For brand owners without a presence in the Kingdom of Saudi Arabia, it is necessary to work with a local business in order to import the brand owner’s goods into the Kingdom and then to market and sell the goods.
Earlier this year, the Saudi Ministry of Commerce & Industry (the Ministry) issued a reminder to importers and distributors of goods in Saudi Arabia (known as commercial agents) that they are required to register their agreements. The Ministry also provided a grace period for compliance of until 22 September 2015. Commercial agents which have failed to register their agreements by this date face fines being imposed.
This announcement is a timely reminder for brand owners to be aware of the legal framework which applies in Saudi Arabia, for the registration of both commercial agency agreements and trade mark licences.
Commercial agency agreements
The Saudi Arabian Commercial Agency Law (as enacted by Royal Decree No. M/5 dated 11/06/1389H, corresponding to 25/08/1969) and its implementing regulations (the Agency Law) obliges all commercial agents to register their agreements with the Ministry.
Following the Ministry’s announcement, it is likely that this requirement will be actively enforced from 22 September 2015 onwards, and that fines will be imposed on agents and distributors which fail to comply by this date.
As a result, many commercial agents which have not yet registered their agreements with the Ministry are taking steps to become compliant. If the relationship between the brand owner and the commercial agent has not yet been properly documented, this means that the commercial agent may well contact the brand owner in order to rectify the position. More specifically, the commercial agent may seek to put in place a commercial agency agreement dealing with the importation, marketing and sale of branded goods in Saudi Arabia. Alternatively, the commercial agent may seek to put in place a summary agreement (or a short letter of authority) to be registered with the Ministry (which only contains relatively basic provisions).
For overseas brand owners, it is important to be aware that:
- If your commercial agent in Saudi Arabia contacts you with a request for documentation evidencing its appointment as a local distributor, then this may well be to ensure compliance with the Agency Law in order to avoid fines being imposed on it by the Ministry
- It is important to review any documentation provided by the commercial agent carefully. Many of the protections for a brand owner principal which are contained in a full commercial agency agreement will not be present in a summary form agreement. It is particularly important to avoid granting wider rights than intended, and to ensure that the provisions of the agreement dealing with termination and renewal do not unduly tie the brand owners to the commercial agent
- Only Saudi nationals and companies wholly owned by Saudi nationals are entitled to operate as commercial agents in Saudi Arabia. Accordingly, if a brand owner is working with a non-Saudi national or a company which is not wholly owned by a Saudi national, then the agreement cannot be registered with the Ministry
- In order to be recorded with the Ministry, a commercial agency agreement will need to be in Arabic or in dual language English/Arabic. For dual language documents, the Arabic language will take precedence and, in all cases, it is important to ensure that the Arabic version is an accurate translation of what has been agreed in English; and
- In order to be recorded with the Ministry, a commercial agency agreement will also need to be notarised and, where one of the parties is an overseas brand owner, the agreement must be legalised for use in Saudi Arabia. This process takes time, and it should be started sooner rather than later in order to enable the commercial agent to meet the deadline of 22 September for recording the agreement
Trade mark licences
In addition to the requirement to register agency agreements under the Agency Law, the Saudi Arabian Trade Mark Law (as enacted by Royal Decree No. M/21 of 28.05.1423H) (the Trade Mark Law) requires trade mark licences to be recorded with the Saudi Trade Mark Office.
This is a separate requirement to the registration requirement under the Agency Law. In the event that a commercial agency agreement includes a licence to use a trade mark, then the agreement (or a short-form agreement) should be registered with both the Ministry and the Saudi Trade Mark Office.
The requirement to record trade mark licences comes from Article 35 of the Trade Mark Law which provides that a trade mark licence shall have no legal effect against third parties until it is registered. It is therefore potentially useful for both the owner of the trade mark and the licensee to register the licence with the Saudi Trade Mark Office.
For the trade mark owner, the registration of a licence agreement helps it rely on the use of the mark by its licensee to ensure that its trade mark registration does not become vulnerable to attack for non-use. For the licensee, this can enable it to bring action in its own name directly against an infringer of the trade mark.
Accordingly, although the registration of a trade mark licence with the Saudi Trade Mark Office can be seen as a formality requirement, the failure to register the agreement can have substantive consequences for both the trade mark owner and the licensee. Commonly, the parties to trade mark licences register summary agreements (known as registered user agreements) in order to simplify the registration process and to keep the commercial terms of the trade mark licence off the register.
While brand owners should be keen to support their local partners, it is important to ensure that the documentation that is put in place is balanced, so that the overseas brand owner’s position is adequately protected.
Brand owners should therefore ensure that agreements (including summary agreements and letters of authority) which are produced for registration purposes are reviewed carefully to avoid difficulties arising in the future. Brand owners should also not overlook the requirements and potential benefits of recording trade mark licences in Saudi Arabia.