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Are there any restrictions on the establishment of a business entity by a foreign licensor or a joint venture involving a foreign licensor and are there any restrictions against a foreign licensor entering into a licence agreement without establishing a subsidiary or branch office? Whether or not any such restrictions exist, is there any filing or regulatory review process required before a foreign licensor can establish a business entity or joint venture in your jurisdiction?
In general, there are no restrictions in respect of title to, and ownership of, shares or business assets. However, should a person be in the extremely narrow business sector perceived as putting at risk an important national interest, such as in the business of banned dual-use goods export, that person would be well advised, under the Monitoring Act, to seek formal permission from the Ministry of Employment and Economy.
Any business established and registered under the laws of Finland is regarded as Finnish irrespective of ownership. However, the registration and running of a branch of a foreign entity from outside of the European Economic Area (EEA) requires the consent of the Companies Registry. Generally, the consent is readily granted.
If the foreign licensor runs a Finnish subsidiary, at least one of the directors, including the managing director (ie, CEO or president), must be a resident of the EEA, unless the Companies Registry grants an exemption. The auditor should be a resident authorised or approved public accountant. In the event that there is no person within the EEA entitled to sign in the name of the subsidiary or the branch, there must be (in Finland) a registered agent for service of process.
A foreign licensor may enter into a licence agreement without establishing a subsidiary or a branch.
Kinds of licences
Forms of licence arrangement
Identify the different forms of licence arrangements that exist in your jurisdiction.
One can license any right enabling the owner to exclude third parties from using, offering or publishing the subject of such right. Thus, the subject of licensing is varied. It covers the entire span of intellectual property rights (IPRs), including quasi-intellectual property rights, such as semiconductors and plant variety rights, as well as rights not protected by specific IPRs, such as know-how, celebrity and character licences, and even works representing an act of unfair imitation. Licensing also frequently appears as an important element in franchise, research and development, original equipment manufacturers and outsourcing agreements. Further, licensing may be a significant element in merchandising and advertising agreements and agreements on multi-media formats and concepts.
Law affecting international licensing
Creation of international licensing relationship
Does legislation directly govern the creation, or otherwise regulate the terms, of an international licensing relationship? Describe any such requirements.
Where Finnish law is applicable, general contract law affects the criteria for the formation and the validity of an international licensing relationship. One should be heedful of the provisions on invalidity and adjustment of contract terms, including the statutory test of reasonableness (see question 5), the provisions of the Unfair Business Practices Act on marketing and the handling of business secrets and technical instructions, the price-fixing prohibition of the Competition Restrictions Act as well as the European antitrust rules. Otherwise legislation does not, generally, directly regulate licensing. Yet legislation does indirectly regulate licensing, and affects certain terms, such as royalty rates and service fees. If in excess of the fair market value, pursuant to tax law tracing back to the EU Convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises (90/436/EEC), royalties or service fees may, for the purpose of taxation, not be eligible for deduction by the Finnish subsidiary or the equivalent associated enterprise. However, in a number of clearly distinct cases a party can be obliged and forced to grant a licence (compulsory licence). Apart from the regime enabling the European Court of Justice to order that certain products protected under a patent be supplied, there are no requirements that certain products be purchased locally.
What pre-contractual disclosure must a licensor make to prospective licensees? Are there any requirements to register a grant of international licensing rights with authorities in your jurisdiction?
There are no specific pre-contractual disclosure requirements. Nevertheless, the legal doctrine that states that contractual parties owe each other a duty of loyalty is widely acknowledged in case law. Accordingly, there is a kind of general contractual good faith and fair dealing requirement of avoiding misrepresentations that induce the opposite party to enter into a contract. In some circumstances, silence may amount to misrepresentation. From the above one may infer that a licensor should, as a general rule, use his or her best endeavours to disclose any and all matters that may affect the decision of the licensee to accept the licence. The contents and scope of this duty depend on the facts of each case, with regard to the knowledge and experience of the potential licensee. On the other hand, the licensee is under a duty of care, prompting him or her to obtain, at his or her own initiative, information available to him or her, such as about the general market conditions and their impact on the licence contemplated. Accordingly, in the event the licensor infringes the right of the prospective licensee to have pre-contractual information by rendering to him or her, for example, a too-favourable or otherwise untrue impression of the licence, this may constitute a ground for rescinding or terminating the contract.
There is no statutory requirement that the licence should be registered with any authorities. However, where the licensor or the licensee desires that a licence be recorded by the relevant registry, such non-mandatory recording is possible. Recording makes the licence effective against third parties, such as creditors.
Are there any statutorily- or court-imposed implicit obligations in your jurisdiction that may affect an international licensing relationship, such as good faith or fair dealing obligations, the obligation to act reasonably in the exercise of rights or requiring good cause for termination or non-renewal?
Yes. Both statutory obligations and resultant court practice may affect an international licensing relationship (see question 3). The duty of loyalty continues throughout the duration of the contractual relationship, and it is considered accentuated in long-term relationships.
In this context, section 36 of the Contracts Act should be highlighted. This provision stipulates that a contract term or condition may be adjusted or set aside if such term proves unreasonable having regard to the contents of the contract, the circumstances prevailing at the time the contract was entered into and subsequent circumstances in general, such as the relative bargaining strength of the parties (ie, it is a kind of a statutory test of reasonableness).
Another provision expressing the principle of good faith and fair dealing, under section 33 of the Contracts Act, stipulates that a transaction that would otherwise be binding is not enforceable if it was entered into under circumstances that would make it incompatible with honour and good faith for anyone knowing of those circumstances to invoke the transaction, and the person to whom the transaction was directed must be presumed to have known of the circumstances.
When construing licensing agreements, courts frequently apply generally accepted principles of contract construction, such as the rule on interpretation against the drafter. In order to interpret or supplement domestic law, courts and arbitral tribunals may occasionally apply other codified principles, such as the UNIDROIT Principles of International Commercial Contracts.
A licence agreement is not in itself likely to be regarded as one between parties of unequal bargaining strength. Accordingly, it would not as such be subjected to more onerous rules of interpretation than other contracts between businesses. Neither would a licence agreement, as such, allow courts to redress perceived inequalities or rewrite provisions viewed as being abusive. This is also true as to standard forms that are in frequent use (micro-businesses are no exception).
Intellectual property issues
Is your jurisdiction party to the Paris Convention for the Protection of Industrial Property? The Patent Cooperation Treaty (PCT)? The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs)?
Finland is party to all of these conventions.
Can the licensee be contractually prohibited from contesting the validity of a foreign licensor’s intellectual property rights or registrations in your jurisdiction?
Generally speaking, yes. A no-challenge clause imposing on the licensee an obligation not to contest the validity of his or her licensor’s IPRs is not prima facie prohibited and is likely to be held effective.
Accordingly, the licensee’s action to the contrary is likely to be considered a breach to be sanctioned against pursuant to the agreement, and failing any provisions in that respect, as a breach, which, depending on circumstances, may entitle the licensor to terminate the agreement.
Invalidity or expiry
What is the effect of the invalidity or expiry of registration of an intellectual property right on a related licence agreement in your jurisdiction? If the licence remains in effect, can royalties continue to be levied? If the licence does not remain in effect, can the licensee freely compete?
Given that the IPR was registered and then expired or proved invalid, unless the licence entitles the licensee to enjoy further rights the licence agreement must be regarded as elapsed. Accordingly, unless otherwise provided for in the licence agreement, if the IPR is invalidated or the registration has expired, the licensee may be well advised to claim the agreement null and the resultant relief as to royalties at least insofar as the value of the IPR can be considered lost. Alternatively, the licensee may claim that he or she is entitled to terminate the agreement owing to a breach severe enough for repudiation.
However, unless the licensor, at the time of entering into the agreement, knew of the invalidity or had a well-founded reason to fear such contingency and failed to make a mention of it to the licensee, it does not seem likely that he or she would be held liable in damages. It seems unlikely that a licensee challenging the validity of the registration could recover any royalty paid prior to the adjudication of invalidity and at least not prior to the challenge. Therefore, the licensor may wish additionally to include in his or her agreement:
- payment for maintenance of a licensed rights clause for covering costs for maintaining both the registration (where required) and the validity of IPRs;
- a royalty after contract expiry clause should know-how continue to benefit the licensee’s operations after contract expiry; and
- a momentum clause entitling the licensor to be paid fees for, for example, technical information and assistance already provided or, at the risk of subsequent licensee-incited contract adjustment, simply a disclaimer of liability for maintenance of IPRs, or a force majeure or relief clause to the same effect.
The licensee may wish to contain in the agreement an express warranty of title and a non-infringement clause.
If the licence does not remain in effect, unless bound by a post-contract undertaking not to compete, the licensee can freely compete.
Requirements specific to foreigners
Is an original registration or evidence of use in the jurisdiction of origin, or any other requirements unique to foreigners, necessary prior to the registration of intellectual property in your jurisdiction?
Generally, no. Owing to widely reciprocal relaxation of requirements as to original registration and evidence of use, only rarely does a foreign national not carrying on business in Finland have to demonstrate that his or her trademark is registered in his or her jurisdiction or made use of. Nevertheless, a foreign applicant with neither domicile nor registered office in Finland must appoint a local agent to represent the applicant in all matters concerning the application.
Can unregistered trademarks, or other intellectual property rights that are not registered, be licensed in your jurisdiction?
Yes. Know-how and trade secrets, whether alone or in connection with other IPRs, say patents, are frequently the subject of licences. Exclusive rights for a trademark may be acquired, even without registration, after the mark has become established. A trade symbol is considered established if it has become generally known in the appropriate business or consumer circles in Finland as a symbol specific to the goods or services of its proprietor.
Are there particular requirements in your jurisdiction to take a security interest in intellectual property?
There are no particular requirements for the validity of an intellectual property licence. Strictly speaking, a valid offer and acceptance is enough, whether oral or written. If there is a usage between businesspeople to the effect that silence is enough for the expression of will, silence may even be enough for rendering the acceptance required. If there are co-owners of an IPR, of course, the concurrence of each owner is required.
No recording is required for rendering the licence opposable to third parties. However, any trademark licence not entered in the register shall not affect a third party who has obtained the trademark in good faith.
A security interest by means of pledge can generally be instituted by the recorded owner of the IPR. This is true as to registered trademarks as well as to patents, utility models, registered designs, layout designs and plant varieties. However, unregistered trademarks, trade names and copyrights cannot be used as security. A valid pledge of a right to a registered trademark requires a writ of pledge and entry into the register of trademarks. Execution can be levied on a trademark only if the pledge is entered into the register. Although as to the pledge of a patent right there are no formal requirements inter partes for being regarded as binding in relation to third parties, the pledge needs to be entered into the register of patents. In these respects, it should be noted that there are some slight differences as to other pledgeable IPRs.
Proceedings against third parties
Can a foreign owner or licensor of intellectual property institute proceedings against a third party for infringement in your jurisdiction without joining the licensee from your jurisdiction as a party to the proceedings? Can an intellectual property licensee in your jurisdiction institute proceedings against an infringer of the licensed intellectual property without the consent of the owner or licensor? Can the licensee be contractually prohibited from doing so?
There are no obstacles for the foreign owner or licensor of an IPR, whether one with exclusive, sole or non-exclusive rights, to institute proceedings for infringement without joining the licensee as party to the proceedings.
Instituting proceedings by an IPR licensee always requires that the licensee demonstrates that he or she has informed the owner of the IPR of his or her claim against the infringer. Generally, the person last recorded as owner is deemed as lawful proprietor for the purposes of lawsuits and other matters concerning the IPR.
Always subject to the statutory test of reasonableness, the licensee can agree not to institute proceedings against an infringer.
Can a trademark or service mark licensee in your jurisdiction sub-license use of the mark to a third party? If so, does the right to sub-license exist statutorily or must it be granted contractually? If it exists statutorily, can the licensee validly waive its right to sub-license?
Unless otherwise agreed, no. The trademark or service mark licensee must not sub-license the use of the mark to a third party.
Jointly owned intellectual property
If intellectual property in your jurisdiction is jointly owned, is each co-owner free to deal with that intellectual property as it wishes without the consent of the other co-owners? Are co-owners of intellectual property rights able to change this position in a contract?
It is by no means rare that two or more persons have jointly made an invention or created an artistic or literary work. And it is even less uncommon for there to be two writers of some software, internet game, or the like. The general rule is that the co-owners are only in control of the IPR jointly. This is true with respect to licensing or assignment to a third party of the IPR, and the use of it as security. However, as to copyright solely, there is, on the one hand, the statutorily exception that each one co-owner is permitted to bring an action against infringement, and on the other hand the one regarding orphan works pursuant to the EU Directive 2012/28/EU. Lacking statutorily rules, in any other respect the co-owners are reduced to contractually arrange the utilisation of the IPR. Owing to the nature of trademarks conferring the sole right of use, co-ownership of trademarks is out of the question.
First to file
Is your jurisdiction a ‘first to file’ or ‘first to invent’ jurisdiction? Can a foreign licensor license the use of an invention subject to a patent application but in respect of which the patent has not been issued in your jurisdiction?
Finland is, primarily, a ‘first to invent’ jurisdiction. The right to the patent arises from the act of inventing. Any one individual having made an invention susceptible to industrial application, or his or her successor in title, is entitled, on application, to a patent. Accordingly, if two or more persons have made an invention as a result of action in concert, the patent is granted jointly to them. However, if two or more persons have independently of each other made an invention, the right to the patent belongs to the person who is first to file for patent.
There should be no obstacle for a foreign licensor to license the use of an invention subject to a patent application but in respect of which the patent has not been issued in our jurisdiction.
Scope of patent protection
Can the following be protected by patents in your jurisdiction: software; business processes or methods; living organisms?
Statutorily, software ‘as such’ is not considered an invention. This is deemed not to foreclose registration provided the computer program solves a technical problem or merely contains some technical aspect.
Business processes are, generally, not patentable. Statutorily, schemes, rules and methods for doing business are not considered inventions.
The patentability of living organisms is extremely circumscribed. With respect to patenting elements of the human body and animal varieties, Finland adheres strictly to the same principles as the rest of the EU. As to plant varieties, there is a special regime contained in the Act on Plant Varieties Rights.
Trade secrets and know-how
Is there specific legislation in your jurisdiction that governs trade secrets or know-how? If so, is there a legal definition of trade secrets or know-how? In either case, how are trade secrets and know-how treated by the courts?
Yes. The concepts of trade secrets and know-how are fairly well defined. There is specific legislation governing trade secrets. Apart from the consequences of divulging trade secrets as contained in the Penal Code, there is a kind of code of conduct to be deduced from the Unfair Business Practices Act the application of which, however, is somewhat narrow, and another, contained in the Employment Contracts Act, regarding the duty of an employee not to divulge any business or professional secrets of his or her employer.
From the Penal Code one may deduct a fairly legal definition of trade secrets to the effect that it is about information an entrepreneur keeps secret, the revelation of which would be apt to cause financial loss to him or her, or to another entrepreneur who has entrusted him or her with such information. As to know-how, there is no other statutory legal definition than the one contained in article 1(i) of Regulation (EU) No. 316/2014 on block exemptions for technology transfer agreements. The result is that, since know-how generally is part of trade secrets it, accordingly, enjoys the legal protection of the latter. One is well advised to consider thoroughly defining both trade secrets and know-how.
Trade secrets and know-how are, generally, treated by the courts.
Does the law allow a licensor to restrict disclosure or use of trade secrets and know-how by the licensee or third parties in your jurisdiction, both during and after the term of the licence agreement? Is there any distinction to be made with respect to improvements to which the licensee may have contributed?
Yes. Where information qualifies as trade secrets or know-how (ie, neither generally known nor easily accessible information) one can impose on the licensee a reasonable restriction on the exploitation.
Statutorily no distinction is made with respect to improvements to which the licensee may have contributed, nor can a distinction in court practice be found. A distinction must be made between, on the one hand, the situation where the parties have collaborated or acted in concert to make an improvement, and on the other, the situation where each of them has separately contributed to the achievement.
What constitutes copyright in your jurisdiction and how can it be protected?
Any artistic or literary work, independently originated by a human being, and of original character, expressed in any manner or form qualifies for copyright. However, this excludes, for example, inventions from the sphere of copyright. Also excluded are all but the tangible work itself, which means that one cannot claim copyright for the basic idea, theme or motif. The requirement fulfilled, copyright arises by virtue of itself. In respect of software and databases, sheer originality is enough. In Finland, copyright is not registered.
Copyright can be asserted, pursuant to the Copyright Act, over works of literary and artistic character, for example, fictional or descriptive representations in writing or speech, computer programs, databases and musical, dramatic, photographic, cinematographic or other works of art. Moreover, certain neighbouring rights are protected, such as performing artists, the producers of recordings of sounds and of images, the use of sound recordings for public performances and producers of catalogues.
Perpetual software licences
Does the law in your jurisdiction recognise the validity of ‘perpetual’ software licences? If not, or if it is not advisable for other reasons, are there other means of addressing concerns relating to ‘perpetual’ licences?
Statutory law does not deal directly with the issue of perpetual licences. As far as it is known, the issue of perpetual software licences has not yet been tested by the courts. However, while the validity of a contract made for eternity is recognised in the sense of indefinite duration, but subject to any contractual provisions governing termination, and failing such provisions, terminable upon reasonable notice, in the case of a software licence this is not necessarily likely to be the case.
Apart from the generally limited life span of the software and the statutory duration of the copyright, one is well advised to have regard to the fact that, quite distinct from licensing custom-made bespoke software, licensing non-exclusive off-the-shelf software products bears more similarity to a sale than to a licence. As to the latter, it is likely that the courts would be inclined to accept the perpetual software licence. Accordingly, it seems advisable, where possible, to avoid using the notion of a perpetual licence and instead attempt to define the duration.
Are there any legal requirements to be complied with prior to granting software licences, including import or export restrictions?
No statutory requirements apply as to the contractual grant of the licence. However, with respect to export, where software qualifies as, or is part of, a military or dual-use product, one has to heed Finnish, European Union and United Nations export control legislation. The same is true with financial restrictions and sanctions.
Restrictions on users
Are there any legal restrictions in your jurisdiction with respect to the restrictions a licensor can put on users of its software in a licence agreement?
Save for the requirement of reasonableness (see question 5), there is nothing restricting a licensor from requiring his or her licensee not to carry out any form of reverse engineering or decompiling of a software program, or from making backup copies. As a matter of fact, frequent production and commercial reasons warrant imposing on the licensee such bans.
Royalties and other payments, currency conversion and taxes
Is there any legislation that governs the nature, amount or manner or frequency of payments of royalties or other fees or costs (including interest on late payments) in an international licensing relationship, or require regulatory approval of the royalty rate or other fees or costs (including interest on late payments) payable by a licensee in your jurisdiction?
As a general rule, the parties’ consent governs the nature, amount, manner and frequency of payments of royalties and other fees. The mandatory statutory exceptions are limited, chiefly, to those on an appropriate remuneration in respect of, on one hand, certain particular types of licence, such as compulsory licences (see question 3), and on the other, an employee’s remuneration owing to an invention.
In addition, one is well advised to note that in the event that the licensee (or sub-licensee), exceptionally, is deemed an associated enterprise in terms of the 90/436/EEC Convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises, as implemented in 2007 into the Act on Tax Procedure, the arm’s-length principle and the transfer pricing documentation duties have to be complied with in order to avoid tax consequences. Otherwise, there are no statutory restrictions on the amount of interest one can charge on overdue payments insofar as the overdue interest is not deemed unreasonable. Should that, however, be the case, one should note that any provision relating to the amount of consideration is deemed a contract term to which the statutory test of reasonableness may be applicable.
Are there any restrictions on transfer and remittance of currency in your jurisdiction? Are there are any associated regulatory reporting requirements?
Except for the purpose of taxation (see question 25) and emergency conditions, there are no restrictions or reporting requirements except for the applicable European Union and United Nations financial sanctions and restrictions.
Taxation of foreign licensor
In what circumstances may a foreign licensor be taxed on its income in your jurisdiction?
In general, foreign businesses are taxed only on the income sourced in Finland, such as royalties, service fees and dividends paid by the licensee. In the case of royalties, the payer is assumed to collect the tax at source at a rate of 20 per cent, or at such a rate as defined in the applicable double tax treaty. To date, there are more than 100 such treaties addressing that issue.
However, should the foreign business have a permanent establishment (PE) in Finland, such as a branch, the foreign business will be liable to tax on all the income attributable to the PE, and also the income that has been received from abroad. Thus, dividends, interest, royalties and capital gains are included, but costs and expenses attributable to the business, such as interest, royalties and depreciation of assets are deducted.
Competition law issues
Restrictions on trade
Are practices that potentially restrict trade prohibited or otherwise regulated in your jurisdiction?
In general, as an EU member, Finland is covered by EU competition law. Finnish antitrust law is no more restrictive and goes no further than the EU equivalent (other thresholds and conditions may apply, however). Thus, any practice whose purpose is the restriction of trade is prohibited, provided that the licensing arrangement is of such character that competition rules are affected. In practice, all and any horizontal and vertical price fixing, passive sales restrictions, sharing of markets and output limitations between competitors are prohibited. Other restrictions, such as territorial exclusivity arrangements and sourcing restrictions between competitors, are prohibited merely where restricting competition to an appreciable extent. Unilateral conduct is caught only where the undertaking in question is in a dominant position (this requires a market share in excess of at least 40 per cent). Harmful conduct, such as predatory pricing, discrimination lacking objective justification, tying and refusal to deal on the part of dominant undertakings may be prohibited.
Are there any legal restrictions in respect of the following provisions in licence agreements: duration, exclusivity, internet sales prohibitions, non-competition restrictions and grant-back provisions?
As to duration, there are no restrictions, though the duration may have bearing on the status of being exempted from article 101(1) of the Treaty on the Functioning of the European Union. Further, providing that the character of the arrangement makes the EU antitrust rules applicable, any of the above provisions may be subject to restrictions under competition rules. Accordingly, exclusivity in respect of the licensee him or herself is permitted. However, unlike his or her active sales, the licensee must, in response to customer request, generally remain at liberty to serve customers wherever they are located in the European Union (passive sales). This rule is, however, relaxed in respect of certain technology transfer agreements between non-competitors. The licensee’s internet sales are treated as passive sale.
In respect of grant-back provisions, the duty to either assign or exclusively license to the licensor improvements that are severable may be considered restrictive practices and prohibited accordingly.
With regard to territorial and customer exclusivity, the above applies in respect of non-competition restrictions for the duration of the agreement. However, with respect to any non-competition prohibition effective subsequent to the expiration of the agreement, the non-compete obligation should be related to the object of the licence as well as the goods or services to be manufactured thereunder and, in addition, indispensable to protect technology transferred by the licensor. Nevertheless, under the Contracts Act, a non-compete clause may be considered either too restrictive or unreasonably limit the freedom of licensee and, therefore, regarded as non-binding. Accordingly, one should seriously consider whether a non-compete clause is required, and if so, its scope and duration.
IP-related court rulings
Have courts in your jurisdiction held that certain uses (or abuses) of intellectual property rights have been anticompetitive?
There has been one prominent case where court has held that certain abuses of intellectual property rights have been anticompetitive (Supreme Administrative Court No. 2005:2527, docket 2715/2/03), and one dealing with the question on alleged anticompetitive contracting (Helsinki Court of Appeal No. 2008:2742, docket S 07/809).
Indemnification, disclaimers of liability, damages and limitation of damages
Are indemnification provisions commonly used in your jurisdiction and, if so, are they generally enforceable? Is insurance coverage for the protection of a foreign licensor available in support of an indemnification provision?
Indemnification provisions are both commonly used and generally enforceable. There may, however, be exceptions owing to failing the test of reasonableness as described in question 5.
Indemnity insurance is not very common but may be available, subject to a great number of limitations.
Waivers and limitations
Can the parties contractually agree to waive or limit certain types of damages? Are disclaimers and limitations of liability generally enforceable? What are the exceptions, if any?
In licence agreements, parties frequently contractually waive, disclaim or limit liability for indirect losses (ie, regarding incidental, consequential and other pure economic loss), such as losses owing to breach of a second contract sufficiently related to the licence agreement. This kind of exclusion may be coupled with an exception regarding losses sufficiently related to gross negligence or intent.
Simultaneously, or alternatively, there may be a fixed ceiling (eg, an amount or percentage of revenues of the licensee, royalties of licensor) for any damages or a liquidated damages clause often regarded as a penalty clause.
Also, parties frequently waive liability for any unforeseen circumstances resulting in losses and for liability if a claim is not made or an action not instituted within a certain period. Disclaimers of liability are generally enforceable unless, under the statutory test of reasonableness, it is regarded unconscionable to request enforcement (see question 5). This is the case if the disclaimer also relates to all and any liability.
Right to terminate
Does the law impose conditions on, or otherwise limit, the right to terminate or not to renew an international licensing relationship; or require the payment of an indemnity or other form of compensation upon termination or non-renewal? More specifically, have courts in your jurisdiction extended to licensing relationships the application of commercial agency laws that contain such rights or remedies or provide such indemnities?
The answer to the first question is affirmative regarding termination, but not regarding non-renewal. Where termination qualifies as breach of contract, the other party can rely on entitlement to compensation for the losses sufficiently related to the termination. Subject to the agreement being a pure licence agreement and not a mixed contract on commercial agency as well, there is no regime entitling either party to claim indemnity or compensation of the kind on which commercial agents can rely.
Impact of termination
What is the impact of the termination or expiration of a licence agreement on any sub-licence granted by the licensee, in the absence of any contractual provision addressing this issue? Would a contractual provision addressing this issue be enforceable, in either case?
Unless there is a commitment by the licensor to take over the role of his or her former licensee in relation to the sub-licensee, termination or expiration of the main licence will result in the cessation of exploiting the licence, including all rights appertaining thereto. The repercussions of the failure to deal with the effect of expiration or termination of the licence agreement on the sub-licence agreement would be extremely serious, not only to the licensor but to the licensee as well. A contractual provision addressing the issue of the consequences of termination on all parties concerned is likely to be enforceable insofar as it gets through the statutory test of reasonableness (see question 5).
Impact of licensee bankruptcy
What is the impact of the bankruptcy of the licensee on the legal relationship with its licensor; and any sub-licence that the licensee may have granted? Can the licensor structure its international licence agreement to terminate it prior to the bankruptcy and remove the licensee’s rights?
In cases of bankruptcy, a general rule is that the principle of continuation of agreements precludes the discontinuation of the contract. This notwithstanding, contractual provision may be made to the effect that the licensor is permitted to terminate the licence agreement. Should the licensee be adjudicated bankrupt, a licence agreement is not necessarily declared as null and void. Although the bankruptcy estate has the right of subrogation, the licensor may be permitted to terminate the contract, where continuing the relationship with the bankruptcy estate would seem quite unconscionable, or because of well-founded reasons to believe that the estate shall not be able to fulfil its duties under the agreement. Nevertheless, should the estate utilise its right of subrogation, the aforesaid does not preclude the other party from reviewing the performance of the bankruptcy estate (or its assignee) to determine whether the performance will fail qualitatively or quantitatively. It is pertinent to note that the right of subrogation does not re-establish a contractual relationship already rescinded or otherwise discontinued. This means that, in general, a clause to the effect that non-payment permits rescission will allow the licensor to rescind the contract prior to the beginning of the bankruptcy of the licensee, not to mention prior to anyone filing a petition for bankruptcy.
Impact of licensor bankruptcy
What is the impact of the bankruptcy of the licensor on the legal relationship with its licensee; and any sub-licence the licensee has granted? Are there any steps a licensee can take to protect its interest if the licensor becomes bankrupt?
Generally, the principle of continuation of agreements precludes the discontinuation of the licence. Where payment calls as consideration for performance, debtor’s bankruptcy does not even mature a debt. However, frequently it is advantageous for the estate to continue the licence. Therefore, if the licensor has failed to perform pursuant to the contract, the licensee is barred from terminating the contract prior to the estate has had a fair chance to assume the contract and provide a security for its performance such as, for example:
- the transfer of technology;
- supply of components or substances required in the process;
- service and maintenance;
- quality assurance;
- maintenance of IPRs; and
- protection against infringements, etc.
The estate’s right of subrogation notwithstanding, the licensee may be permitted to terminate the contract, where continuing the relationship with the bankruptcy estate would seem unconscionable, or because of well-founded reasons to believe that the estate shall not be able to fulfil its duties under the agreement. Nevertheless, should the estate utilise its right of subrogation, the aforesaid does not preclude the other party from reviewing the performance of the bankruptcy estate (or its assignee) to determine whether the performance will fail qualitatively or quantitatively. It is pertinent to note that the right of subrogation does not re-establish a contractual relationship already rescinded or otherwise discontinued.
Because a licensor’s bankruptcy does not make the licence agreement null or void, contractual provision may, and should be made to the effect that the licensee is permitted to terminate the licence agreement should the licensor be adjudicated bankrupt. This means that, in general, a clause to the effect that non-performance permits rescission will allow the licensee to rescind the contract already prior to the beginning of the bankruptcy of the licensor, not to mention prior to anyone filing the petition for bankruptcy.
Governing law and dispute resolution
Restrictions on governing law
Are there any restrictions on an international licensing arrangement being governed by the laws of another jurisdiction chosen by the parties?
No. Subject to article 3 of the Rome I Regulation ((EC) No. 593/2008), one can subject a licence agreement with a Finnish party to the law of a foreign country, or may elect a foreign law to be applicable to some certain separable portion of the licence agreement. Nevertheless, regarding the choice of a foreign law, whether or not accompanied by the choice of a foreign tribunal, be aware that it does not necessarily prejudice the application of domestic mandatory rules from which no derogation can be made, such as the rules of the law on consumer protection, product liability, labour and employment, personal data law, law of tenancy, law on restraints of competition, procedural rules as to IPRs and tax law.
Contractual agreement to arbitration
Can the parties contractually agree to arbitration of their disputes instead of resorting to the courts of your jurisdiction? If so, must the arbitration proceedings be conducted in your jurisdiction or can they be held in another?
Yes. The parties can contractually agree to the arbitration of their disputes instead of resorting to the courts. Arbitrations can be seated abroad. However, for the sake of enforcement, it is important provided that the seat of the arbitration is a signatory to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention).
Since one can resort to arbitration merely by agreement being in writing, concerning a present or future dispute, parties can agree not to have the procedures consolidated under one or more contracts.
What arbitral body is used is likely to depend on a number of rather odd factors, such as the negotiation strength of the parties, what possible links to what law firm either one has, the knowledge of the parties, etc. Both the International Chamber of Commerce International Court of Arbitration and the London Court of International Arbitration are well known; so is the Stockholm Arbitration Institute, the Swiss Chambers Arbitration Institution, and many more. The Finnish party may favour, whether right or wrong, the Arbitration Institute of the Finnish Chamber of Commerce. Less known and favoured are the World Intellectual Property Organization rules for fair, reasonable and non-discriminatory arbitration.
Since, generally, the site of an arbitration clause is understood as denoting the formal site of rendering the award under the New York Convention article 1(1) for the purpose of recognition and enforcement only, in most cases the proceedings are performed at some other site found convenient by the parties and the arbitrators.
Would a court judgment or arbitral award from another jurisdiction be enforceable in your jurisdiction? Is your jurisdiction party to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards?
A court judgment or arbitral award from another jurisdiction is enforceable in Finland. However, the award needs to be recognised. This depends on whether the arbitration agreement on which the award has been founded fulfils the formal requirements, and it must not be contrary to Finnish public policy. The party against whom enforcement of an arbitral award is sought shall, in general, ‘be heard’. Accordingly, should the party against whom enforcement is sought be able to demonstrate that one or more of the aforementioned obstacles exist, the award is not to be enforced. Finland is a party to the New York Convention.
Is injunctive relief available in your jurisdiction? May it be waived contractually? If so, what conditions must be met for a contractual waiver to be enforceable? May the parties waive their entitlement to claim specific categories of damages in an arbitration clause?
Injunctive relief as adjudicated by an ordinary court is available, but not by an arbitral tribunal. The procedure for seeking injunctive relief is regulated by the Code of Procedure 1734, Chapter 7 on precautionary measures.
The parties can waive their right to seek relief by way of injunction; at least, such a contract is valid, inter partes, at pain of duty to compensate any act to the contrary.
A waiver of entitlement to claim specific categories of damages would amount to a clause on limitation of liability, and is generally enforceable (see question 30).
Updates & Trends
Updates & Trends
Updates and trends
An important topic is that of unanimous Supreme Court judgment No. 2018:36 that ruled that the principle of legality will not permit prosecution of EU-level infringements. Since national criminal law does not identify infringements against trademarks or designs pursuant to the European Community trademark and design legislation, such infringements are not punishable in Finland and, thus, not regarded as crimes. This was established unambiguously after two people were found to have deliberately infringed the rights of a third party to trademarks and designs pursuant to EU law. Afterwards, the Supreme Court agreed with the opinion expressed by the Helsinki Court of Appeal in the 2015 case of Happy Print (R14/924) to the effect that criminal liability should not be extended beyond the essential elements as laid down in the Criminal Code for the IPR crime. It is pertinent note that the 2018 Supreme Court judgment had been preceded by two Helsinki Court of first instance cases (the Helsinki District Court) showing no regard to the Court of Appeal’s Happy Print decision. The Court of First instance hade reasoned in its case of BMW in 2015 and its H2O MOP case in 2016 that the principle of legality was no obstacle for extending criminal liability to infringements under IPR infringements under EU legislation. In this respect, in connection with next year´s likely renewal of the trademark legislation, the criminal code is proposed to be extended to cover IPR infringements under EU legislation as well. This extension of criminal liability is likely, however, not to extend to designs or utility models. This prompts businesses, eg, within the design heavy fashion and automobile trades to see to it their designs be registered under national Registered Designs Act (No. 221/1971).
The by far most important proposal for new legislation is the above indicated replacement of the Trademark Act 1964 with a new one at the beginning of 2019. Most novelties emanate from Trademark Directive 2008/95/EC for approximating the laws of EU member states. The enactment will, among others, offer the opportunity for revocation and invalidity of trademarks by an administrative procedure with the national agency for patents and registries. So far, this kind of ‘low threshold’ procedure has lacked from the present Trademark Act. Furthermore, many an applicant is likely to benefit from the novelty enabling to have a previously registered trade name (company name) revoked, partly or entirely, subject to that such name has not been used for five years. Moreover, the requirement of graphical representation is proposed to be skipped. In addition to marks already registrable, the non-conventional marks, such as sounds, colours, smells and shapes, will be increased by a number of atypical marks, such as multimedia and movement marks, however, always subject to being distinguishable from goods or services of those of others.
On 15 August 2018, Directive 2016/943/EU on the protection of undisclosed know-how and business information was implemented by means of the new Trade Secrets Act (595/2018). The private legal supplement to the already criminally sanctioned violation and misuse of business secrets, the Trade Secrets Act compiles, amongst others, the prohibitions against unlawful acquisition, use and disclosure of trade secrets as well as any exceptions, such as the use of freedom of speech. In addition, the Trade Secrets Act protects against unlawful use and disclosure of technical instructions or operations models. Furthermore, the Act encompasses the appropriate measures, procedures and remedies provided for in the Directive, such as on the requirement of proportionality of process, preservation of confidentiality of trade secrets in the course of legal proceedings, provisional and precautionary measures, injunctions and corrective measures, as well as damages to be awarded to any aggrieved party.