Italian law provides no definition of a licensing agreement. The only relevant provision is Article 23 of the IP Code, which provides that trademark licences may be: exclusive or non-exclusive; total or partial; for all or part of the national territory. No information regarding the features of the goods or services that could mislead the public must derive from the licence; no prescription on the form of the agreement but, in order to be opposable to third parties, it must be registered with the Italian PTO. The main features and clauses to be agreed for an effective licensing agreement are: financial conditions; extent of licence; duration; quality standards; limitation of licensor’s liability; applicable law and jurisdiction and, very important effect of termination.
About the last point, generally, the licensor grants the licensee six months in which to sell off its stock. A recent case at the Court of Milan examined the relationship between the right to sell off and the principle of exhaustion. This provides that the holder of an IP right may not exercise its powers to oppose the sale of goods that have been placed on the market by the rights holder or with its consent. Consent must be demonstrated by the party that objects to exhaustion. Italian case law tends to hold that whether goods have been placed on the market in breach of the limits set by the licensing agreement depends on the rights holder’s consent. The licensor had brought the claim to court because, at the end of the agreed six-month period, stock was still being sold by a third party. It claimed to order the immediate termination of sale of stock due to infringement of its trademark rights and unfair competition. In this specific case there was no specification as to whether this limit referred to the sale of stock by the licensee to third parties or to a global sale of stock to consumers by means of the licensee’s dealers, but it did include a provision requiring the licensee to destroy unsold stock after six months. The answer to such a question also depends on the rights holder’s consent (the principle of exhaustion), as the sale had taken place between the licensee and the transferee before the deadline in question. The judge, according to the usual parameters of interpreting agreements, noted that, based on a good-faith interpretation of the licence, the licensor’s aim was to ensure contractually that products from previous seasons were not offered to the public after the end of the relevant season. The licensor’s aim was to avoid any potential prejudicial effect on the trademark’s prestige through the sale of obsolete stock, regardless of the distributor’s subjective qualification. Therefore, according to the judge, the sale of warehouse stock close to the end of the six-month period did not allow the licensee to continue marketing the goods beyond that term. As a consequence, the licensee’s re-sale of the goods was not covered by the principle of exhaustion; rather, it was harmful to the licensor’s trademark rights. This point also applied to unfair competition, as it conflicted with professional integrity. Licensees should pay particular attention to the terms that govern the disposal of stock at the end of a licensing agreement. If the parties agree on a sellout provision, it is important to regulate the obligations regarding stock reports; agree on a limit regarding price dumping; regulate clearly the obligation to destroy unsold stock and the possible right of the licensor to repurchase the products. As the above case shows, it is advisable to stipulate to which type of sale the sell-off period refers.