 2790/99 provides that the retailers must remain free to sell to other outlets of the selective network and must have the right to actively sell to consumers, wherever they are located.
In other cases still, since distribution is carried out through two parallel channels (the licensor’s shops and those supplied by the licensee), the licensor may request detailed information about the licensee’s sales, such as a distribution plan, reports on sales of the various products, a marketing plan for the following year, etc. In this case, the parties should check whether coordination of any sales strategies between the two networks complies with the rules on competition.
As regards the issues of force majeure and confidentiality, for which ICC standard solutions exist, the task force has decided to incorporate these into the model contract by reference (see Article 13).
The ICC Force Majeure Clause 2003 and the ICC Confidentiality Clause are attached hereto as Appendices I and II.
This model form is based on the assumption that it will not be governed by a specific national law, but only by the provisions of the contract itself and the principles of law generally recognized in international trade as applicable to trademark licenses (also called “lex mercatoria”). The purpose of this solution is that the rules of this model form can be applied in a uniform way to Licensors and licensees of different countries, without giving one party the advantage, and the other party the disadvantage, of applying one party’s national law or the law of a third country.
Of course this solution, while avoiding the particularities of national laws, gives a wider discretionary power to those who have to decide in case of dispute (national courts or arbitrators), since it is based on very general principles, at least for matters not expressly governed by the contract clauses.
The task force is of the opinion that the possible disadvantage resulting from the application of rather flexible and general rules is counterbalanced by the greater certainty of a uniform set of contractual rules and by the reference to a set of general rules on contracts, like the Unidroit Principles of International Commercial Contracts,9 which offer a reasonably foreseeable legal framework for most issues that may arise.
As concerns the Unidroit Principles, it should be taken into account that according to Article 19 A, they apply only to the extent that they do not conflict[Page14:]with general principles and trade usage, since Article 19A puts the various sources incorporated by reference in the following hierarchical order: contract clauses, general principles, CISG, trade usages, Unidroit Principles.10
This also implies that, even when the Unidroit Principles provide that certain of its rules are mandatory, such rules shall not prevail over the contractual clauses, general principles or trade usages.
In any case, if the parties wish to have their contract governed by a specific national law, they can use the alternative set forth in Article 19 B. In such case, they should check carefully whether any provisions of this model form violate mandatory provisions of the national law they have chosen.11 The choice of submitting the contract to a national law is preferable if parties submit the contract to the jurisdiction of ordinary courts instead of arbitration, since it is unlikely that national courts would accept to consider general principles, “lex mercatoria” and the like as the governing law of the contract.
If the parties have submitted the contract to a law other than that of the licensee’s country, parties should check whether possible mandatory rules of the licensee’s country may nevertheless be applicable.
If the above rules are “simply” mandatory, the choice of a foreign law will in principle be effective and the rules of the law chosen by the parties will apply instead of those of the licensee’s country.
If, on the contrary, the legislator of the licensee’s country has enacted “internationally” mandatory rules regarding the licensing contracts with foreign Licensors, i.e. rules that must be respected even if the contract is submitted to a foreign law, then parties should carefully consider this issue.
In fact, in such a case contractual clauses that do not conform to the internationally mandatory rules of the licensee’s country will not be effective in that country (and will in principle be disregarded by the local authorities12). Even if the disputes are submitted to a jurisdiction outside the licensee’s country, it is not excluded that the court (or arbitral tribunal) may consider internationally mandatory rules of the licensee’s country.
Since the model form is a set of uniform contractual rules, avoiding (as far as possible) the direct application of conflicting domestic legislations, it is appropriate that possible disputes be solved by a uniform dispute resolution system organized on an international level.
From this point of view, the best solution appears to be international commercial arbitration (see particularly Article 18.2–A), which permits a truly international approach and avoids the risk of differentiation that would arise in case of recourse to domestic courts.
[Page15:]
However, the parties may also have recourse to national courts by choosing Article 18.2, alternative B. As said before, this solution should be avoided if reference is made to “lex mercatoria”, general principles, etc.
In some cases, it may be appropriate to register the licence contract. This is obviously the case in countries where the registration is compulsory, but there are also countries where it is easier to enforce the agreement once it has been registered. Parties are advised to check this aspect and to provide appropriate solutions in their contract.
Any model contract should, to the extent possible, be adapted to the circumstances of a specific case.
Of course, in theory the best solution consists in drafting an individual contract based on existing model forms in order to take account of all the specific requirements of the parties. However, the parties are often not in a position to prepare a specific contract and prefer to have recourse to a ready-to-use balanced model form: in this case they will ask for a model which can be used as it stands, without any need to make modifications or additions.
The present model is an attempt to achieve a balance between these two possibilities.
ICC has tried to work out a single solution on every issue. However, where this has not been possible (see e.g. Articles 4, 18.2 and 19.1), alternatives have been suggested.
Such alternative solutions have been presented side-by-side under the letters A and B, in order to show that only one of them can apply.
Therefore, before signing the contract, the parties must decide which of the alternative solutions they choose, and then cancel the alternative they do not want to apply.
In any event, the model form provides that, if the parties do not make a choice by cancelling one alternative, one of them will automatically apply (according to Articles 20.8 and 20.9 of the model form).
1 A slightly different situation, which will be considered in § 11, is that of a licensor who sells the products of its licensees (together with those it manufactures) in its own sales network (whollyowned or franchised stores bearing the trademark of the licensor).
2 However, it may also happen that the licensor is involved in the design of the licensed products: see § 4.
3 It may also happen that the licensor designs the product with respect to its outside appearance, while the licensee develops the product as such in conformity with the aesthetic requirements of the licensor. This type of situation may arise where the licensor exercises a very strict control over the image of all products sold under its trademark. Where this is not the case, the licensor will normally limit itself to verify that the products conform to its corporate image.
4 In particular, the antitrust authorities might argue that limitations of active sales should be permitted only towards territories where the trademark is protected. However, considering that this limitation is provided in the TTBER only for licence agreements between competitors (which is not our case), it is reasonable to assume that, on the basis of an analogical application of the TTBER, a general limitation of active sales outside the contractual territory should comply with the competition rules.
5 So, for example, the TRIPS Agreement (Agreement on trade-related aspects of intellectual property rights) contains certain provisions on well-known marks, which supplement the protection required by Article 6bis of the Paris Convention, as incorporated by reference into the TRIPS Agreement.
6 So, for example, article 9(1)(c) of Regulation 40/94 on the Community trademark states that the proprietor of a Community trade mark shall be entitled to prevent all third parties not having his consent from using in the course of trade “any sign which is identical with or similar to a Community trademark in relation to goods or services which are not similar to those for which the Community trade mark is registered, where the latter has a reputation in the Community and where the use of that sign without due cause takes unfair advantage of, or is detrimental to, the distinctive character or the repute of the Community trade mark”.
7 In this case, the licensee can make use of the ICC Model Selective Distribution Agreement (ICC Publication No. 657).
8 Since otherwise it would be impossible to prevent the sale of the products to outlets that do not respect the selection criteria.
9 The text of the Unidroit Principles 2004 can be found in Appendix III.
10 This solution takes into account that a limited number of provisions of the Unidroit Principles may not actually reflect the expectations of international trade. This may be the case with respect to certain rules that protect the disadvantaged party to an extent which goes beyond usual standards in business-to-business relations: see, for instance, Article 3.10 on gross disparity (particularly as concerns the end of the sentence in paragraph 1(a), where reference is made to “the improvidence, ignorance, inexperience or lack of bargaining skill” of a party in order to justify contract avoidance) and the rules on hardship contained in Articles 6.2.1–6.2.3 (particularly with regard to the rule authorizing courts to modify the contract terms). With respect to such rules, general principles of law and trade usages will prevail over the Unidroit Principles. Of course, parties may also expressly exclude the application of specific provisions of the Unidroit Principles that they consider inappropriate.
11 It should in any case be considered that, even if no choice of national law has been made, internationally mandatory rules (i.e. rules which would be applicable independently from the applicable law: so called “lois de police”) of a national law having a close connection with the contract may be applicable in certain circumstances under Article 19.2.
12 This aspect may be very important where transfer of funds (e.g. for payment of royalties) needs to be authorized by the local authorities of the licensee’s country.