- Licence agreement gives licensee exclusive rights to use seven trade marks
- Licensor validly terminates the licence as regards five of the trade marks, on the grounds of non-use
- Can the licensor use those five marks without breaching the exclusivity of the licence?
What's it about?
The case concerns a trade mark licence agreement between General Nutrition Investment Company (GNIC) the licensor and Holland and Barrett International Limited and Health Diet Centres Limited (Holland and Barrett) the licensees.
The agreement was part of the sale of the UK business carried out under the mark GNC which provided Holland and Barrett with exclusivity within the UK over seven trade marks that included the text GNC, of which only two had been used (namely the main mark, GNC, and GNC Live Well). The remaining five marks were unused over a period of five years. The licence agreement entitled GNIC to terminate the licence in respect of any of the licensed marks which were unused for a continuous period of five years. This is akin to the non-use provisions in trade mark legislation (s46(1)(a) and (2) of the Trade Marks Act 1994 and Art 58(1)(a) of Council Regulation 2017/1001). Therefore, there existed an implication that GNIC might thereafter wish to go on to use these unused marks.
GNIC decided to use an unused mark (GNC Herbal Plus) to launch new products and so sought to terminate the licence in respect of the unused marks, on the basis that once the licence was so terminated, those marks could be exploited by GNIC. Holland and Barrett unsuccessfully challenged this action in the High Court, and subsequently appealed to the Court of Appeal.
Why does it matter?
Holland and Barrett argued that termination of the licence relating to the unused marks did not grant GNIC the right to act contrary to the exclusivity of the remaining licence, for example by using a sign consisting of GNC alone or, more relevantly, by using a mark which was confusingly similar to GNC. Such use, it argued, would offend Holland and Barrett's express exclusivity to the same extent, as would infringement by an unlicensed third party.
The Court of Appeal agreed. It concluded that the agreement had to be construed in the context of the business sale in which GNIC's interests in the marks had been much reduced. Accordingly, exclusivity was fundamental to the licence and that should GNIC validly terminate the licence for unused marks under clause 5.6, this would not override the exclusivity of the remaining licence. In essence, GNIC did not acquire a right to act in any manner which would breach the remaining exclusivity in favour of Holland and Barrett.
The decision is particularly important in the context of trade mark portfolios which include both main and auxiliary brands. Licensors wishing to exploit previously non-used auxiliary brands may find themselves hampered by exclusivity clauses which, following this decision, can be expected to take precedence over competing implied terms.
Licensors may also consider there is an increased risk of revocation given the potential inability to put auxiliary marks to use. While a genuine risk, this is limited by the fact that third parties are unlikely to have much interest in revoking an auxiliary brand. Additionally, a licensor's interests would be protected by the continuing main mark which prevents third parties from using a sign infringing any auxiliary marks.
One possible approach to deal with this situation is to carve out any auxiliary marks from the exclusivity clause, or to align termination provisions around the exclusivity of the main trade mark licence with the termination provisions of the auxiliary trade mark licence. In this way, if the latter terminates, so should the former.